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2.11 Discounting in Veterinary Practice

Mark J. McGaunn, CPA/PFS, CFP®

McGaunn & Schwadron, CPA’s, LLC, Medfield, MA, USA

BASICS

2.11.1 Summary

Professional service providers have been particularly vexed after the provision of their service with both (i) billing and (ii) collecting from their clients. Service providers, such as veterinarians, who have acquired a great deal of technical skill may not possess the administrative and financial background skills necessary to convey the importance of what they're providing to the actual explanation of value to clients. Veterinarians should not feel that they are alone in this particular skill set as many professional service providers such as attorneys, accountants, financial planners, architects and even physicians, among others, have long been deficient in this learned skill, and they fully recognize the need to acquire those skills. There are whole consulting industries whose sole purpose is to provide professional service providers with the skills and support to actually charge a “full” price without providing discounts, and buoy the self‐worth of the provider.

2.11.2 Terms Defined

Discount: A deduction from the usual cost of something typically given for prompt or advanced payment or for a special category of buyers.

MAIN CONCEPTS

The goal of being paid for professional services is not just to recognize that there needs to be payment for services rendered, but that the service in and of itself is valuable.

Discounts in and of themselves are not a particularly good method of providing clients or patients with a reward for some form of behavior. However, discounts could be allowed to various client segments upon the execution of a set of predetermined criteria.

Without a strategic plan to outline those criteria, the general provision of payment discounts by all sorts of providers and circumstances encountered by patients could potentially lead to a significant loss in gross revenue as well as the continuation of that revenue loss into successive financial periods. Discounts are actually a detractor from a veterinary practice's profitability, as not allowing a discount allows the forgone discount to flow right to the bottom line and increase profitability (except in cases of production‐based pay). But even in a production‐based pay environment, a high percentage of the discount would still flow to the bottom line of the income statement as profit.

Without a strategic plan in place for providing discounts to the patient base, a veterinary practice owner could potentially continue the devaluation of his or her services without the expectation of driving positive client behavior and it could also set the expectation that future continued discounts are an automatic expectation (entitlement) rather than warranted by continued good behavior.

The goal of a sound patient payment discount program should be to:

 reward for expected good behavior on the part of compliance

 reward the client for achieving strategic financial benchmarks, and

 reward intended patient intangibles such as marketing the practice to other potential clients.

If veterinarians realize that part of the delivery of service includes an explanation of the value of that service, generally most clients will accept that delivery of value and the resulting price incurred (see 5.11 Discussing Finances for Pet‐Specific Care).

Practitioners with financial knowledge will also be cognisant of the fact that pets are potentially a luxury acquisition. There are many costs post acquisition that are not factored into the original purchase of a pet, including feeding, veterinary care, licensing and registration, daycare, and even dog‐walking services (see 2.9 Anticipated Costs of Pet Care). These are not always fully realized at the onset of pet ownership. As record keeping, administration, accounting, and tax reporting are necessary for keeping track of investments, so are the embedded costs of pet ownership noted above. But both investors and pet owners seem to forget that these ancillary expenditures can add up over time.

There are individuals who, whatever the amount of explanation of significant delivery of high‐value services to their pet, will still be expecting a discount purely because they do not want to pay the full price of the service. There really should be no expected discount for the pet owner; discounts should really be infrequent and at the discretion of the veterinary practice.

Typically, unwarranted discounts are unplanned discounts and are generally provided to pet owners after difficult conversations about loss, a poor prognosis or outcome, or just generally poor communication by the veterinarian or staff with a pet owner. At this point, veterinarians may just offer a discount of some magnitude to curtail a difficult conversation or experience.

Some pet owners may prey on the humanistic trait of most veterinary hospitals to emphasize patient care over finances. But, if there is indeed an unplanned event that is precipitated by the veterinarians' or staff's action or inaction, some form of discount may be warranted. However, if there is a “difficult” or strained conversation with this particular pet owner across all patient encounters, maybe this is not the right owner to be seen at this practice. Maybe this particular pet owner should be allowed to pursue other avenues for pet care. This action may have a positive benefit in that staff (including the veterinarian) may not have to dread that client entering the facility and the ensuing tense conversations that follow, the ones that always result in a discount.

