Whether an owner is transitioning a practice to an associate, colleague or corporate entity, the process of onboarding can be complex. This article intends to outline the medical, financial and staff transition steps to follow, post-sale, along with the challenges each presents.
Although mergers and acquisitions (M&As) typically begin with high hopes of success, not all do succeed. Below are some statistics about practice sale shortcomings:
- 65% of all M&As do not achieve objectives set forth by deal architects
- 83% of mergers do not increase shareholder value
- 50% loss of key managers and technical employees is experienced within 12 months
- 50% of failures are due to cultural clashes
Most failures are attributed to operational, financial and/or customer relations problems. Within these broad categories, common reasons for M&As failing to achieve their objectives include the parties not doing one or more of the following:
- thoroughly consider all types of value critical to the practice
- establish priorities for integration
- identify and address risks that inhibit integration
The buyer may, for example, expect the seller’s personnel to integrate themselves, which may not happen. In other scenarios, the buyer has an integration program, but it does not run efficiently or see things to fruition. No matter the specifics, the ultimate result of poor integration is that morale drops, revenue diminishes, and objectives are not met.
In a full half of M&As, key managers and technical employees leave. This is typically an indication that a new owner has failed to implement an organizational and leadership structure that is emotionally satisfactory to employees, at least not in a timely manner. As a result, talented staff leave for better-run practices.
For a successful transition to occur, timing is key. A prolonged transition period distracts leadership from the mothership of the business. Gaps in communication contribute to a drop in customer service, which is reflected in reduced client retention—effectively leaving the practice vulnerable to veterinary competitors in the area.
There are three main areas to consider in regards to the medical side of the transition.
As part of a transition, medical records must be carefully reviewed to ensure they contain all information and documentation as required by state and federal law. Generally, the physical medical record is owned by the veterinarian or entity responsible for compiling and maintaining the medical record. To ensure no lapses occur in accessing or adding to existing medical records, the owner and buyer should clearly define how such files are to be transferred and managed.
It’s important for the buyer to have access to job descriptions of all the seller’s staff, along with the practice’s standard operating procedures. Often, sellers may propose changes to increase synergy and efficiency. For example, sellers may overhaul product or service offerings to enhance compatibility with the existing clientele or attract new ones. The operational documents created, however, should outline job descriptions and standard operating procedures—and the infrastructure required to execute them—as they currently stand.
Maintaining Medical Standards
Upholding the medical standards of a practice is intricately entwined with retaining key staff members who execute those medical processes. If the practice associates and staff intend to continue working post-sale, employment agreements should be created that include staff roles, responsibilities, and terms of agreement. The owner can suggest that the buyer wait six months to implement any significant changes, and then to do so gradually.
The first steps in planning a financial transition include to generate an expense budget, profit and loss statement, and statement of assets and liabilities. The author recommends creating an expense budget based on the latest edition of Veterinary Economics’ Benchmarks: A Study of Well-Managed Practices. A typical expense budget includes (at minimum) projected and actual values of revenue, cost of goods sold, staff, rent, equipment leases, utilities, office supplies, bank fees, and owner salary.
A profit and loss statement features year-to-date comparisons of items such as fees for professional services, laboratory services, vaccinations, pharmaceutical imaging, grooming, and dental services, as well as food and retail sales. Additionally, it lists year-to-date data on costs of goods sold, along with staff, equipment, and administrative expenses. Finally, it calculates a net income. On average, this statement should take about five to ten hours per month to generate.
A statement of assets and liabilities functions as a balance sheet for the practice. It lists both current and non-current assets; the latter is not easily converted into cash and can include buildings, equipment and motor vehicles. Current assets include money in checking or savings accounts, accounts receivable, and inventory, among other possibilities. An example of a non-current (long-term) liability is a loan taken out to buy the practice; current liabilities include accounts payable and other amounts expected to be paid in the current financial year.
In generating financial analyses of the practice, it may be important to hire an accountant. In general, accountants cost about 0.5% of gross annual revenue. Moreover, owners should consider hiring a dedicated practice manager, which will cost about 0.4% of gross annual revenue.
As a tool to help owners further interrogate data, practice management software allows owners to track gross revenue in multiple ways, perhaps weekly, monthly, and quarterly. Average transaction charges should be tracked hourly; if not, then daily, and then periodically.
Cultural clashes are defined here as differences in human elements between merging companies. For a practice to be successful, these clashes must be identified through an audit and then successfully addressed. A cultural audit would examine factors such as core values, policies and practices, work processes, leadership styles, and human emotions. More specifically, examinations in human emotions should include people’s uncertainties surrounding job security and their fear of change. The importance of an audit of staff emotions cannot be understated, as one survey suggests a 26% increase in successful mergers if human elements are resolved in pre-deal stages.
The buyer must determine the health of the seller’s practice’s human capital. Metrics helpful in determining this include rates of employee retention and/or turnover, the effectiveness of internal channels of communications, and past lawsuits, among others. Specific issues that need to be addressed with staff include any changes in benefits, pensions, compensation packages and reward and recognition programs.
To successfully transition the staff to new ownership, it’s important to plan the integration 60 to 90 days ahead of the target closing date. The buyer must define, in writing, the mission, values, leadership style, and philosophy of the new company. Additional tasks include to:
- identify potential barriers to integration
- craft strategies and solutions to overcome barriers
- prioritize work-streams, especially those that are synergistic
- assign leaders to monitor specific progress parameters
- outline predictable reward and recognition programs for employees that are driven by performance
- solicit employee input so that job descriptions are clear (this is crucial for them and the practice overall to meet expectations)
- create process maps and tools to facilitate career development
- groom potential replacements
- invest in high-potential employees year-round
- retain key employees using personal, one-on-one communication
- clearly point out channels of communication and feedback mechanisms to address employee concerns in real time
- host integration activities between the merging staffs.
If this seems overwhelming, given all the work that needs done, consider hiring a third-party professional cultural auditor. Senior executives are often too involved in the practice vision to fully assess workplace culture. Furthermore, employees may be more forthcoming with sharing their problems to an impartial outsider. Such auditors can offer different perspectives without regard for their own job security, resulting in a more objective cultural examination.
