Guide to Implementing Veterinary Telemedicine: How to Create Seamless Virtual Experiences for Pet Owners

Guide to Implementing Veterinary Telemedicine:

How to Create Seamless Virtual Experiences for Pet Owners

Veterinary Business Advisors, Inc.

 

Abstract

In the face of the COVID-19 outbreak and the associated social distancing, there is a rapidly increasing demand for digital transformation to bridge service gaps. In both human and animal health care, telehealth has become a gold-standard solution to optimize the delivery of medical care to patients. This paper will discuss the impact COVID-19 has had on veterinary medicine, the current telehealth market, and the distinctions between telehealth and telemedicine. A step-by-step guide to implementing a telemedicine service into the clinical workflow is provided to help veterinary teams offer their clients a seamless virtual experience and improve patient outcomes.

Keywords: COVID-19, animal health, technology, telehealth, telemedicine, veterinarian-client-patient relationship, implementation, clinical workflow

 

 Introduction

Humans and animals are closer than ever. This is especially relevant in today’s social climate where the entire world is dealing with the impact of COVID-19. Fortunately, the pet care industry has been recession-proof since the Great Recession and it’s been proven that this pandemic is no exception.1 According to Morgan Stanley Research, it is expected that pet ownership will increase by 14%, and annual household spending per pet will nearly double by 2030. Unsurprisingly, the most rapidly growing subsegment of such expenditures is veterinary care.2 As medical knowledge advances, so do the technological developments in delivering animal healthcare.

The unique aspect of a pandemic that’s not shared by other substantial economic events like terrorist attacks, natural disasters, and financial crises is the inevitability of prolonged social isolation, hindering pet owners from visiting veterinary hospitals. Luckily, however, there was an excellent solution to overcome this issue that had been underused for many years before COVID-19 hit the U.S.—telehealth. Data from the ASPCA Pet Health Insurance programs shows a nearly 380% increase in submitted claims for telehealth services in one year, from March 2020 to February 2021, compared to the same time frame in the prior year.3 While no one knows what the future holds, it is evident that telehealth can continue to grow as long as there is a public need for remote access to veterinary care.

 

Veterinary Telehealth

 What is Telemedicine?

 The American Veterinary Medical Association (AVMA) defines telemedicine as “the use of medical information exchanged from one site to another via electronic communications regarding a patient’s clinical health status.” This is a subset of telehealth, an umbrella term encompassing all means of remote exchange of health-related information using technologies. According to the AVMA, telehealth includes, but is not limited to, telemedicine, teleconsulting, teletriage, teleadvice, telesupervision, telecommunication, telemonitoring, electronic prescribing, and mobile health. Telehealth does not always involve patients directly. For example, teleconsulting is a tool used by general practitioners to virtually gain insights and advice from specialists to ensure appropriate care for their patients.5

In human healthcare, the application of telehealth and telemedicine have been prevalent for decades, which is much longer than in veterinary medicine. However, when telemedicine was introduced, it was used on a non-human animal. Before Yuri Gagarin became the first human ever to travel into space during the Space Race, the U.S. and the Soviet Union had to answer whether the absence of gravity would impede cardiovascular and pulmonary functions. They launched multiple test flights with animals attached to medical monitoring systems that were capable of telemetering biometric data to Earth to answer this question.4

Veterinarian-Client-Patient Relationship

 The AVMA’s policy on telemedicine states that “veterinary telemedicine should only be conducted within an existing Veterinarian-Client-Patient Relationship (VCPR), with the exception for advice given in an emergency until that patient can be seen by a veterinarian.” Veterinarians are not allowed to diagnose, prescribe medication for, or treat an animal without an established VCPR under most state laws and Principles of Veterinary Medical Ethics by the AVMA.6 Veterinarians are, however, still allowed to engage in teletriage, which is the assessment of urgency to determine the need for immediate referral to a veterinarian, and tele-advice, which is the provision of guidance and recommendations not specific to the patient, both of which must be performed without rendering a diagnosis, prognosis, or treatment.5,7 Establishing a VCPR for each case is extremely important, especially since pets cannot verbally convey their medical issues to veterinarians. A physical examination is an essential step in understanding the patient’s condition.

In the U.S., the following conditions must be satisfied to establish a VCPR:7

  • The veterinarian has assumed responsibility for making clinical judgments regarding the patient’s health, and the client has agreed to follow the veterinarians’ instructions.
  • The veterinarian has sufficient knowledge of the patient to initiate a general or preliminary diagnosis of the patient’s medical condition. This means the veterinarian is personally acquainted with the keeping and care of the patient through a timely examination of the patient by the veterinarian or medically appropriate and timely visits by the veterinarian to the place where the patient’s care is managed.
  • The veterinarian is readily available for follow-up evaluation or has arranged for veterinary emergency coverage and continuing care and treatment.
  • The veterinarian provides oversight of treatment, compliance, and outcome.
  • Patient records are maintained.