In general, the “right” or ideal pet owner is somebody who:

 follows all medical direction to the best of their ability

 pays all invoices promptly and without negativity, and

 refers family, friends, and colleagues willingly to the practice.

A typical veterinary practice might subscribe to the theory that all their pet owners should be the “right” pet owners for that particular practice – they follow directions, pay promptly, and refer family friends and colleagues willingly. Anybody who does not fit these criteria may not be a core client for the practice, although they are certainly entitled to compassionate and respectful care (see 7.8 Providing Care for Those Unable or Unwilling to Pay). In a perfect world, there would not be any payment discounts except in limited circumstances.

Below are some examples of discount programs.

 New patient referral discounts: a new patient referral discount is a good mechanism to reward both staff and current pet owners for the referral of a new patient to the veterinary practice. This form of discount is warranted for the referral of the right patients to the practice. Many times, it is the same small group of clients that are referring to the practice and they should be rewarded as such. The level of discount that needs to be offered can be nominal, such as a reward card or gift certificate for future retail expenditure at the practice. Most pet owners would not refer family, friends, and associates to the practice purely for the discount that is offered. They are doing it because of the care and service that they receive and wish others to enjoy the same. This discount could be termed as a marketing expense and is a relatively inexpensive means to secure new compatible clients.

 Senior citizen, military or other “target group” discount: some practices employ senior citizen, military or other discounts targeted to groups of pet owners they wish to attract. While this form of discount is commendable, there is questionable goodwill that is generated from its provision. Tighter control of these forms of programs needs to coincide with the practice's strategic program on discounting, since many are of questionable value.

 Daypart strategy: in the restaurant industry, casual dining operators attempt to recapture market share lost to competitors by focusing on certain parts of the day that are weaker in forms of revenue generation and offering discounts on low‐cost, high‐margin items to boost overall revenue and profits. Fast‐food casual restaurant chains use complex analytics to capture those periods of time that may require an additional boost in customer traffic. Using the same strategy, veterinary hospitals could employ the same methods to increase patient flow to slower periods in the schedule, and book low‐cost, high‐margin services in those weaker periods to boost profitability (even while providing a discount). Like hotels offering last‐minute bargain pricing on rooms just to increase their fill rate, veterinary hospitals could offer discounts or special pricing to those pet owners who accept appointments in these slower periods of the schedule.

 Preventive care plans: wellness or preventive care plan packages often represent forms of discounting (see 10.17 Payment and Wellness Plans). A small discount would be welcome to pet owners adopting preventive care plans, but receiving a discount is not their primary motivation for adopting the plan. Rather, they believe it will (i) facilitate improved overall pet health and (ii) provide a budgeted expenditure for their pet's wellness care year over year.

 Empathy or compassion discounts: in lieu of general discounting, each veterinary care provider could be given the discretion to provide a discount when they feel a patient care encounter merits one (i.e., job loss, family tragedy, extenuating circumstances, etc.). There should be established limits for the annual (or quarterly) amount a veterinary care provider can extend, and once that limit is reached, there are no empathy or compassion discounts beyond that point. That will rein in the unlimited discounting some practices employ.

TAKE‐AWAYS

 Design written protocols that all staff understand, and the practice owner enforces in allowing discounts.

 Provide a set annual limit for all providers to utilize when circumstances warrant.

 The plan should attempt to capture new patients as well as reinforce good pet owner behavior.

 Rewarding poor pet owner behavior with discounts is generally counterproductive.

 Keep the discounting plan consistent with little change between review periods.

MISCELLANEOUS

Recommended Reading

1 Lee, J.G. (2015). Dissecting the discount: are incentives worth cultivating new and loyal clients who may be worth 10 times the original investment? http://veterinarybusiness.dvm360.com/dissecting‐discount

2 Smith, D.P. (2016). The Daypart Dance. www.qsrmagazine.com/menu‐innovations/daypart‐dance

3 Stewart, J.K. (2017) Patient discounts – the fine line between leniency and liability. www.medicaleconomics.com/medical‐economics‐blog/patient‐discounts‐fine‐line‐between‐leniency‐and‐liability