Five Things Not to Say
- “We don’t anticipate making any changes.” On the contrary, changes are to be expected, post-sale; it should be viewed as an opportunity to make improvements. Besides, when changes do occur, they will be attributed to the transition whether they are related or not.
- “This is a merger of equals.” Pre- and post-sale teams are never truly equal in authority.
- “We plan to take the best of both worlds.” This phrase is, at best, subject to the opinions of the pre- and post-sale teams.
- “It will continue to be business as usual.” Practice sales often fundamentally change the psychological tone of a clinic as it transitions to new ownership.
- “The culture of our two companies is very similar.” Although this may be true, people will focus on differences, which will bring unwanted attention to areas where expectations were not met.
Although positive outcomes cannot be guaranteed, owners can take definitive actions to help their team transition operationally, financially, and culturally. Through careful preparation and clear communication, many problems in transitioning a practice to new ownership can be prevented or at least significantly minimized.
Originally Published in Today’s Veterinary Business, February 2018
It can be tempting to consider an extraverted person as a “good” employee and an introverted one as less attractive. In reality, people all along the spectrum can make outstanding employees.
Workplace culture in a veterinary practice is significantly influenced by the personalities of the people who work there. So, it makes good sense to gain a clear understanding of personality assessments and how they can benefit a practice.
In 2015, the Society for Human Resource Management (SHRM) published an in-depth piece about personality tests and their value in the workplace. The writer noted that as many as 60 percent of workers must now take workplace assessment tests, either as part of the hiring process or for career development purposes.
If you decide personality assessments would be a valuable addition to your practice, it’s important to discern which test is the right one. And are there downsides to the tests?
That question is easy to answer: Yes, there are downsides, as the quality of assessment tests varies widely and some of them might put the company in legal trouble. So, if you choose to use personality testing, investigate the best choice and administer the tests consistently using a policy you develop. Also, respect confidentiality.
The Big Five
The SHRM article referenced the five-factor model of personality testing, noting that a good percentage of workplace personality assessments are based on this model. It measures:
- Openness to experience.
This model is the most extensively researched to date and is explored in “The Big Five Personality Traits,” an article by Kendra Cherry at www.verywell.com.
Research indicates that both nature and nurture — biological inheritances and the influences of a person’s environment — play key roles in developing each person’s personality. As far as behavior, this is an interaction between someone’s personality and the situation at hand. In most instances, people respond to a situation in a way that’s consistent with their core personality.
How This Can Play Out
- If you have employees who would land along the extraversion side of the scale, know that people who rank high in this area will gain energy by engaging with other people. So, they will likely want to talk about situations occurring at work and may speak out before thinking in depth about their comment. If the extraverted person is working with an introvert, this can present a challenge, as the introvert probably won’t want to engage in much small talk and will get worn out by socializing beyond his or her comfort level. It can be tempting to consider an extraverted person as a “good” employee and an introverted one as less attractive. In reality, people all along the spectrum can make outstanding employees, although they will likely excel and interact with other people in different ways.
- The personality trait of agreeableness plays out differently. Agreeable people care about others and feel empathy and concern. Low on agreeability? This person isn’t interested in you and doesn’t care how you feel. It fact, he or she might engage in insulting others. So, you want agreeable employees.
- Next is conscientiousness. People high on the continuum prepare for tasks, prioritize and finish on time. They tend to enjoy set schedules. People low on this scale dislike schedules and structure, procrastinate and even fail to complete important tasks. Yes, you want conscientious employees.
- People with high levels of neuroticism worry, feel stress and anxiety, and tend to experience dramatic mood shifts. People with low levels deal well with stress and are emotionally stable.
- People with high levels of openness are creative and enjoy trying new things and taking on new challenges. They enjoy delving into abstract concepts. On the other end are people who dislike change and new ideas, and they don’t enjoy theoretical concepts.
Myers & Briggs Types
One of the most well-known personality categorization tests, from the Myers & Briggs Foundation, lists 16 personality types. These are based off Carl Jung’s psychological types theory, where people can be characterized by where they fall on four spectrums:
- General attitude: extraverted (E) vs. introverted (I).
- Way of perceiving: sensing (S) vs. intuition (N).
- Way of judging: thinking (T) vs. feeling (F).
- Additional way of judging: judging (J) vs. perceiving (P).
Jung believed that, in each person, one of the four functions described above predominates his or her personality. Here is what each spectrum means:
- Extraversion-introversion: An extravert expresses energy largely externally, whereas an introvert’s energy exists largely internally.
- Sensing-intuition: This indicates how someone perceives information. Sensing is largely from external cues and intuition is largely from internal cues.
- Thinking-feeling: This describes how information is processed by someone. Thinking uses logic and feeling uses emotion.
- Judging-perceiving: This describes how the person implements processed information. A judging person organizes and follows through while a perceiving person explores options and improvises.
These four criteria form the basis of 16 personality types. Someone who is ESTJ, for example, is extraverted, senses information from external cues and uses logic, then makes decisions and acts upon them. An ISFJ, as another example, is “Quiet, friendly, responsible and conscientious. Committed and steady in meeting their obligations. Thorough, painstaking and accurate. Loyal, considerate … [and strives] to create an orderly and harmonious environment at work and at home.”
Testing for Hiring Purposes
If your intention is to use personality testing in the hiring process, make sure to choose a test that is reliable and measures stable personality traits rather than evolving traits. The test should help you compare one candidate against another. Request evidence that the test provides quality predictors about work behavior.
The Harvard Business Review, in the 2015 article “Personality Tests Can Help Balance a Team,” noted that the best personality testing for workplace purposes can highlight three different elements of personality:
- How someone behaves at his or her best.
- How the same person acts under pressure.
- How this person feels inside (his or her needs, motivations and personal preferences).
Well-chosen tests, the article stated, also help a practice to profile entire groups to determine “whether the group is likely to bond or fracture by examining qualities that predict both success and failure.”
