Memorandum Submitted by Mr Chris Bainton
(W13)
THE COMPETITION COMMISSION REPORT
A MEASURED RESPONSE:
The situation is that pressure is to be applied
to reduce the cost of POM medicines. The effect of this will be
a constant eroding of veterinary practice profitability unless
measures are implemented to redress or negate the impact of the
proposed changes.
The veterinary surgeon has used a high margin
on POMs to maintain profit while supplying a first rate service
for the animals under their care. I have listened to the view
expressed by both this enquiry and its predecessor the "Marsh
Report" that perhaps the animal owning public do not want
the provision care set at quite such a high (read expensive) level.
Degrading the current high standards of veterinary
care available is NOT a solution, the pet owning public and the
British livestock producer would be horrified at the very thought
of such an outcome. The government through its own agencies is
already showing concern at the possible effect on disease surveillance
and animal welfare if the number of veterinarians in large animal
practice continues to decline.
TO FIND
A SOLUTION:
The problem of initiating unilateral changes
in response to a major market upheaval is that others in the same
trading area will respond differently. This has the effect of
preventing a "joined-up" approach to the challenges
faced. The idea that the increases necessary to maintain a stable
veterinary market can be achieved by simply increasing the price
of the small animal consultation fee or that livestock producers
will "have to" pay the new higher going rate for a callout
is in my opinion naive.
The only viable option is that the owner of
the well animal must contribute to the practices provision of
veterinary care. This I believe can be achieved without undue
hardship through the judicious use of client registration contracts.
Suppliers of services into many other markets have implemented
this policy, from British Gas Boiler maintenance contracts to
the Software or Hardware support for your practice computer.
I can only imagine the look of horror on practitioners
faces as they read the above statement but I can however, anticipate
some of the many negative arguments that will be running through
their minds.
(1) My clients will never stand for it!
(a) Offer them the choice you maybe surprised.
(2) My farmers can't afford it!
(a) Make the contract attractive so they
can't afford not to have it.
(3) The public will see this as vets ripping
them off!
(a) Not if your not ripping them off in your
own mind they won't.
(4) How could I charge for something I never
charged for before!
(a) Explain the new charge in response to
the market changes.
(5) New clients would simply go to my competitors
who don't change!
(a) Some will but remember they also lost
margin that volume cannot replace.
(6) I would loose all my clients to practices
who don't charge to register with them!
(a) Not if you offer a contract as an alternative
to high medicines charges.
(7) The powers that be will insist I see
everyone anyway so what's the point!
(a) The point is to incentives good clients
not disenfranchise others.
(8) What do I do with the client who will
not pay to register with me/us?
(a) Nothing, you continue with your present
service level.
(9) How on earth do I work out the price
to charge a client for registration?
(a) Not quite so simple but not insurmountable
either. See The Solution.
The answer to dealing with all the problems
posed and questions asked, not to mention the myriad that I have
not touched upon, is very simple you do the best you can.
THE SOLUTION:4
A mixed species orientated veterinary practice
with an average wholesaler turnover of £20,000 per calendar
month giving an approximate POM sales turnover of £150,000
this equates to £150,000 profit at 100% markup on wholesaler
list price. The loss of this level of profit to any business is
obviously a major management challenge but it is NOT however,
an insurmountable one.
Register Clients On Contract:
The SA client gets one free health check for
their animal per annum and drugs at wholesaler list price.
The LA client gets one free visit per annum
(3 required for prescription purposes) plus drugs at wholesaler
list price.
The Equine client gets one free visit per annum
plus drugs at wholesaler list price.
Client base:
| Type |
Number | Register fee
|
| LA Clients. | 350.
| £240.00pa | 50% initial take-up
|
| SA Clients. | 5,000.
| £25.00pa | 50% initial take-up
|
| Equine Clients | 100.
| £50.00pa | 50% initial take-up
|
Approximate average number of full price consultations =
8,000pa or 167 a week
Step 1: To introduce the option of contract veterinary
services for all your clients along the lines given in the above
example.
Step 2: To reduce your selling price for all drugs to
veterinary wholesaler list price for all contracted clients.
Step 3: To increase your consultation charge by the deficit
figure to redress the balance.
Example:
| Loss of medicines margin | £150,000.00
|
| LA Clients on contract | £42,000.00
|
| SA Clients on contract | £60,000.00
|
| Equine Clients contract | £2,500.00
|
| Consult fee increase of £6 | £48,096.00
|
| Balance | £2,596.00 |
The practice will receive additional benefits that come from
a contracted scheme these include reducing the threats posed in
relying on volatile medicines sales, small animal vaccination
periodicity being only one example.
However, constant price maintenance will be required as benefits
from inflationary price increases will be dramatically reduced.
22 April 2003
| Current practice makeup | Number
| Monthly | Annual
| |
| Indicate the number of Large Animal clients
| 350 |
| |
|
| Indicate the number of small Animal clients
| 5000 |
| |
|
| Indicate the number of Equine Animal clients
| 100 |
| |
|
| Indicate the number of other clients | 0
| |
| |
Indicate the number of your average full
price consultations
| | 668
| 8,016 |
|
| Indicate your monthly wholesaler turnover. |
| £20,000.00
| £240,000.00 |
|
| Indicate average POM % of that turnover. |
63% | £12,500.00
| £150,000.00 |
|
| What is your POM Markup on list | 100%
| £12,500.00 | £150,000.00
| POM Profit |
| By reducing POM Markup to list price to |
0% | -£12,500.00
| -£150,000.00 | Lost POM Profit
|
| New Client Contracts |
| Number | Annual Fee
| |
| Large Animal Clients Assuming takeup=50% |
175 | £240.00
| £42,000.00 |
|
| Small Animal Clients Assuming takeup=50% |
2500 | £24.00
| £60,000.00 |
|
| Equine Clients Assuming takeup=50% | 50
| £50.00 | £2,500.00
| |
| Other Clients Assuming takeup=0% | 0
| £120.00 | £0.00
| |
| |
| | £104,500.00
| |
| Change required to current consultation Charge
| £5.68 | £45,500.00
| £150,000.00 | Regained profit
|
| 