In addition, according to the U.S. Food & Drug Administration (FDA), “the federal VCPR definition cannot be met solely through telemedicine.” However, given the current situation, the FDA has suspended some of the regulations amid the COVID-19 outbreak. Veterinarians now do not require a VCPR for prescription of extra-label drugs and issuance of Veterinary Feed Directives as of January, 2022.6,8

Veterinary Telemedicine Market

According to Grand View Research, the veterinary telehealth market was valued at $119.6 million in 2021, globally. Among different telehealth types, teleconsulting held the majority of the revenue share of 29.1 % due to more general practitioners seeking consultations from the specialists, followed by telemedicine, which still accounted for more than 25% of the share. These services have successfully reduced the burdens on veterinarians, and the initiatives to promote virtual care pushed by industry players, including telehealth service providers, are expected to keep driving this trend forward. Thirty-seven percent of global revenue came from North America in 2021. This can be attributed to factors that include long-tail investment in the animal health care industry driven by retailers with scale and the burgeoning pet insurance industry in the region. The veterinary telehealth market is anticipated to expand at a compound annual growth rate of 16.8% in the U.S. and 17.6% globally from 2022 to 2030. 2,9

There are many key industry players around the world today contributing to this rapid growth in the veterinary telehealth market. They strategically collaborate with major animal health companies, corporate consolidators, and university hospitals to develop new products and services and scale their businesses. For example, Zoetis, the largest global animal health care company (that used to be a subsidiary of Pfizer), has partnered with Airvet, one of the major telehealth service providers, to promote two free months of service amid the COVID-19 pandemic.9,10 Furthermore, Televet, another primary telehealth service provider, partnered with Cornell University’s veterinary teaching hospital, Hospital for Animals, to deploy its first virtual care platform for its veterinary telehealth operations. These collaborations effectively extended the service providers’ market growth.9,11 Other market-leading veterinary telehealth service companies include PetDesk, FirstVet, Petriage, BarbelBark, and PawSquad, among others.9

 

Implementing Telemedicine

Service Models

The AVMA introduces different service models for telemedicine, indicating it is customizable and should be used to fulfill the specific needs of each practice to uniquely augment its clinical services. Once a VCPR is established, telemedicine can be utilized to facilitate care delivery in various ways.12

  • General consultation: It has been common practice for veterinarians to give their clients general advice via a quick phone call, email, or text, free of charge. By utilizing telemedicine and systemizing such a process, they can get adequately compensated for providing the same service. Telemedicine will become a whole new revenue stream and even become an opportunity to attract new clients willing to pay extra money for convenience.
  • Urgent care: Not every veterinary practice has an emergency service while every animal has the potential to become critically ill after hours. In such an urgency, 24/7 access to veterinary care would mean the world for the owner. Implementing telemedicine would enable every practice to have a system to address this issue and fulfill client expectations and patient needs while also allowing veterinarians to manage their work-life balance.
  • Post-surgical recovery: Veterinarians usually just need to hope for the best when it comes to post-surgical care. However, telemedicine can enhance continuity of care by allowing access to the patients’ health status after they leave the hospital. Not only does telemedicine allow veterinarians to monitor patients to ensure seamless recovery after surgery remotely, but it also enables them to support their owners through the process and improve client compliance.
  • Palliative care: Telemedicine can also aid in optimizing the quality of life of senior patients with already deteriorating health. When it comes to palliative or hospice care, there are times in which clients forsake a veterinary visit due to the additional stress that the veterinary environment may cause. This is especially the case for feline patients. Veterinarians can evaluate those patients’ conditions remotely through telemedicine and guide any change in treatment plans and whether an in-person visit would be necessary.

It may be surprising to some veterinarians to hear that they may have already been utilizing telemedicine unknowingly. Many tend to think that telemedicine always needs to involve a video component that allows for virtual face-to-face interaction; however, if they are engaging in any of the above services remotely, they are providing telemedicine. Again, telemedicine is any virtual clinical service given after VCPR has been established. Therefore, not only video- but also telephone-, text-, and email-based communication with existing clients regarding their pets’ health can be considered telemedicine. It is up to the practitioners how extensive those technologies should be integrated into their workflow.12

 Step-by-Step Guide

Since email, phone calls, and texts are already used widely to provide telemedicine and are much more straightforward when it comes to implementation, the focus in this section will be on video chat.

Here are the nine steps in implementing telemedicine into clinical workflow:13,14

  1. Understand the rules

Before formulating an implementation plan, it is essential to know how a VCPR can be established and to differentiate telemedicine from the other types of telehealth services, as explained earlier. In addition, there are mainly two crucial licensure considerations about telemedicine and the VCPR that have not been discussed. Those considerations are as follows:9

  • When conducting telemedicine across state lines, the veterinarian must be licensed and legally authorized to practice in both states.
  • While telemedicine for specialty consultation does not require the specialist to have a VCPR if s/he is working with the patient through the consultee who has established a VCPR, if the specialist starts treating the same patient independently, a separate VCPR and a license to practice in the patient’s state become mandatory.