“For example,” it continued, “we know that teams with members who are open-minded and emotionally intelligent leverage conflict to improve performance, whereas neurotic and closed-minded groups fall apart in the face of disagreement.”
If you choose to introduce personality tests to your practice, remember to first develop a policy about how and when the tests will be used. Share the policy with employees when it is created and during annual policy reviews. Make sure to consistently follow the policy and let employees know when changes are made to it.
H.R. Huddle columnist Dr. Charlotte Lacroix is founder and CEO of Veterinary Business Advisors Inc. She serves on the Today’s Veterinary Business editorial advisory board.
Click link to see article in Today’s Veterinary Business http://todaysveterinarybusiness.com/?s=workplace+gossip
2018 – Is it really here in just the blink of an eye? We have updated our calendar with additional events that you should be addressing in 2018 regarding Human Resources related activities. Please take the time to at least scan the list and pencil in on your appointment book or mark on your outlook calendar or for you techies with the smart phones or tablets, maybe there’s an app for that – so that you are proactively prepared to administer or address each event in a timely manner. Our list is based on a calendar year and your Practice’s fiscal year running concurrently. But any listed activity below, can be scheduled in the month that you need to begin the activity, so that you have enough planned lead time to get the event executed successfully according to your own schedule. Not all activities may pertain to your Practice (some depend on the number of employees working for you) and the list is comprehensive but not all inclusive – it is meant to get you thinking about Human Resources related activities and functions for the upcoming year. And as a reminder, some of the new HR related activities that are listed due to their prescribed implementation dates may change as we get closer to the deadline dates because sometimes legislative acts may get challenged, postponed or shelved. As we hear of updates, we will post them in our newsletter.
||HUMAN RESOURCES ACTIVITIES
- Prepare OSHA form 300A from OSHA 300 log
- Finalize Performance Management Review discussions and inform employees of annual increases/bonuses and effective dates
- The NLRB requires employers to notify employees of their rights under the National Labor Relations Act with a posted notice by January 31, 2018 (to order the posting notice for free, use the following link http://www.dol.gov/olms/regs/compliance/EmployeeRightsPoster11x17_Final.pdf )
- Remind employees – IRS changes for 2018 to pension plans or 401(k) plans
- Remind employees to submit a new W-4 form if withholding changes are to be made for 2018
- Reset dates and accumulators associated with HRIS/Payroll systems for the new processing year
- Request Vacation Schedules from the staff for the year – not set in stone but helps you plan, especially on the dates that everyone wants off.
- Post a Holiday calendar of when the Practice will observe the holidays
- Commence Performance Management – setting mutually agreed upon goals for the year/creating career development plans and distributing a Performance Management Review calendar for 2018 with ‘Pay for Performance’ guidelines communicated
- Review Federal & State Law posters – ensure compliance and updated postings
- Issue 2017 W2’s and 1099’s for current and former employees
- If you travel for Hospital business, the IRS 2017 mileage rate is 57.5 cents. Check for new rate for 2018.
- Post complete OSHA form 300A for 3 months
- Implement Employee Engagement Survey – get feedback on your organizational culture
- Review current and create new job descriptions in anticipation of Talent Acquisition Process
- Employees must change the withholding exemption to “single, with zero allowances” for employees who claimed total exemption from withholding for last year, unless the individuals have completed a new Form W-4
- Structure a Training Schedule – to determine which classes (technical/developmental skills) should be conducted internally vs. externally
- Facilitate a quarterly HR meeting – review policies, procedures and ‘celebrate success’
- Conduct a market survey on Compensation pay ranges
- Review and communicate feedback from Employee Engagement Survey – determine what ‘hot issues’ will be addressed and implemented by when
- Recruit and Pipeline network of potential new hires aligned to Practice’s workforce planning model/budget
- All plan sponsors and health insurance issuers must provide Standardized Health Plan Summaries of Benefits and Coverage along with glossary of terms to enrollees/potential enrollees
- Review SDS’s to determine if any hazardous chemical inventory needs attention or submission to appropriate agencies.
- Conduct HR related seminars such as ‘How to Prevent Harassment and Discrimination in the Workplace’ (some states such as CT require this training if you have ≥ 50 employees)
- Investigate with your health insurance broker, carrier and attorney how the Health Care Reform Act affects the Practice for 2018 especially if the health care plan designs are changing or laws that affect FT/PT eligibility need to be declared
- Community Living Assistance and Services Support (CLASS) Act, (basic lifetime long term care benefit in the event of illness or disability) has been suspended from implementation
- Review if any new federal/state labor laws that go into effect in the upcoming months and how the laws will affect the Practice
- Review and update Employee Manual to ensure up-to-date and compliant
- Commence Half Year Performance Management Reviews – according to calendar distributed in January
- Facilitate a quarterly HR meeting – review policies, procedures, distribute updated Employee Manual and obtain annual acknowledgment receipt of Employee Manual including Confidentiality Agreement and ‘celebrate success’
- Finalize all Half Year Performance Management Review discussions
- Conduct a component of an HR audit (e.g. employee files or payroll or records retention, etc)
- Complete and submit 5500 forms for employee benefit plans
- Complete an HR budget aligned to the Practice’s 2019 strategic/financial business objectives
- Receive carrier bids on 2019 plans from health insurance broker to determine plan designs and costs
- Facilitate a quarterly HR meeting – review policies, procedures and ‘celebrate success’
- File EEO-1 form for employers with ≥100 employees
- Communicate Open Enrollment Benefits calendar for October
- Conduct Open Enrollment for Health Care and other insurance plans to include processing information to the respective carriers
- Finalize HR budget with Practice owner
- Discuss with Practice owner percentage of salary adjustments and bonus opportunities to set aside
- Commence Annual Performance Management Reviews – according to calendar distributed in January
- Facilitate a quarterly HR meeting – review policies, procedures and ‘celebrate success’
- Discuss and agree upon HR goals for the Practice in 2019
- Prepare OSHA form 300A from OSHA 300 log
- Finalize Performance Management Review discussions and inform employees of annual increases/bonuses and effective dates
- Remind employees – IRS changes for 2019 to pension plans or 401(k) plans
- Remind employees to submit a new W-4 form if withholding changes are to be made for 2019
- Remind employees about Flexible Spending Accounts’ limits ($2,500)
“I see no hope for the future of our people if they are dependent on the frivolous youth of today, for certainly all youth are reckless beyond words. When I was a boy, we were taught to be discrete and respectful of elders, but the present youth are exceedingly wise and impatient of restraint.” (Hesoid, 700 BC)
Everyone knows how lazy the Millennial generation is, right? And how disrespectful? They bounce from job to job, expecting money to simply be handed to them. What a sense of entitlement! They hover around their phones, texting instead of interacting with others around them – and don’t even get us started on the selfie craze.
