Expansion Plan Should Include Fee Increases

Your practice is bursting at the seams and you are ready to expand your existing facility or build a new hospital. To improve patient care, you may need more exam rooms, a bigger surgery suite or better traffic flow in the treatment area. How can you make the most of your transition to an improved or new space?

You will want your client base and your team to embrace the change. However, expansion or a new facility will mean increased overhead expense and the need for greater revenue. To grow revenue, you will need to increase new client visits and—more than likely—increase your fees.

You may fear price increases will not be well received and your staff may already be frustrated with explaining the high cost of quality medical care to clients. Just as you painstakingly and strategically plan every aspect of your new facility, start early, plan carefully and look for avenues to make your move a financial success.

Plan Ahead

Because there could be a 24- to 36-month period between starting on your new facility and moving in, start planning at least two years out and determine how much revenue you will need to support the new space. Look at the numbers and do some homework. In the following example, we assume your practice is profitable and you are managing variable expenses (cost of goods sold and labor costs) well. How much will your operating expenses increase with an expansion? After crunching the numbers, you have determined you will need to generate 15 percent more in gross revenue annually to meet ongoing increased costs.

Take a look at your current key performance indicators:

  • How many doctor-associated transactions does your practice have annually?
  • What is the average transaction charge (ATC)?
  • How many new clients does the practice see a month?

To grow revenue, you will need to both increase the ATC and gain new clients. Start increasing that ATC right away by focusing the team on improved client compliance through better education and more thorough recommendations. Make sure revenue is not walking out the door through missed charges.

Look for ways to capture missed fees, such as using treatment flow sheets and requiring staff to enter all charges for hospitalized pets daily rather than tallying them up right before the pet goes home from the hospital.

Some Calculations

In this example, we assume your two-doctor practice currently grosses $1.5 million and has 9,000 patient visits annually. You need to grow annual revenue by $225,000 to reach your targeted 15 percent increase or $1.725 million in annual revenue. Just by focusing on increasing the practice ATC by $15, you have found $135,000 in additional annual revenue.

Begin routinely recommending commonly overlooked services, such as well-pet fecal exams and senior pet laboratory screens. By eliminating missed charges through operational changes, you have found $20,000 in annual revenue. To cover the anticipated new overhead, you still need an additional $70,000 in annual revenue to support the new facility. Assuming the practice maintains the same level of patient visits in the new facility, you will need to raise fees by about 5 percent on top of periodic increases necessary to keep pace with inflation. (Many practices raise fees for “non-shopped” services by approximately 2.5 percent every six months to cover increasing overhead expenses, such as the cost of medical supplies or staff raises.)

If you will not be moving into your new space for two years pending completion of construction, you can begin slowly raising fees now. To reach that additional 5 percent growth, you may need to raise fees on nonshopped services such as anesthesia and non-routine diagnostics by about 6.25 percent.

Remember, you will want to keep fees for “shopped” services in line with local competitors providing similar services and quality of care. Revenue from commonly shopped services such as well-pet examinations and vaccinations can constitute up to 25 percent of gross revenue, so you will need to raise fees on your non-shopped services by more than 5 percent, or about 6.25 percent, to get to that targeted overall 5 percent increase in gross revenue. If you increase non-shopped fees by about 0.008 percent quarterly for two years, you will meet that needed overall 5 percent increase in two years’ time. Remember, most clients are not likely to note small, incremental changes in non-shopped fees. If they do, continue to add value to client visits through great client education and outstanding customer service.

Foster a practice culture dedicated to ensuring great visits every time clients walk in the door and make them feel they are part of your practice family. You and your team always should stress the practice’s commitment to providing excellent care and note that you, too, are amazed at how much the cost of providing highquality care continues to rise.

Generate Excitement

Strategically prepare clients for the new facility and get them excited about the process. Before starting, ask your staff and good clients what they would like to see in a new practice facility. If possible, incorporate their viable ideas so they will embrace the changes. Once you have an architectural rendering of the new facility, display it in the waiting area. Share your excitement with your client base.

Plan a groundbreaking ceremony and invite yourbest clients. Use your website and social media to keep clients informed of progress on the new facility. Advertise new services, such as expanded boarding, digital radiography or extended practice hours. Post construction updates to your Facebook page weekly.

If you do not have a practice newsletter, start one. Through a monthly newsletter, you can keep clients abreast of the work, and they will look forward to coming to the new hospital. A newsletter also is a great avenue for staying in touch with your client base and promoting your services.

You also want to get new clients in the door. A well-advertised facility expansion or new building should further that process and drive in even more revenue. Once your new facility is complete, hold a grand opening and market it well. Invite clients who have been in to see you in the preceding year. Offer these clients a $20 credit on their accounts for every new client they bring to the grand opening who subsequently makes an appointment. Try to get “stale” clients back in by sending out a mailer or an email blast with a coupon offering a free “welcome back” exam.

Try to get local media outlets, such as the local newspaper, a radio station and even a TV station to cover your grand opening. You might have better success with media coverage if you link the opening with a public interest event, such as a pet adoption day supporting a local pet rescue group. If you engage in sound strategic planning, make the most of revenue opportunities already available, initiate well-timed fee increases and market appropriately, your practice expansion should be a tremendous success.

Dr. Hart is veterinary relationship manager for Live Oak Bank. This Education Center article was underwritten by Live Oak Bank of Wilmington, N.C.


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