It is also essential to review the state-specific requirements, especially regarding the veterinary practice act, pharmacy act, patient confidentiality, and record retention. Failure to follow these regulations can result in disciplinary proceedings, which involve steps that include a hearing with a board subcommittee dedicated to veterinary liability and the corresponding punishment if the veterinarian is criminally liable. In severe cases, these proceedings can lead to license restrictions and even revocation.15

  1. Identify needs

The first step in planning is identifying what can be addressed and improved by implementing a telemedicine program and by prioritizing issues that align with the team’s strategic goals. Problems that need to be addressed can include revenue loss, disruption in continuity of care, low compliance, veterinarian shortages, and socioeconomic barriers to in-person visits. It may be helpful to look for practices that are similar in size and client demographic—and have executed the implementation—and seek out their help. It would be beneficial to ask earlier adopters about what problems they could overcome by incorporating telemedicine and their challenges throughout the process. It is also a good idea to start considering the cost of implementation and an anticipated return on investment at this point. This will help justify the project and incentivize the team to move forward with the plan.14

  1. Define success

Once the issues are prioritized and the needs are identified, it is time to set specific short- and long-term goals. These goals should have measurable metrics that will guide the process and help the team track the progress. The metrics will also become helpful in the post-implementation phase when the team is ready to evaluate the success of the telemedicine program. Examples of the metrics include improved client experience, increased access for patients, and reduced no-show rates.14

Here is an example of steps taken when defining success:14

  • List solutions the program can bring to the patients, clients, and practice.
  • Reevaluate limitations from financial, legal, and operational standpoints.
  • Identify three to five of the most important goals for the practice that dovetail with the anticipated solutions.
  • Decide on success metrics that are most appropriate for assessing progress.
  • Establish specific checkpoints to collect data and track progress.

Document each step of the process along the way and define baseline metrics in each success metric before implementing the telemedicine program. This will later help the team to demonstrate how the program has contributed to its long-term goals and evaluate how genuinely impactful it is from a big-picture perspective.14

  1. Check the liability

While implementing a telemedicine service usually does not require additional liability coverage, it is still worthwhile to double-check for any additional recommendations.13

  1. Evaluate options

Depending on what telemedicine service is being used, there are unique hardware, software, and back-office support requirements. Therefore, choosing the right service type to fulfill the specific needs becomes essential in achieving durable solutions. There are mainly two options:

  • Using a common application: Application software like Zoom, Skype, and Microsoft Teams have become prevalent in everyday life amid the COVID-19 outbreak. Some veterinarians may feel more comfortable using familiar technologies that they have been using for communication with their family members and friends. They are accessible for the practice to implement and straightforward when it comes to client education. However, since they were not originally developed as telemedicine tools, they often lack additional functionalities that are provided by telemedicine-specific applications, such as the ability to be integrated into practice management software with secure messaging.13
  • Outsourcing a telemedicine service: There are many third-party partners specializing in veterinary telemedicine as mentioned earlier. The use of vendor resources can simplify and expedite the implementation process. However, it is critical to perform thorough due diligence and know exactly what they are offering as not every service is compatible with every practice. Understanding their business model, and their ability to integrate with the information technology landscape of the practice, usability, and level of support available through customer service is the key. These are some ways to evaluate a vendor to determine if they are worthy of a long-term relationship:13
  • Ask for word-of-mouth referrals from experienced practices early on and research third-party reviews.
  • Discuss any value-added services, such as staff training and client engagement management.
  • Ask for case studies and referrals and schedule live demos.
  • Discuss how vendor resources and infrastructure can provide scaling support within an expected timeframe.
  1. Design the workflow

After deciding on what type of telemedicine service to implement, it is time to consider how to incorporate telehealth appointments with the least amount of workflow disruption. This is important in the seamless introduction of the new technology into the practice. This is when a clear understanding of the capacity of each team member—both clinical and non-clinical—is important to identify any barriers the team might encounter once the program is rolled out. Plus, here are some of the technological and workspace needs to consider:14,16

  • Location within the practice dedicated to telemedicine services that can provide privacy to avoid distraction and background noise and has adequate lighting for quality communication with clients
  • Equipment that provides the foundation for a high-quality consultation and allows for projection of a professional demeanor to clients

Appropriately furnishing and focusing on the space’s appearance is important when setting up the location to convey a professional atmosphere. If partnering with a vendor, ask about any additional equipment needed to support the service fully. Also, keep in mind that, while modern equipment with high-resolution audio and excellent video capability is preferable, it is also essential to consider how comfortable each team member is with novel technologies. 16

Visualizing workflow with the team is extremely important to streamline the process as much as possible. The workflow should be practice-specific, and every team needs to set clear expectations to avoid missteps. Some critical factors to keep in mind pre-, intra-, and post-visit are as follows:14

  • Before appointments:
  • Educating clients on the type of services being offered and proper appointment standards
  • Identification of appropriate clinical use cases and triage questions to ask clients during an appointment scheduling, including pet insurance coverage
  • Determining when telemedicine appointments will fit in the schedule and updating the calendar
  • During appointments:
  • Communicating with clients on how to involve patients throughout the process, depending on the clinical area and service model
  • Supporting troubleshooting on both ends in case of technological difficulties
  • Integration of other technologies like AI-assisted diagnostics
  • After appointments:
  • Referring clients to specialists (in the case of general practices) or advising them to take their pets to emergency services
  • Understanding what codes are available for telemedicine visits

 

  1. Train the team

Once the workflow is determined, the next step is to provide technical training on the telemedicine platform, new workflow, triage protocols, and patient education materials. It is essential to keep in mind the existing responsibilities of each team member.14

  • Consider developing a script for the team to use during client communication, especially when setting up an appointment. It would be helpful if every team member used the same professional language.
  • Discuss any available training material with the vendor and ask them if they would offer any training sessions for the team.
  • Formulate a standardized process for onboarding new staff in the event of turnover.
  • Conduct internal test visits and demonstrate how it is supposed to be done before officially launching the program; this will also be an opportunity to identify any problems and friction in the workflow.