When we say “everyone” knows this, by the way, we aren’t just talking about people in the United States. Oh, no! In Japan, this generation is known as nagara-zoku, defined as “the people who are always doing two things at once.” In China? They are known as ken lao zu for – ready for this – “the generation that eats the old.”[i]
Pretty clear cut, right? Well, not so fast.
Changing Economical Factors
This generation (people born between 1980 and the mid-1990s) have challenges not faced by previous generations. More than 40 million of them have student loan debt that collectively totals more than one trillion dollars. Costs of a college education in the United States have skyrocketed by 1,120 percent from 1978 to 2010 – and, when good-paying jobs are scarce, it is extremely challenging to pay off education debts. One Ohio State University professor compares this significant student loan debt to youth graduating college burdened with the equivalent of a mortgage.
Millennial Generation Perspective
There are approximately 85 to 90 million Millennials in the United States alone, and they are more educated than any previous generation. While that is encouraging, it also means that supply is greater than demand for people with many types of education, thereby creating a “perfect storm for unemployment, underemployment, and a flat-out frustrating beginning to our career . . . The college diploma feels worth as much as your high school degree now, with the new tension of feeling like you have to now get a master’s or Phd to even be allowed into the game.”
Forty percent of the unemployed are Millennials – the most educated generation ever, remember. So, here they are, investing significantly in their education, garnering higher levels of student loan debt than ever before, while having “lower levels of wealth and personal income than any other generation at the same stage of life.”[ii]
The Survey Says . . .
So, how do we tease the truth from what “everyone knows” about Millennials? The Deloitte Millennial Survey 2016 is an excellent source of information, containing survey data from almost 7,700 Millennials from 29 countries in September and October 2015. You can download the entire report[iii] but here are highlights. First, yes, it’s true that Millennials are feeling less loyalty to their workplaces, overall, with two thirds of them wanting to leave their current workplace by 2020; 44 percent would like to switch places of employment within two years. This is a significant challenge to businesses that employ this generation – and, since they represent the largest workplace segment (they will make up half the workforce by 2050)[iv], the challenge is widespread.
Millennials often plan to exit a workplace, the survey shows, because their values don’t match that of their workplaces. Other reasons include:
- Perceived lack of development of their leadership skills
- Perceived feelings of being overlooked
- Work/balance issues
- Desire for flexibility
Interestingly enough, Millennials appear to be guided by values throughout their careers, not just early on. This appears in:
- Jobs they accept
- Assignments they take
- Decisions they make as managers
They want businesses to focus less on profit and more on the people involved, from employees to customers to society at large. They also want more of a focus on products and on business purpose, and they want to feel in control of their own careers.
What about that Sense of Entitlement?
What older generations may see as a sense of entitlement is typically perceived by Millennials as an unwillingness to settle. They want work that stirs their passions – and, when you factor in economic challenges, the attitude of many Millennials is that, if they aren’t going to be able to have financial security, they might as well at least do work they enjoy. The following paradox applies to a good percentage of this generation: “they do not want to settle for an unsatisfying job that will barely allow them to get by but, at the same time, they have no choice but to take an unsatisfying job so they can afford to pursue their passion.” (Guardian, March 2016).
Millennials have lived their entire lives in a time of rapidly advancing technology, so it’s no surprise that it makes little sense to them to be attached to a desk when they could work remotely. They don’t perceive that as laziness or that they’re entitled to not come into the workplace. Instead, they see it as being efficient and working smarter.
And, because many Millennials attended college in the era of a financial crisis, they may not feel as secure in a particular job. Rather than rely upon a workplace, they may create self-employment opportunities.
Work to Live, Not Live to Work
Many from this generation focus on work/life integration, where “work life, creative ambitions, and social life are intertwined.” (Guardian, March 2016). For those who work remotely or in other less traditional ways, it may make perfect sense to start work later in the day and work until midnight – or to work different hours on different days. If this fits their lifestyle and the work they’re doing, they figure, why not?
And, that job hopping thing? Statistics for Americans show that job tenure for those in their twenties is almost exactly the same for Millennials as it was in the 1980s. Plus, as the founder of the Graduate Fog career site notes that, when a Millennial finds a job after graduation where he or she feels appreciated, that person tends to stay at that job. It’s when a career gets off to a rockier start that the young adult tends to switch jobs more frequently.
