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As noted over the last few months, growth in revenue and patient visits have all returned to pre-pandemic levels, and this trend continued in July 2023. Revenue growth over the last year has hovered in the ~5%-7% range, and July 2023 is no different at 5.9%. (Note there were the same number of workdays in July 2023 as in July 2022.) Patient visit numbers have averaged around -1.0% in the last year; July 2023 showed a similar decline. New client numbers continue to decline as well. 

The decline in patient visits continues, with most veterinary hospitals dealing with either anemic or negative visit growth over the last two years. While there are multiple reasons for this overall change and, of course, it varies by hospital, one issue that many hospitals are dealing with is the lack of available appointment slots due to the lack of doctors. In last month’s post, I talked about the salaries associate veterinarians want and, more importantly, are getting in today’s market. This month, we’ll dive a little deeper and talk about some of the most important considerations in actually structuring doctor compensation models to find and keep these critical employees.

The majority of veterinarians are paid using some kind of production-based model, whether it be a pure production methodology or some kind of salary/draw/base pay with a production pay component on top. In addition to the overall increase in doctor compensation, we’re also seeing the following trends:

• An increase in the percentage used when paying a single percentage for all services/products
• A shift away from using a single percentage for all services/products and towards using different percentages for different types of products or services
• A shift towards higher service or total percentages
• A shift towards the usage of lower percentages for refills and sales not associated with a vet service

The split rate models require greater tracking of data than a single rate system but can be fairer to both the practice and the employees. Rates vary amongst practices; for example, some practices may compensate 20% for services, 10% for flea/tick/heartworm preventives and food, and 0% for boarding and grooming while others may pay 23% for services and 5% for everything else for which a doctor gets credit.

Another important question to be addressed regardless of the compensation model chosen is whether or not the amount of personal production generated by a specific doctor is reasonable compared to the compensation paid?

When any kind of compensation methodology is used that includes a fixed component such as a salary, an hourly or daily rate or a base pay/draw component, it is critical that practices compare the production of each doctor paid this way to their compensation (not including benefits.)

For example, Dr. Smith was paid a straight salary of $125,000 in 2022 and received typical benefits. Her personal production in the same year was $700,000. If she was paid using a production pay percentage of 20%, her expected pay would be:

Unless the market rate in your area is less than 20% (unlikely), it would appear Dr. Smith is paid less than the market. While that may not be an issue for her (now), it’s a risky position for the practice to be in. Is 20% the right percentage? Maybe not; compensation is on the rise, and 21%, 22%, or more may be a better comparison. 

What if Dr. Smith’s production is only $450,000? 

It would appear that Dr. Smith is paid quite a bit more than her production would warrant, no matter what percentage is used. What should be done in this situation? Lowering an employee’s salary is always a recipe for disaster unless the goal is to get the person to quit immediately. A better option would be to focus on improving the doctor’s productivity.

Practices have often liked the concept of production pay models because they feel it shifts the responsibility for compensation solely to the doctor. However, many decisions made by the practice influence the ability of doctors to produce, and the practice must make sure they are doing their part. Some of these decisions include:

• Number and skill set of the support staff
  
• A doctor’s ability to delegate to the support team
  
• Who does the support staff actually spend time supporting
• Level of fees in the practice
  
• Workflow efficiency
• Marketing and promotional programs

Providing additional CE in areas that would help the doctor be more productive is also a good strategy—this may include technical training or non-technical CE, such as in communication.

Both doctors and the practice must realize that it is impossible to have a perfect production pay system. Sometimes doctors will get credit for things they don’t actually do; for example, SQ fluids given to a cat by a technician. On the other hand, they sometimes don’t get credit for something they actually do such as review a chart and authorize a prescription refill. As long as the system is overall fair and results in competitive market compensation, it works out.

Some other issues that have to be considered when determining percentage rates and revenue items to be credited to doctors include:

• What percent is appropriate if benefits are not given to the doctor? It is important to calculate the dollar cost of the benefits typically given to doctors in the practice and make sure the additional % doesn’t result in significantly higher pay.
• When is production calculated — monthly, quarterly, or other? The pay needs to be given with enough frequency that it acts as an incentive.
• How production shortfalls are treated; if the doctor is not producing enough to support their base salary, what happens? Do they have to make that amount up before they receive another production pay bonus?
• How are services credited when multiple doctors share a patient? Generally, it works best if the doctor who actually does the work gets credit instead of the one who recommends a service.
• What happens if the client doesn’t pay their bill? Generally, credit policies and procedures are set by the practice, not the doctor and doctors shouldn’t be held responsible for those clients who don’t pay. If the doctor makes the decision about whether payment is required at the time of service or not, however, this may be handled differently.
• What if the doctor makes other valuable contributions to the practice in addition to production? Obviously, their compensation must reflect that as well.

The methodology used to determine compensation and benefits packages needs to be reviewed at least once a year. (This is in addition to reviewing each employee’s individual performance and pay.) It is essential to have a consistent procedure for setting and updating pay levels for all doctors. Compensation isn’t the only reason doctors accept or stay with a job at a particular hospital. However, reasonable compensation has to be in place to have any hope of keeping doctors in the long run.

Finally, it is critical to remember that salaries set for associates must be competitive in the market. It doesn’t matter how philosophically perfect a salary methodology is if it won’t result in compensation that will attract and keep doctors.

➤ Download Insiders' Insights - KPI, August 2023 Report

➤ VHMA Members can access the dashboard to drill down by region, species, and practice size filters, access the interactive KPI dashboard.

Karen E. Felsted, CPA, MS, DVM, CVPM, CVA of PantheraT Veterinary Management Consulting, www.PantheraT.com, provide data review and commentary.

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