 

  1. Engage clients

Now it is time to create marketing materials to advertise and promote the new services to existing clients and potential clients in the area. There may be pet owners, for example, who are not visiting a practice because of long distances involved. A telemedicine program will undoubtedly help the practice attract those clients and give it an edge over competitors around the area.14

Marketing methods include in-hospital displays, email messaging, displays on the practice website or patient portal, and social media promotions. It is also good to advertise the service in person during appointments. Again, implementation is only successful when clients know what the service entails and are incentivized to utilize it. Showcasing the benefits of telemedicine, such as increased access to care and reduced cost, is a must.13,14

  1. Launch

It is finally time to put the workflow to the test. Once a telemedicine visit is scheduled, the clients need to be educated about the process. This should be made as straightforward as possible since not every client is fluent in technology. Walk the clients through downloading the application, the check-in process, and the payment and billing process. If possible, create online guidelines with links included.14

Consider technology access and savviness. If a client does not have the technology needed to conduct a telemedicine visit, make sure to identify community-based resources and places where they might have access, such as schools and internet cafes, so they would be able to facilitate the visit. For those clients who have a more challenging time adjusting to the new service, have the team host a brief training session to help them prepare.13,14

It would also benefit the team to get feedback from the clients, especially during the first few months. If there are any issues or complaints, make sure to address them and adjust the process, as necessary. Ensure that the success metrics set during the Define Success step are being tracked so the team can evaluate success later.14 

Pricing

Determining the pricing model is not one-size-fits-all. To set yours, understand how the telemedicine service fits your overall workflow and the needs and interests of the clients and the practice. Ultimately, the goal is to develop a strategy specific to the practice. However, there is no need to decide on only one pricing model. You could offer multiple models, for example, to let clients decide how they want to pay. Consider how much in-person consultation would be taken away by implementing telemedicine services, whether clients would be willing to pay more for telemedicine visits than in-person visits, and whether sequential in-person visits after a telemedicine visit should be bundled.17

Here are pricing models to consider as suggested by the AVMA:17

  • Pay-per-use/time: This model is for practices that consider telemedicine visits as a separate service. It may be beneficial to use this model if the practice plans to incorporate telemedicine visits for after-hours and emergencies. This is most flexible for clients and should be offered along with other plans.
  • Bundled pricing: This allows for bundling a telemedicine visit with existing plans the practice already offers, such as wellness and senior plans, as a value-added service.
  • Subscription pricing: If the team is dedicated enough to implementing telemedicine as an integral part of the practice, this model is a great option.

If the practice is partnering with a vendor, it is important to understand how the vendor structures the service fee in detail. In these situations, the vendor will take a percentage of the revenue earned from conducting a telemedicine visit, so know how much of the consultation fee the practice keeps and set up a pricing plan for clients accordingly. The fee arrangement with the vendor also needs to comply with state-specific laws on fee-splitting and kickbacks. Moreover, it would be good to find out how the pet insurance companies recommended by the practice are handling fees associated with virtual care.17

Conclusion

Veterinary telehealth and telemedicine are here to stay. COVID-19 has permanently changed the social landscape, and new digital solutions are being developed to cope with the new reality. The public has already started adapting to a much more technology-driven work culture, and there is no going back—and animal health care is no exception. With the increasing number of pets and stronger human-animal bonds, lawmakers and industry leaders recognize the strong need for reforming regulations and systems around pet care to adapt to its changing landscape. Not only is the pet care sector experiencing a significant surge in market value, but it is also affecting veterinary medicine, including the telehealth industry. Many believe telehealth and other innovative digital solutions will become indispensable in optimizing care delivery to our beloved companions. Some even think that veterinary telehealth will establish itself as its own pillar and be recognized as an individual discipline. Whether desired or not, veterinarians need to gear themselves toward the “new normal” by understanding what resources and infrastructures are required to successfully implement virtual care into the clinical workflow.