Blending Perspectives in the Workplace
The reality is that, if you’re from an older generation than the Millennials, you are most likely working with the younger generation – or will be in the near future. So, the goal is to find common ground and to find ways to work well together. Here are three ways to help make that happen:
- Offer flexibility
- Focus on outcomes
- Encourage collaboration
And, in closing, here is a good perspective to consider: “In my opinion, millennials work just as hard as any previous generation in the workplace. They have a different perspective on how work gets done, and it’s counterproductive to expect them to acquiesce to outdated policies and practices. Give them opportunities to blend their work and life more easily, and you will find that you are well-positioned to achieve even greater success in the future.”[v]
[ii] 5 Shocking Statistics About the Challenges Facing the Millennial Generation
[v] Millennials Don’t Want Work Life Balance
The student debt load has been a longstanding and progressive problem within the veterinary field. Total student loan debt from veterinary school for graduates from the class of 2015 was $427,502,116.00, while the average debt accrued per student was $142,394.6 Research conducted at the University of Minnesota found a 67% increase, adjusted for inflation using the Consumer Price Index, in veterinary student debt from 2003 to 2013.14 Although there has been an increase in new graduate salaries over this same time period, the increase in salaries has been far slower than increases in student loan debt. As a matter of fact, when adjusting for inflation, the mean starting salaries have actually decreased over this 10-year span.14
While the crude numbers of student debt can be somewhat alarming, they do not accurately depict the true state of debt unless they are interpreted in relation to other economic factors. The state of student debt is best assessed when comparing the debt to its pay-offs, i.e. income. This growing difference between mean educational debt at graduation and mean starting salary started to noticeably accelerate by 2005.18 The mean starting salary for veterinarians in 2015 was $72,229.7 The American Veterinary Medical Association, AVMA, measures this trend using the debt to income ratio (“DIR”). The DIR is a marker for economic performance of the market for veterinary education and for economics of the entire profession as a whole by tracking trends in student debt and average starting salaries. The average DIR for new veterinarians across all sectors of practice in 2015 was 1.99 to 1. This almost 2 to 1 ratio means that students, on average, have two times the amount of debt compared to what they are making, which is both unhealthy and unsustainable.6
There appears to be a trend in the amount of debt accrued throughout one’s veterinary education based on what career path is chosen following graduation. The previously stated average DIR of 2 to1 obscures the fact that many students have a much higher DIR. Over 9% of new veterinarians have a DIR of 4 to 1 or greater.6 Data published in the AVMA’s annual report found that new veterinarians pursuing public practice as full time employees had the lowest average DIR, 1.85 to 1. New veterinarians working in private practice as full time employees had an average DIR of 2.02 to 1 and for graduates pursuing internships and residencies, the DIR was an astonishing 4.89 to 1.6 While new veterinarians working in the public practice sector tended to have the lowest debt to income ratio, this number is still considered unsustainable for a financially low-stress life. The AVMA recommends lowering this ratio to at least 1.4 to 1. Lowering the DIR is not an easy task, however. It will require efforts from the general public, veterinary colleges, veterinary employers and the veterinary students themselves. If the DIR remains high or continues to rise, everyone will lose. The risk of keeping unsustainable DIR’s is losing qualified individuals entering the field leading to decreased veterinarians and veterinary care reaching those who need it. With the way things are going, this could result in an increase in untreated animals, posing a threat not only to animal health but also to human health as well.6,8
An Uphill Battle: Why?
The state of veterinary student debt has continued to worsen due to a combination of factors. Most notably, the increased cost of attending veterinary school and the average starting salary for new veterinarians has lead to the student debt situation so many veterinarians are dealing with today. A large contributor to increasing tuition is the steady decrease in public funding for veterinary schools nationwide. When the United States built its first 10 veterinary schools, 9 of them were 100% funded by the government under the 1862 Morrill Act.18 Over the subsequent decades, the demand for veterinarians has changed. Originally, veterinarians were needed for agriculture and army care whereas in recent decades, the higher demand lies in companion animal medicine. This shift has made it seemingly easier for public funding sources to continue to decrease their support of veterinary schools. Decreased public funding has forced schools to offset expenses in other ways, most notably with increases in available seats and tuition. Since 1999, the average cost for tuition at a United States veterinary college has more than doubled from $10,549 in 1999 to $27,096 in 2015. Although this is not uniform across all colleges, all colleges have experienced increases of some degree. Tuition for in-state residents has increased across the nation, ranging from a 35% increase at University of Minnesota to 287% at Tuskegee University in Alabama.6,7,8 The steady increase in tuition has led to an increased need for students to borrow funds to cover these costs.14 It is important to note, however, that veterinarians still provide a public service regardless of the funding provided from the public. This concept is termed “market failure”. Market failure is defined as a state in which consumers are obtaining benefits without paying for them.6 While the public has been defunding public education, the real costs of operating these schools has risen.
Early career veterinarians spend an average of $11,000 annually, or 18% of their discretionary income, on paying back student loans.12 An analysis study published in the magazine DVM360 compared the expenditure patterns of early career veterinarians to the Bureau of Labor Statistics’ Consumer Expenditure Survey for Americans between 2014-2015. The study found that early career veterinarians are making an income within the 70th-80th percentile of Americans.12 However, early career veterinarian’s transportation expenditures matches the patterns of those in the 35th percentile and their recreation and leisure expenditure matches those in the 10th percentile of the population.12 This would imply that, early career veterinarians are sacrificing leisure and transportation to afford student loan repayments.
Types of Loans for Veterinary Education
There are three primary loans currently offered to prospective and current veterinary students: the Federal Direct Loan, the Federal Direct Grad PLUS Loan and the Health Profession Loan. The Federal Direct Loan is a guaranteed loan. This means that any veterinary student applying for this loan will receive it regardless of financial need. Students may borrow up to $40,500.00 for each year of school.10 Assuming veterinary education will take the average student four years to complete, the Federal Direct Loan will provide up to $162,000.00 per student. This is an unsubsidized loan, therefore interest starts immediately upon borrowing and will accrue the entire time one is in school. The Federal Direct Grad PLUS Loan is a credit-based loan. This loan is used as needed to meet any remaining educational and living expenses needed after the Federal Direct Loan. This loan is also unsubsidized. Since both of these loans are federal, the rates are determined by congress. For loans borrowed between 7/1/2016 and 7/1/2017, the rate for federal direct unsubsidized loans is 6.31% and the rate for direct PLUS loans are 5.31%.16 The third loan offered to veterinary students is the Health Profession Loan. This is a subsidized loan with a fixed 5% interest rate. This loan is granted to students on a “need” basis. Eligibility for this loan is determined by personal and spousal assets as well as one’s parents’ assets, regardless of parental contribution or lack thereof.10 In addition to these loans, many veterinary students also have debt from other life expenses including previous education, personal credit cards and a home mortgage. This is important to keep in mind when collectively considering the state of student debt and the overall well being of veterinary graduates.
