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Monday, January 23, 2017

The Growth Of Corporate Veterinary Medicine

A few weeks ago a small bombshell hit the veterinary community.  Mars, Inc. announced that they were buying Veterinary Centers of America (VCA) and their subsidiaries.  And this has fueled strong discussions and great concern in the profession in the US.

To anyone not in the veterinary field the significance of this will likely be lost so let me give some details and perspective.  Mars is the largest privately owned company in the world and spans every continent. The company was started by the Mars family and is still  run by that family, now in the fourth and fifth generations after the founders.  Most people know them for their candy products, such as M&Ms, Snickers, and other classics.  But over time they have bought up many other companies, gaining access to their product lines.  To get an idea of the incredible number of human and animal products they make, head over to the Wikipedia entry on them.

Several years ago Mars bought all controlling interest in Banfield Pet Hospitals.  This is a national veterinary chain, primarily based in PetSmart stores, currently with over 900 locations across the US.  Last year Mars bought BluePearl, a chain of specialty and referral clinics with over 50 locations, and Pet Partners, a smaller corporation with over 50 vet clinics.  This month they announced the purchase of VCA, which gives them nearly 800 clinics around the country.   VCA also owns Antech Diagnostics, which is the largest veterinary diagnostic lab in the US, serving a majority of veterinarians across the country.  By the end of this year the Mars company will own nearly 2000 veterinary clinics as well as a huge diagnostic laboratory.  This is unheard of and unparalleled in the history of veterinary medicine.

Historically a veterinary clinic has been owned by one doctor or a small group of partners.  Over the last 20-30 years we have seen a rise of large corporations such as Banfield and VCA, as well as smaller regional or local corporations that may have anywhere from a dozen or two to a hundred or more.  While the two biggest companies gain most of the publicity and concern, there are many other smaller corporations out there (such as Pet Partners, now owned by Mars).  But even with these companies the vast majority of veterinary practices are owned as a single location and not a conglomeration.  Though Mars will own a large number of clinics, larger than any other company in history, they will control only about 6% of the practices in the US. 

In my experience veterinarians as a whole are very strong-willed, independent people.  When I was going through school we knew that the majority of the people graduating would go on to be owners or partners of a small animal clinic.  This is still the case, but the patterns are changing.  Historically it was almost an expectation that after practicing for a while a vet would buy into that clinic or open their own.  But the younger generations of vets are less interested in being business owners, and are more interested in flexible schedules and quality of life outside of work.  The younger vets simply don't want to have to work the 60+ hours per week that generations past saw as normal.  I can't blame them.  This shift is in part due to generational differences, but are also because the profession is skewing highly female and many of these doctors want the freedom to raise families without having to worry about running a business.  While there are certainly still many vets who want to have a clinic of their own, and can run them successfully even with kids and a spouse, we are seeing fewer vets who want to go this route.

To these younger vets a corporation can seem very appealing.  They can get a good salary, have a degree of flexibility with their work schedules, and simply never have to worry about taking out loans (on top of the ones from school) to start a clinic.  They get to simply be a vet for their life, which is all that many of them want.  A corporation, especially the larger ones, gives them the structure and freedom to have this lifestyle.

I've been following discussions on the Veterinary Information Network (VIN) and other sites.  While there are some people who shrug and don't care about the growing Mars hold on our profession, there are others who are significantly worried about it.  Here are some comments I've seen online.

"My big concern with the acquisition is this: Who owns our profession now? I would argue that as of the drying of the ink on the Mars VCA deal veterinarians no longer have a profession. Now Mars Co which is in essence just a very wealthy family (who so far as I know are not veterinarians) are going to be substantiatively guiding our profession. We are now going to take our professional direction from the kings of candy. We have entered the new future of veterinary medicine not as a profession but rather as a trade in which each veterinarian is now a production unit." 

"Essentially, if there is one player who owns a significant portion of the market, they will be able to dictate the conditions of how you practice, what your treatment recommendations would be, what products you use, and who you refer to."

"There will be little room for dissent once the vertical integration is established. How are you going to say no when the other 75% of practices in your town are effectively owned by the same entity? There has always been the ability to move to another practice if you did not agree with management or philosophy of your current place of employment. This luxury may not be as available in the future."

"I would like to see my clients have choices. I would like to have choices about where I am able to refer clients for advanced care. Unfortunately the only emergency facilities around me for hundreds.....yes hundreds of miles are VCA or are in the process of becoming VCA."

"I don't like feeling like I'm speaking for everyone, but in my case it doesn't matter that Mars/Banfield bought VCA - it could be VCA buying Banfield and Blue Pearl. It could be Apple, or Google, or GM, or Lockheed Martin buying VCA and Banfield. My problem is not with who is doing the buying, but the buying and consolidation under one (albeit big) roof is happening - and veterinarians aren't going to be driving the company."  

"While it may be true that Mars will control less than 10 %of the veterinary hospitals in the nation what I see on a local scale is unmitigated Monopoly."