References

  1. Seidman, A. (2020, April 16). Coronavirus is a new challenge for the ‘recession-proof’ pet industry. https://www.inquirer.com. Retrieved January 15, 2022, from https://www.inquirer.com/economy/coronavirus-recession-pet-industry-20200415.html
  2. Pets: A long-tail investment trend? Morgan Stanley. (n.d.). Retrieved January 15, 2022, from https://www.morganstanley.com/ideas/us-pets-investing-trend
  3. Crum & Forster Pet Insurance Group. (2021, July 27). The ASPCA® Pet Health Insurance Program’s data shows increased telemedicine usage. The ASPCA® Pet Health Insurance Program’s Data Shows Increased Telemedicine Usage. Retrieved January 15, 2022, from https://www.prnewswire.com/news-releases/the-aspca-pet-health-insurance-programs-data-shows-increased-telemedicine-usage-301342421.html
  4. Baldwin, C. (2020, March 27). A brief history of NASA’s contributions to telemedicine. NASA. Retrieved January 16, 2022, from https://www.nasa.gov/content/a-brief-history-of-nasa-s-contributions-to-telemedicine/
  5. Veterinary telehealth: The basics. American Veterinary Medical Association. (n.d.). Retrieved January 15, 2022, from https://www.avma.org/resources-tools/practice-management/telehealth-telemedicine-veterinary-practice/veterinary-telehealth-basics
  6. Telemedicine. American Veterinary Medical Association. (n.d.). Retrieved January 18, 2022, from https://www.avma.org/resources-tools/avma-policies/telemedicine
  7. Telehealth and the VCPR. American Veterinary Medical Association. (n.d.). Retrieved January 18, 2022, from https://www.avma.org/resources-tools/practice-management/telehealth-telemedicine-veterinary-practice/telehealth-and-vcpr
  8. Medicine, C. for V. (n.d.). CVM guidance for Industry #269. U.S. Food and Drug Administration. Retrieved January 22, 2022, from https://www.fda.gov/regulatory-information/search-fda-guidance-documents/cvm-gfi-269-enforcement-policy-regarding-federal-vcpr-requirements-facilitate-veterinary
  9. Veterinary telehealth market size report, 2022-2030. Veterinary Telehealth Market Size Report, 2022-2030. (n.d.). Retrieved January 22, 2022, from https://www.grandviewresearch.com/industry-analysis/veterinary-telehealth-market
  10. (n.d.). Retrieved January 22, 2022, from https://www2.zoetisus.com/species/equine/covid-19
  11. CUHA telemedicine information. Cornell University College of Veterinary Medicine. (2021, March 22). Retrieved January 23, 2022, from https://www.vet.cornell.edu/hospitals/clients/cuha-telemedicine-information
  12. Service models for veterinary telemedicine. American Veterinary Medical Association. (n.d.). Retrieved January 23, 2022, https://www.avma.org/resources-tools/practice-management/telehealth-telemedicine-veterinary-practice/service-models-veterinary-telemedicine
  13. Steps to implement telemedicine services in your practice. American Veterinary Medical Association. (n.d.). Retrieved January 24, 2022, https://www.avma.org/resources-tools/animal-health-and-welfare/telehealth-telemedicine-veterinary-practice/steps-implement-telemedicine-services-your-practice
  14. AMA Telehealth Implementation Playbook. (n.d.). Retrieved January 25, 2022, from https://www.ama-assn.org/system/files/2020-04/ama-telehealth-implementation-playbook.pdf
  15. , A. R., & McGee. (1970, January 1). Full title name:  overview of veterinary client issues. Animal Law Legal Center. Retrieved January 25, 2022, from https://www.animallaw.info/article/overview-veterinary-client-issues
  16. Technology and workplace needs in telemedicine. American Veterinary Medical Association. (n.d.). Retrieved January 26, 2022, https://www.avma.org/resources-tools/practice-management/technology-and-workspace-needs?check_logged_in=1
  17. Pricing Models for Veterinary Telemedicine. American Veterinary Medical Association. (n.d.). Retrieved January 27, 2022, https://www.avma.org/pricing-models-veterinary-telemedicine?check_logged_in=1

 

 

Sharing The Windfall

Sharing The Windfall

Veterinary Business Advisors, Inc.

In today’s landscape of veterinary practice sales, corporate acquisitions are far outnumbering private sales. One major reason for this is that the dollar amounts of corporate buyout offers greatly exceed those of any associate or other private interest buyers, often yielding a cash windfall to the seller. The associate veterinarians who remain at the practice, though, typically receive no supplementary compensation of any sort, and any previous hopes that an associate may have had of buying the practice are off the table. An argument can be made, then, that these associates accordingly deserve a new signing bonus. This session aims to decide upon an appropriate value for such an associate’s hypothetical signing bonus offer.

In the current arena of veterinary practice sales, it is impossible to ignore the intense interest in practice consolidation by corporate entities, but it should be noted that this trend is not brand new. Corporations have owned veterinary practices for over 30 years, tracing back to when VCA Animal Hospitals first bought a small animal practice in 1987. Other corporate entities eventually caught on, as VCA’s success led to the formation of several regional and national chains, such as Banfield, NVA, and VetCor. Analysts now place the number of corporate veterinary practice groups at over 40 and growing. In just the last three years, though, the landscape has drastically changed. Multi-billion-dollar deals are not unheard of, such as Mars, Inc. purchasing VCA for $7.7 billion in 2017, or the very recent purchase of Compassion First Pet Hospitals by JAB, Ltd. for $1.22 billion. As another factor to consider, private equity firms, which see veterinary practices as relatively safe investments, are now funding many of the acquisitions by corporate groups.

According to the 2017 AVMA Report on the Market for Veterinary Services, the number of small animal veterinary practices in the USA ranges from 28,000 to 32,000. Brakke Consulting estimated in 2017 that about 3,500 practices were owned by corporations.  Companies own roughly 10 percent of all general companion animal practices and 40 to 50 percent of all referral practices. John Volk, an analyst with Brakke, explains, “What happens is a larger company comes in and buys up the smaller companies and builds a bigger firm.” This is called “roll-up,” a common business strategy applied to many industries made up of multiple, small, independently-owned companies, and has become the new model for veterinary practice sales.