Paying Off Student Loans
The repayment process for student loans begins 6 months after one stops attending school at a part-time status or higher. This period is commonly referred to as the “grace period”. Traditionally, lending and loan service companies will reach out to the individuals entailing how much they owe and how payments should be made. Deferment and forbearance can be granted if further schooling and training is pursued, this includes internships and residencies. However, it should be taken into account that interest continues during this period. Depending on how long one defers for, the additional interest could more than double the total cost of the loan and will greatly increase the life of the loan. Therefore, deferment and forbearance is offered with a strong degree of caution and is only recommends if you are at risk of defaulting on your loans. Defaulting on loan payments is handled by the credit bureau. A default affects your credit rating, which in turn affects your ability to borrow money in the future. Lenders and loan services are permitted to take legal action on defaulters, which may require payment via garnishment of wages and withholding of tax refunds.
It is imperative that students undertaking student loads understand the concept of interest. Many students accepting loans may not grasp that they will be paying back more than what they are borrowing due to interest on the loans. Loans are either subsidized or unsubsidized with interest rates that are either fixed or variable. Both of these factors can greatly affect the amount of money an individual will ultimately owe. The majority of veterinary students have federal loans, which for graduate students, as previously mentioned, are unsubsidized. For the average student who begins taking out loans in order to enter their first year of veterinary school, interest will accrue immediately and continue to accrue throughout school and after graduation until the entire amount is paid off. The interest rates of the federal direct loan and the federal direct grad PLUS loan are determined by congress legislature and the fixed rate is based on what the rate was when you took the loan out. Current and past interest rates are readily available on the Federal Student Aid website.16
A number of federal loan payback programs exist that will pay back specified amounts of an individual’s debt depending on the work new veterinarians pursue after graduation. One of the programs with the most debt coverage is the F. Edward Hebert Armed Forces Health Professions Scholarship Program (HPSP). The HPSP will pay an entire year of tuition as well as a $2,000 per month stipend for every year of service that the participant receives the scholarship. For qualified applicants, this can cover all 4 years of veterinary education. The army also runs the Army Active Duty Health Professions Loan Repayment Program which pays $120,000 of loans over 3 years for active duty officers and $75,000 over 3 years for officers in the reserves.18 Other organizations such as The US Department of Health and Human Services, the NIH and the National Veterinary Medical Services also run repayment programs which are further described on their respective websites. While these programs all offer substantial loan repayment, due to their specific requirements and often times very competitive application process, these cannot be realistic options for all students.
Most veterinary students enter into one of the three income-based repayment programs. The income based repayment plan (IBR) is one of these three programs. The IBR determines the maximum monthly payment to be 15% of discretionary income for a total of 25 years (300 payments).18 The second plan, the Pay As You Earn Repayment Plan (PAYE) determines the maximum monthly payment to be 10% of discretionary incomes for 20 years (240 payments). For both of these programs, the remaining balance after the 20 or 25 years is forgiven. When student loans are forgiven, the amount that is forgiven is subject to income tax on the full amount of forgiven debt.18 It is important to educate student borrowers that depending on how much debt is forgiven, this can move an individual into a different and higher tax bracket. In some situations, individuals have had to take out a new loan just to pay this tax. The third program is the Public Service Loan Forgiveness Program (PSLF) encouraging individuals to enter into public service jobs. With this plan, borrowers make maximum monthly payments of 10% of their income with loan forgiveness after 120 payments. The forgiven sum at the end of 120 payments is considered a “gift” and therefore is free of income tax.
The steady rise in student debt and the not so steady rise in starting salaries for new graduates poses an important question regarding the well being of students and veterinarians. Are students misinformed? Do students understand the implications of taking out student loans, the current financial state of the veterinary field and how long it can take to completely pay these loans off with interest? During the interview process for veterinary school, financial presentations are given at most schools to varying degrees of depth. A point that is often driven home is “you can follow your dreams even if you can’t afford to” accompanied by the introduction of the generous and guaranteed student loan programs. But what do the students really hear?
A study conducted at the University of Minnesota in 2013 addressed the concern of student awareness regarding education debt. The goal of the University of Minnesota study was to determine if incoming veterinary students were truly aware of the financial implications that often come along with a career in veterinary medicine. Incoming veterinary students were surveyed on what they thought the mean expected debt was for veterinary students and what the mean expected annual income for the first job after graduation was. The survey regarding salary excluded internships, residencies and other education programs. The results from the incoming first year students for average student debt and average starting salary were very realistic and close to real time averages. In summary, 75% of students said that the college of veterinary medicine had informed them of the expected debt after graduation.14 On average, based on student responses, first year veterinary students expected to be financially better off as a result of going to veterinary school.14 With that said, it cannot be assumed that this one group of students represents the entire population of prospective and incoming veterinary students. For example, these results could be due to a thorough financial orientation program specifically given at the University of Minnesota. To get a more comprehensive understanding of prospective student awareness, similar survey studies should be performed at all of the respective veterinary schools for incoming students. Alternatively or additionally, a similar survey could be required as a supplement to the Veterinary Medical College Application Service (VMCAS) application.