"While I cannot discuss my prices with my local practice owners, the VCA's and Banfields are more than able and in my experience willing to price fix a geographic area. Combine that with limited exit strategies to sell my practice, the increased cost of drugs, health insurance etc on a unit basis due to economies of scale ......I can tell you I am concerned.....very concerned. I can tell you that when individuals ask me if I would make the same decision to pursue veterinary medicine as a career today as I did twenty some years a tech and then as a doctor. The answer is no...emphatically no."

"I find the corporate takeover (though limited at this time) of our profession a tragic occurrence for future Veterinarians. As corporations control more of the profession we will become more of a cog in the machine and easily replaceable. I always looked at practice ownership as the means to improve my financial position in life as owners do make more money than employees. If this trend continues that will no longer be an option for future veterinarians to better their position and, at least to me, it seems to severely limit their financial future. Is Veterinary medicine doomed to become the "second" family income and no longer an option as the primary family income?"

 But not everyone is so "doom and gloom".

"In the 10+ years I've been on VIN I've been reading threads about the certain and imminent doom of the profession at the hands of Banfield and VCA. Here we are 10 years later and they still have only 6.5% of the market COMBINED. I think we have the best of both worlds as a profession. The profession has a enough economic upside to be seen as a desirable asset to large companies, yet the vast majority of it is privately owned."

"Mars is not the boogey man, they are a large company interested in profit that pursues other successful companies within their areas of interest and expertise. Personally I think smaller private equity firms are going to have a bigger impact on our profession's ownership over the next 20 years than one corporate player. No one talks about those deals though because they are invisible. (the clinic's name doesn't change)."

"I think we're all going to be just fine, and I say this a practice owner surrounded by corporate practices. They were private clinics before (with the exception of a Petsmart Banfield) and now that they are corporately owned that just provides an extra differentiator ("locally-owned practice") for me that wasn't there before. In any case it's counter productive to think that veterinary practice owners-- uniquely among American small business owners--ought not to have to contend with corporate competition."

"A few years ago at a dinner party at a friends house, another guest was some big, mucky muck who ran in house seminars for Mars. It was his only job; setting up and conducting management seminars all over the country for Mars. He had a second home in Italy, so I gathered it paid well. We sat next to each other over dinner. He was fascinating and I gained a great deal of respect for how Mars operated. This might have been before Mars bought Banfield....I want to say Mars was always a financier of Banfield....but this would have been around 2002-3. Anyway, I've always been impressed with whatever mars has done. They look like they know what they're doing."

"It's easy to blame Banfield because it's corporate and ubiquitous, but as said above, you will find plenty of questionable things happening at private practices as well - but it seems like if a doctor in private practice does questionable things, it gets blamed on the doctor. If a doctor does something questionable at Banfield, then Banfield gets blamed - not the doctor."

As you can see there are some pretty passionate views on these events.  Many people are genuinely worried for themselves and the profession as a whole, and some see this as the worst thing to have ever happened.  Others simply aren't worried.

So what's my take on this?

First, I certainly don't subscribe to the opinion that all hope is lost and the profession is ending.  I think that there are pros and cons to corporations owning veterinary practices.  These companies often have better negotiating and purchasing power which allows them to manage costs more easily and give higher salaries and better benefits than a privately owned practice.  There is more lateral and upward mobility for the veterinarians.  They provide some consistency and guidelines for practicing vets.  But they can be limiting in flexibility for an individual doctor.  Sometimes the leaders can be unfeeling because they don't have a good understanding of day-to-day challenges.  Change is often slow and difficult, unlike a private practice owner who can suddenly decide to buy a new chemistry analyzer.

I firmly believe that no veterinary practice is going to be perfect for everyone.  I've seen privately owned clinics that are far stricter on dress codes, behavior, and medical choices than either VCA or Banfield.  I know that vets who want their own practice or more independence will not be happy with a corporate environment.  Doctors who only want to practice and never want to be owners or partners will be happy to turn over all business responsibilities and worries to someone else.  A place that is a perfect fit for one person may be only manageable for another and be complete misery for someone else.

Our profession is changing, and doing so pretty rapidly.  The demographics of who attends veterinary school has altered dramatically in the last 30 years.  Within the last 60 years we have moved more and more from a rural to a suburban and urban outlook, with an increasingly smaller percentage of new graduates choosing to go into large animal medicine.  The growth of the internet has seen a noticeable shift towards clients purchasing medications and preventative products online rather than buying them from the local vet.  I would say that the internet has been a bigger problem for all kinds of businesses than any large corporation has.

In the US corporately owned veterinary practices aren't going away.  But I don't see them becoming so large and all-encompassing that they wipe out the traditional privately owned practices.  Just as there is room for chain restaurants and "mom and pop" ones, there is room for private and corporate veterinary practices.  In fact, I think having both available gives veterinarians more choices about where they want to work.