Contrast that with the traditional model for practice sales, in which an owner sells to one of his or her associate veterinarians, likely groomed from day one to eventually take the reins, or where the owner might sell the practice to another veterinarian who was not employed by that practice. Either way, that is no longer the case for most small animal practices. Owners have now found themselves in a seller’s market, where large corporations will pay top dollar for a thriving practice, with corporate windfall offers typically vastly exceeding those of any associate or other private interest buyers. A windfall is defined as “a piece of unexpected good fortune, typically one that involves receiving a large amount of money,” with synonyms being a bonanza or jackpot, or pennies from heaven. Corporations, now routinely providing such payouts to sellers in nearly unbelievable but carefully calculated offers, are doing so for the following reason: a corporation is ready and able to take a hit on a practice’s purchase price as long as its long-term profitability and growth prospects appear satisfactory. Many veterinarians have made a fortune out of their practices this way, often making two to three times what they would have made by selling to an associate. It can be hard to refuse a corporate buyout when the seller has offered such terms. Plus, a corporation can buy almost immediately, typically with a cashier’s check for the full purchase price in pocket, versus associates for whom the seller will very likely have to finance some or all of the purchase themselves, and for a fraction of the corporate purchase price.

Now we return to the subject of associate veterinarians. Although circumstances differ in each sale, one cannot deny that a significant reason that corporations are offering large cash windfalls is often the presence of the associate veterinarians. Corporations want to buy thriving practices that are operational from day one of purchase, with veterinary and support staff in place. A veterinary practice does not exist without veterinarians, and buyers generally have no intention of replacing associates. Furthermore, associate veterinarians usually do not wish to leave when practice ownership changes hands.

Here’s another reason why associate veterinarians are typically off the playing field. The typical associate sometimes cannot afford to be a practice owner. This often stems from the mass amount of veterinary student debt that they have accumulated and may be paying off for many years. According to results from the AVMA’s 2015 annual survey of senior veterinary students, of those students who graduated from the 28 US colleges and schools of veterinary medicine, 89% had educational debt at the time of graduation, with average debt for veterinary students being $142,394. Approximately 68% of the 2015 graduates had debt between $50,000 and $221,000, with 5% having debt greater than $300,000.

These are staggering figures, but what may be even more disturbing is the discrepancy in associate veterinary wage increases versus their debt. The current debt load of veterinarians is rising by $4,900 per year while average salaries are only rising by $700 per year. In 2017, $76,130 was the average salary for a veterinarian, while the mean debt was $141,000. This rising debt-to-income level is unsustainable and is one of the major factors making this profession less attractive than in the past. In fact, a recent Merck veterinary wellbeing study showed that only 41% of veterinarians overall and only 24% of veterinarians younger than 34 years old would recommend pursuing a career in veterinary medicine, citing that student debt coupled with low income was the top concern contributing to emotional stress. Furthermore, between standard and extended loan repayment plans, veterinarians on the average spend 15 to 20 years paying off their student debt. Hence, it is increasingly difficult for an associate to qualify for lending from a bank in order to compete with a corporation on a purchase price, with very little chance for the associate to be able to match the cash windfall offered by a corporation.

In this current climate, it is easy to see why so many practices are sold to corporations. But, while the seller receives the cash windfall for the sale, the remaining associates typically receive no supplementary compensation of any sort—the same associates who often helped to build the practice and who are integral for its revenue, often contributing 30% or more to the overall practice gross. This begs the question, then: Is it not fair for the associate veterinarians to share the windfall?

As stated, the corporation is buying a thriving practice, one not possible to operate at a similar capacity in the absence of associates. So, as an industry, should we not be sharing some of the profit from sales with the associates whom are so integral to the sale itself? Upon practice sale closure, associates are terminated by the original employer and then typically rehired by the new owner. An argument can be made that the associate accordingly deserves a new signing bonus, as they are technically a new hire and should be incentivized towards employment.

In order to decide upon an appropriate value for an associate’s hypothetical signing bonus offer, one could develop a calculation based on actual numbers. The prototype calculation herein requires basic information regarding time and revenue, including the following factors: the number of years the associate has worked for the practice (a minimum of five years of employment), the number of years the seller has owned the practice, the associate’s average gross revenue over the last five years, and the practice’s current gross revenue. With this information, we establish the Employee Leverage Factor (ELF), a figure which, when applied to the purchase price, yields the appropriate signing bonus. The calculation is as follows:

If, for example, an employee has been working for ten years at a practice that has been under current ownership for 35 years, and over those last ten years the employee has been bringing in an average of $700k while the practice brings in $2.1M, the equation would follow as such:

If the practice sold for $4.5M:

In this example, the seller still nets $3,620,000.00, cash in hand, over 1.7 times the gross of the practice.

Thus, we have established a fair and reproducible calculation of an offer that reflects the associate’s contribution to the “windfall” price received by the seller. The calculation should only apply in the case of a major windfall, in our estimates at least 1.5 x gross revenue and all cash. The calculation could be adjusted as the seller sees fit but, as it stands, it is a fair representation of contribution. It is based on the associate’s average gross revenue over five years, and also only applies if the associate has worked at least five years. So, if they have worked 5.5 years, but did not gross nearly as much in the first two years, those initial lower numbers are factored in. For example, if that associate had an average gross of $400k:

If the associate had worked for ten years, as in the first example, it is justified that the signing bonus offer is greater because that associate likely helped significantly more in building the practice, contributed more to the practice’s gross revenue, and thus made the package more appealing to the corporate buyer.

But, should there be a factor that weighs the windfall itself? The previous examples are based on a flat payout in a high windfall. But, if the windfall is of a lesser amount, then the associate’s share should be weighted as less, accordingly. If we use a maximum sale price as 3x the practice gross, we can incorporate a factor that includes the actual sale price over max gross, thus weighing the windfall.