Another question that often arises is whether or not students borrow more than they need to because they don’t understand the implications. What are students spending this money on? The six main categories of expense for an individual in veterinary school are tuition and fees, living expenses (room and board), transportation, books and educational materials, veterinary equipment and “other” expenses. The top two areas requiring the most expense are tuition and living expenses.6 In 2015, the mean debt attributable to tuition and fees was $97,255 and the mean debt attributable to living expenses was $27,767.2 According to the Economics Policy Institute, a single adult with no children has an annual cost of living of $28,474.2 Interpreting this information with the average debt a student takes on to cover living expenses, one can assume the average veterinary student was financially under the necessary cost of living. Therefore, we cannot blame exorbitant living of students as the culprit for the student debt situation. And we therefore, cannot assume that students are not accumulating debt irresponsibly.2
Student Debt in the News
The AVMA, AAVMC and Michigan State University (MSU) College of Veterinary Medicine organized a three-day student debt summit in April 2016 to address this critical issue facing the veterinary profession. The goal of the 180 individuals in attendance was to create solution concepts and to formulate clear steps we can all take to work towards reducing the student debt load on veterinary students and new veterinarians. The measurable goal in reaching these solutions will be by using the debt to income ratio. The average DIR to date (2:1) is both unsustainable and unhealthy for any individual.6 An important point made by Joe Kinnarney, the president of the AVMA, was that “it is important to recognize that educational debt is more than just a financial issue; it is also a wellness issue.”13 With the increased awareness of the important of quality of life and wellness across all professions, it is important that the AVMA recognizes this as well so we can support the professionals in our industry and continue to attract the best and brightest prospective veterinarians whom we can trust with the future of our industry.13
In addition to playing a part in orchestrating the 2016 Student Debt Summit, MSU has been on the forefront of instituting change for their students. An article released in October 2016 stated that MSU has plans to restructure the entire curriculum with the help of MSU’s newly formed Hub for Innovation in Learning Technology. MSU has created 7 working groups to develop the specific plans for implementation. These groups include competencies, economics of higher and veterinary medicine, clinical experiences, educator development, curriculum models, wellness working group and student assessment.15 CVM posts updates on their website with the detailed status and progress of the curriculum changes. Their goal of posting all notes and thoughts is to formulate an outline that other schools can use to alter their curriculums in the future. Notes from the Clinical Education Working Group detail the outline for what competencies and curriculum will be addressed each year in school. A notable change is the introduction of significant clinical skills during the first year of schooling with the intention of having competencies reinforced during the clinical year rather than being introduced.5,15 And furthermore, it states that certain competencies should be mastered by the time the clinical year commences. There are still a few different options for how the entire 4 years will pan out but the goal is to have all details completed by spring of 2017 with implementation planned for Fall 2018 for the class of 2022. 5,15
The Employer’s Incentive
In corporate America, there is a growing trend of companies offering student loan repayment as a part of their benefits package. 92% of U.S. employers believe that such voluntary benefits and services (VBS) will be important to their employees’ value proposition over the upcoming years, compared to 73% in 2015.17 In 2016, 4% of employers were offering some form of loan repayment plans, up from 3% in 2015.17 Survey results and trends indicate that this could increase to 26% by 2018.17 Companies currently participating in such VBS plans include Aetna, PricewaterhouseCoopers and Chegg. The incentive for employers to provide loan payback plans or matching plans currently seems to be for recruiting purposes. A survey conducted by Iontuition in 2015 found that 80% of respondents would prefer to work for a company that offers student loan repayment assistance.19 However, there is current legislation that is working to make loan payments more favorable from a tax standpoint, in which employers may start to develop additional and stronger incentive to provide student loan benefits.19
We may be seeing the beginning of a trend in corporate America. However, there is no published evidence that this is happening with the veterinary profession or that there is an incentive to do so. The AVMA continues to lead the fight in imposing change for veterinary students and new veterinarians. The AVMA has stated their commitment to exploring all options that could help contribute to a solution for a better tomorrow for the profession. If the AVMA gets on board with this idea, who knows, maybe the veterinary employers of today will be the loan forgivers of tomorrow.
Comparison to Other Professions
Comparing the veterinary profession to itself over the years is useful to spot trends. It could be equally as useful to compare the veterinary medicine to other fields of study to see if similar trends occur in other advanced degree professions. A study published in the New England Journal of Medicine looked at different advanced degree professions to determine if they are in a “bubble market.” A bubble market is defined as a state where an asset trades for increasingly higher prices, as people who are hopeful about its future buy them. These assets are then sold to others who possess an even higher optimistic view of the value of such assets.1 This theoretical bubble “bursts” when a sense of lower intrinsic value appears. After a bubble bursts, the last buyers are stuck with something they paid too much for and can no longer unload. In relation to this topic, students are stuck with an education they paid too much for. The question the article sought to answer was whether or not US medical education was in a bubble market. Similar to the AVMA studies, this article also used the DIR to measure what students must borrow compared to what they can expect to earn. Published in 2013, the study found that there was a wide range in DIR’s across the human medical fields. Orthopedics and cardiology had the lowest DIR and therefore best return on investment (ROI) while family medicine and psychiatry had the highest DIR’s and therefore the lowest ROI’s.1 However, while the DIR’s for family medicine and psychiatry were high they do not quite qualify for the bubble market because the current medical doctor incomes can still sustain the debt of the average doctor, regardless of specialty pursued. The study goes on to compare human medical fields to other professional fields. Incomes for other fields have risen slowly while the cost for education has increased at a quicker rate. The study found that law, dentistry, pharmacy, optometry and veterinary medicine all had higher DIR’s than other fields in human medicine. However, by far the highest was veterinary medicine, which under the studies’ definition, qualified the veterinary medical field to be in a bubble market. The concern is that if we can’t continue to pay doctors and other professionals enough money to cover for the high costs of education, we will soon lose access to well-qualified individuals.1
In 2013, it appeared veterinary medicine was leading the way in the race to become a bubble market. However, in recent years there has been a similar trend in the law profession as well. The number of law school graduates per year exceeds the number of open job positions by a ratio greater than 2-to-1.3 How does this compare to veterinary medicine? To measure this, the net present value (NPV) was used. NPV provides a means of measuring the value of benefits and costs over time. That is, it measures whether the discounted future income in a particular field exceeds the costs incurred in obtaining the relevant degree. A positive value shows that the financial benefits of obtaining a particular degree are worth the expense, while a negative NPV indicates the expenses of the degree are higher than the financial benefits earned. The weighted average NPV using new lawyer median salaries was -$144,815. This indicates that the current costs of earning a law degree currently exceed the benefits.3 Veterinary medicine’s NPV is still a positive value, indicating that starting salaries would have to decrease to around $62,000 in order for NPV to reach zero. While veterinary medicine is currently maintaining a positive NPV, if cost trends continue and new veterinary schools and seats continue to become available, we will soon be dangerously close to a negative NPV and a bleak financial future for prospective veterinarians.