The seller still nets $3,000,375.00 after receiving a lesser windfall for the sale.

A large share of the windfall could be enough to make the associate take the money and run, leaving the practice high and dry. To offset those odds, the signing bonus could be offered instead as a retention bonus, with part of the sum paid up front to the associate and the remainder paid over the agreed length of employment. Or, keeping in mind the high amount of student debt that most associates have, the calculated bonus can in whole or partially be assigned towards debt payoff. Thus, sharing the windfall would secure loyalty and stability for the future of both the associate veterinarian and the practice itself, meriting strong consideration.

The signing bonus offer would come out of the purchase price, and hence may not appeal to the seller. But we must remember that the long-term associates who would benefit from this process are the same ones who helped to build the practice to its current capacity, potentially contributed a high percentage to the practice’s gross revenue, and made the package more appealing to the corporate buyer, thus contributing to the windfall itself.

Without such a bonus, the associate otherwise gets nothing out of the deal. In their eyes, their future with the corporation is uncertain. They may have a new or broader non-compete agreement. They may not have wanted to work for a corporation at all. Furthermore, when they inevitably find out the size of the seller’s windfall, they may feel cheated after putting so much time and effort into the practice and getting no reward. This negative outlook may be compounded tremendously if they had otherwise hoped to someday buy or buy into practice ownership, with this disappointment added on top of the debt and stress they are likely already under. We also cannot disregard the real and unfortunate rise in the suicide rate among veterinarians in the face of issues such as emotional stress, debt, and compassion fatigue. That is the world in which the associate veterinarian lives in. We must therefore ask ourselves, is it moral as an industry to not include our associates in the windfall from corporate sales?

While the corporate consolidation trend will inevitably slow down, it is currently encompassing the world of veterinary practice sales, far and wide. As industry leaders, we must bear in mind the circumstances of many of our peers as associate veterinarians and the effects that our decisions to sell to corporate entities may have on them. The concept and application of sharing the windfall via the associate veterinarian signing bonus would secure a high degree of financial and thus psychological stability in the associate. Furthermore, it would create security for the future of the practice itself through the loyalty it instills in the associate, ensuring that they feel appreciated as the assets that they truly are.

References:

  1. Davidow, B. Who is Buying Veterinary Hospitals? The Veterinary Idealist. Mar 2018. https://vetidealist.com/who-is-buying-veterinary-hospitals-update/
  2. Veterinary practice trends webinar highlights further industry consolidation. Veterinary Practice News. Aug 2018. https://www.veterinarypracticenews.com/veterinary-practice-trends-webinar-highlights-further-industry-consolidation/
  3. Larkin, M. Who’s buying? Who’s selling? Journal of the American Veterinary Medical Association. Oct 2014. https://www.avma.org/News/JAVMANews/Pages/141015a.aspx
  4. Allen, C.J. Consolidation nation: Why veterinarians who hate corporate ownership end up selling out. DVM360 Magazine. Jan 2018. http://veterinarynews.dvm360.com/consolidation-nation-why-veterinarians-who-hate-corporate-ownership-end-selling-out
  5. Nolen, R.A. The corporatization of veterinary medicine. Journal of the American Veterinary Medical Association. Dec 2018. https://www.avma.org/News/JAVMANews/Pages/181201a.aspx
  6. Harrell, J. Fishing for acquisitions: 12 things corporations look for in a veterinary practice. DVM360 Magazine. Apr 2017. http://veterinarynews.dvm360.com/fishing-acquisitions-12-things-corporations-look-veterinary-practice?pageID=2
  7. Salzeider, K. 17 differences between selling to a corporation and an associate. Mar. 2017. http://veterinarybusiness.dvm360.com/17-differences-between-selling-corporation-and-associate
  8. Felsted, K. How to sell to an associate for a corporate price. Veterinary Economics. Aug 2017. http://veterinarybusiness.dvm360.com/print/450884?page=full
  9. King, D. Selling Your Practice – Private vs Corporate. Simmons Veterinary Practice Sales & Appraisals. https://simmonsinc.com/wp-content/uploads/2017/11/Selling-Your-Practice-_-King.pdf
  10. Davidow, B. Thoughts on Rising Veterinary Debt: In-state and out-of-state tuition. The Veterinary Idealist. Oct 2018. https://vetidealist.com/veterinary-debt-and-tuition/
  11. Bain, B., Dicks, M.R. Are veterinary students accumulating unreasonable amounts of debt? Journal of the American Veterinary Medical Association. Aug 2016. https://avmajournals.avma.org/doi/full/10.2460/javma.249.3.285
  12. Williams, R.B., Benson, A., Bain, B., Dicks, M.R. Factors affecting student load debt accrued by graduates of US veterinary medical colleges. AgEcon Search. Feb 2016. https://ageconsearch.umn.edu/record/229834/
  13. Verdon, D. Debt crisis looms for veterinary students. DVM 360 Magazine. Oct 2011. http://veterinarynews.dvm360.com/debt-crisis-looms-veterinary-students
  14. 14. Fender, K.R. Merck study: Veterinarians have normal mental health but poor well-being. DVM360 Magazine. Feb 2018. http://veterinarynews.dvm360.com/merck-study-veterinarians-have-normal-mental-health-poor-well-being

 

Chewy and Covetrus Face Off in Veterinary Prescription Dispute

Chewy and Covetrus Face Off in Veterinary Prescription Dispute

By: Isaac Brownstein 

A 2017 study shows that 77% of people consider their cats and dogs to be members of the family—and so it isn’t surprising that, collectively, they’re willing to spend big dollars on their pets. According to the American Pet Products Association, Reuters reports, Americans spent $72.56 billion on their pets in 2018 alone with the Federal Trade Commission anticipating pet prescription drug sales to exceed $10 billion annually.

Savvy businesses—including Chewy, Covetrus, Vetcove, and more—have therefore identified lucrative revenue opportunities to take advantage of by selling veterinary products and services, including prescription drugs. Currently, veterinarians still sell most of the pet medications, but cat and dog owners are also exploring newer options to see which ones offer the most convenience and/or lower prices. After all, people are used to shopping around the clock from the convenience of home with just a few clicks and so it’s a natural progression to get pet prescriptions this way.

The result? A gradual chipping away of the predominance long held by veterinarians for direct prescription sales as well as, in 2021, the eruption of a legal clash between two publicly held companies—Chewy and Covetrus—that have entered the pet prescription space fairly recently. The lawsuits between these two companies are not especially surprising. What’s uncertain, though, is how all will unfold and what impact they’ll have—short term and long term—for the veterinary industry where practices have relied upon prescription sale revenues to help run their businesses.

Legal Nuts and Bolts and Parties in the Dispute

On May 19, 2021, Chewy, Inc. filed a lawsuit in the Supreme Court of the State of New York against Covetrus, Inc. and Vetcove—with the legal matter heating up further after Covetrus countersued in August 2021. Here are high level looks at each of these companies:

  • Chewy is a publicly traded company, founded in 2011, that sells pet supplies online and, in 2018, added Chewy Pharmacy to their business offerings.
  • Covetrus is also a publicly traded company, founded in 2018, and they provide global services for veterinarians. Services include the creation of online pharmacies that are branded for specific practices.
  • Vetcove is an independently-owned company founded in 2015. Vetcove is completely unaffiliated with Covetrus and Vet’s First Choice.

In their lawsuit, Chewy alleges that Covetrus and Vetcove collaborated to redirect online orders of pet prescriptions away from their company through improper collection of customer information and deceptive messaging.

Although, on the surface, this may seem to simply be a dispute among businesses that are competing for the same dollars, at the very heart of it is the veterinarian-client-patient (VCP) relationship and how it should be defined. How this lawsuit is ultimately resolved, then, can impact the very nature of the VCP relationship in the future.

Veterinarian-Client-Patient Relationship

According to the American Veterinary Medical Association (AVMA), the physical examination of pets is an essential aspect of their care. So is an ongoing relationship with the animals and their owners and careful record keeping of their health care, including prescriptions. Traditionally, pet owners paid for and received their pets’ prescriptions as part of an in-person visit. How pet prescription processes have been changing—and what’s acceptable for quality pet care—is a central part of the Chewy versus Covetrus lawsuit.

Pet Prescription Processes

In most states, veterinarians provide pet owners with the prescriptions they need for their animal companions or they approve the purchase of regulated medications and other products.

If pet owners decide not to get the prescriptions directly from their veterinarians’ offices, they can then choose a pharmacy to fulfill these approved products—and some of them select Chewy. If someone orders a regulated product from this online company and there isn’t an authorization on file, Chewy will contact the prescribing veterinarian to get confirmation before fulfilling the order.

According to Chewy’s lawsuit, when their customers participated in this process, they were redirected to buy the medications from Covetrus. This was accomplished, they allege, because Vetcove accessed their customers’ confidential data—and these customers were then sent confusing messaging that guided them to make prescription purchases through Covetrus.

It should be noted that more than 13,000 veterinary hospitals and nonprofit agencies use Vetcove’s purchasing platform in the United States.

Chewy states that, because of these actions, their company has suffered irreparable harm. As a remedy, they want:

  • an injunction that would prevent Covetrus and Vetcove from continuing this behavior
  • compensation for lost profits (dollar amount not stated)
  • compensation because of harm to their reputation

About three months after Chewy filed this lawsuit, Covetrus countersued.

Covetrus Countersuit

In their legal filing, Covetrus states that, because Chewy does not require a written prescription from a veterinarian—instead being willing to contact them for authorization—this is harming the animal’s well-being by removing veterinarians from the health care process. They also claim that Chewy is intentionally suppressing competition, which has the potential to cause veterinarians “substantial financial harm.”

As a further action, Covetrus emailed their veterinarian customers, sharing their belief that Chewy’s business strategy is actually undermining the “indispensable vet-client-pet relationship.”

In response, Chewy says that Covetrus is misrepresenting its lawsuit and business model.

Covetrus is not making comments about Vetcove and any role that its software is playing in Chewy’s lawsuit. Covetrus does deny, however, having a close relationship with Vetcove. As for Vetcove, the company has not responded to Chewy’s lawsuit or Covetrus’s countersuit with the CEO making no public comments on either.

Looking Ahead

It’s impossible to predict how the court system will decide this case, but it’s almost certain to affect the veterinary industry. If, for example, the court system decides that Covetrus is correct and Chewy’s business model doesn’t fit within a reasonable VCP relationship, that will take the industry in one direction; if the decision tilts in another way, that will affect the veterinary world in another one, as well.