Tips for Students
Make a payback plan:
An article published by the Canadian Veterinary Journal calculated how much money could be saved in interest based on the rate borrowers pay back student loans. The standard recommended payback percentage in Canada is 14-15%.9 The article compared paying these percentage verses 21-22% and 27-29%. Given the average veterinary salary, this would result in paying $1200.00 per month when earning $4000.00 per month. While one would need to live frugally and cut back on personal spending, paying loans back at 27-29% can result in huge savings from deceased interest accrued as well as mental wellness from becoming debt-free sooner.9
Cost Comparison Tool:
The AAVMC has put together a tool for prospective veterinary students to better understand costs prior to committing to a school. This can be found at the AAVMC website: http://aavmc.org/Students-Applicants-and-Advisors/Funding-Education.aspx
Apply for scholarships:
All of the veterinary schools offer a variety of scholarship opportunities. Finding scholarships and applying for them takes additional research and effort but students can often be awarded thousands of additional dollars making the reward far outweigh the work involved. Research your local VMA’s, schools financial aid website and professional veterinary organizations to learn more about opportunities.
Become an In-State Resident:
2015 graduates who attended veterinary school who qualified as “in-state” had an average of $30,000 less in debt compared to non-residents.7 Many schools have the option of obtaining residency status during school, which can reduce tuition expenses. There is also the option to move in state prior to applying to the school of choice to solidify residency for all 4 years of school.
Many schools offer part-time jobs that can help offset simple living expenses throughout school. While a few hours per week may seem nominal compared to a multiple thousand-dollar loan, every little bit helps.
Glossary of Loan Terms:
Reading about student loans can get confusing if you aren’t familiar with the terminology. Visit the Federal Student Aid Glossary page to clarify your student debt vocabulary. https://studentaid.ed.gov/sa/glossary
Think long and hard before undertaking debt.
“The best way to manage debt is to have no debt. If this is not practical, let this be your goal. Avoid debt as much as possible. If not actively managed, debt can quickly accumulate. Therefore, make an intentional decision regarding debt. What does it mean for you to take on debt? What is your comfort level regarding it?” 4
- Asch, David A., MD, MBA, Sean Nicholson, PhD, and Marko Vujicic, PhD. “Are We in a Medical Education Bubble Market? — NEJM.” The New England Journal of Medicine21 (2013): 1973-975. New England Journal of Medicine. Web. 18 Jan. 2017.
- Bain, Bridgette, PhD, and Michael R. Dicks, PhD. “Are Veterinary Students Accumulating Unreasonable Amounts of Debt?” Journal of the American Veterinary Medical Association3 (2016): 285-88. Web.
- Barker, Sean, and Ross Knippenberg, PhD. “Law or Vet School Grads: Who’s Got It Worse?” DVM360 2016: 23-24. Print.
- Bullock, Joan R. M. “Managing Debt for the New Lawyer.” Law Practice 2016: 49-53. Print.
- “Curriculum Reinvention.” The College of Veterinary Medicine at Michigan State University. N.p., n.d. Web. 19 Jan. 2017.
- Dicks, Michael R., Bridgette Bain, Ross Knippenberg, and Lisa Greenhill. 2016 AVMA & AAVMC Report on the Market for Veterinary Education. Rep. N.p.: AVMA Veterinary Economics Division, 2016. Print.
- Dicks, Michael R., Bridgette Bain, Ross Knippenberg, and Frederic Ouedraogo. 2016 AVMA Report on the Market for Veterinarians. Rep. N.p.: AVMA Veterinary Economics Division, 2016. Print.
- Dicks, Michael R., Bridgette Bain, Ross Knippenberg, and Lisa Greenhill. 2016 AVAM Report on Veterinary Markets. Rep. N.p.: AVMA Veterinary Economics Division, 2016. Print.
- Doherty, Chris. “Minimizing the Cost of Your Veterinary Education: Saving through Expedited Student Debt Repayment.” Canadian Veterinary Journal 57 (2016): 91-93. Web.
- “Financial Assistance.” Penn Vet | Financial Assistance. University of Pennsylvania, n.d. Web. 12 Jan. 2017. <http://www.vet.upenn.edu/education/financial-matters/financial-assistance>.
- “Funding Education.” Get Help Paying for a Veterinary Medical Education. Association of Veterinary Medical Colleges, n.d. Web. 19 Jan. 2017.
- Johnson, Elizabeth, Ross Knippenberg, PhD, and Michael Dicks, PhD. “Can We Quantify the True Cost of Veterinary Student Debt?” DVM360 Magazine 17 Feb. 2016: n. pag. Veterinarynews,dvm360.com. DVM360 Magazine, 17 Feb. 2016. Web. 23 Jan. 2017.
- Kinnarney, Joe, DVM, MBA. “Alleviating Veterinary Student Debt: Putting Ideas into Action.” President’s Column 249 (1 July 2016): 8. Print.
- Lim, Christine C., DVM, DACVIM, DACVECC, Sam Schulhofer-Wohl, PhD, Margaret V. Root Kustritz, DVM, Phd, Laura K. Molgaard, DVM, and David Lee, DVM, MBA. “Financial Expectations of First-year Veterinary Students.” Journal of the American Veterinary Medical Association2 (2015): 196-203. Web.
- Campus + Health + Science & Technology. Restructuring Veterinary Medicine to Reduce Student Debt/Stress. MSU TODAY. Kim Ward, Julie Funk, Teal Amthor-Shaffer, 13 Oct. 2016. Web. 19 Jan. 2017.
- National Student Loan Data System. Federal Student Aid, n.d. Web. 12 Jan. 2017. <https://www.nslds.ed.gov/>.
- Willis Towers Watson. Employers Expand Use of Voluntary Benefits. Willis Towers Watson, 2 Mar. 2016. Web. 19 Jan. 2017. <https://www.willistowerswatson.com/en/press/2016/03/employers-expand-use-of-voluntary-benefits>.
- Zimmel, Dana N., and James W. Lloyd. “The Changing Fiscal Environment for Academic Veterinary Medicine.” Journal of Veterinary Medical Education5 (2015): 414-24. Web. 19 Jan. 2017.
- Zimmerman, Kaytie. “Which Employers Are Helping Millennials Repay Their Student Loans?” Forbes Under 30. Forbes, 23 Aug. 2016. Web. 20 Jan. 2017.