Fixing a Leaky Bucket: Improving Veterinary Practice Profitability through Inventory Management

Posted by Joe Faiella | Nov 29, 2018 11:35:00 AM

Do you know how much daily revenue your veterinary practice is losing? Do you know how to fill those revenue gaps? The economics of a veterinary practice can be difficult to understand, but a simple metaphor helps us better understand ways to increase profitability. Think of the size of your veterinary practice as a bucket, the hose filling the bucket as revenue, and the ladles removing water from the bucket as costs.

Most practices focus solely on the top of the bucket, but profitability is most improved by taking a closer look at the bottom of the bucket. Every practice has two holes in the bottom of its bucket:

  • Missed charges
  • Unnecessary purchases (from theft, expiration, waste, etc.)

And one issue that threatens the integrity of the entire bucket:

Leaky-Bucket-infographicHow big is the “missed charges” hole in your bucket? 

Industry standards estimate that missed charges in a veterinary practice range from 5% to 20%. These percentages are often associated with your pharmacy/supply (30% of revenue) and diagnostics (20% of revenue).  

For every million dollars a practice does in revenue, the missed charges hole could be leaking anywhere from $25,000 to $100,000 a year. Looking at inventory alone, this can be anywhere from $15,000 to $60,000 a year in lost profit to the practice. That’s about $50-$200 a day walking out the door.

How big is the “unnecessary purchases” hole in your bucket? 

An average veterinary practice’s Cost of Goods Sold (COGS) is about 20%. This amounts to an additional $8,000-$16,000 a year of losses in a practice operating at $1 million in revenue. The daily losses could run between $25-$50. Survey results showed that many practices believe an average of 4%-8% of their lost cost of goods is attributed to theft, expiration, hoarding, and general waste.

How does your practice compare?

Generally, about 5% of a practice’s gross revenue is being lost each day in inventory missed charges and unnecessary purchases, with about another 2.5% being lost from missed diagnostics. Want to calculate the numbers for your practice?  If you are a $1 million-dollar practice, you average a loss between $75 and $250 a day in inventory alone – $23,000-$76,000 gross. Missed charges from diagnostics total between $33,000-116,000 of gross revenue (average 7.5% of gross).

Calculate your practice's average missed charges—Use your annual gross revenue and these industry averages to see how much profit could be leaking from your practice.

How can you stop your practice from hemorrhaging these profits each year?

Once the holes in the bucket are identified, your practice still has to take action to reduce the leaks and  increase profitability. How do you do this without addressing vendor costs or year-over-year revenue? Implementation of controls.

Hardware and software solutions that streamline your practice’s processes can have significant impact on profitability. Over the last decade, practices have begun to rely too heavily on software-only controls. Though it’s a critical component in controlling revenue gaps, software alone can never be the solution. While one can function without the other, efficiency and performance are most improved when a hardware plus software solution is implemented.

Below are five areas in your practice that can be improved with controls.

1. Treatment Area Injectables: Veterinary practices often move at a fast pace, making quick medication access important. However, whether software workflows are in place or not, this means treatments can be administered without charges ever being invoiced.

Controls: Integrating your software and hardware controls can save you thousands of dollars a year. With CUBEX integrated into your software, medication can be accessed once a billing item is created for the injectable.

Don’t have workflows in place? Download our Controlled Substances Checklist to get started.

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2. Fluid Treatment: As technicians and staff get busier throughout their daily practice processes, it’s easy to switch out a fluid treatment and forget to add the additional charge. In one case, a large emergency hospital recognized $5,000 to $10,000 more revenue per week in fluids alone once they implemented controls.

Controls: A software and hardware combination allows for quick access but also ensures charges are accurately recorded. Using biometrics fingerprint access, CUBEX systems provide secure access to fluids, without slowing down your practice’s administering process.

 

3. Diagnostics (In-Hospital and Reference Laboratory): Practices that don’t adopt electronic requisitions for their outside laboratory suffer significant revenue loss from diagnostics. Reference lab diagnostics are frequently missed due to requisitions being sent without invoiced charges or additional testing being done after billing is completed. In-hospital laboratory diagnostics often do not have a paper trail, causing them to be missed even more frequently. 

Controls:  Whether you use an outside or inside lab, adopting a mixture of hardware and software controls can give your practice significant savings. For diagnostics, properly integrate processes with your practice management system and ensure that test access is limited until there is a billing item created.

 

4. Preventatives: Loss of preventative medications, such as tick and flea treatment, is often due to missed charges and theft. The open access to these preventatives is tempting when they would otherwise be costly. In addition to theft, missed charges are common on preventatives, which creates greater loss in this area.

Controls: With secured access to preventative medication through hardware implementation, losses can be reduced. Pairing software controls with your hardware helps monitor the access to further reduce risk.

 

5. Controlled Drugs: The opioid crisis creates significant risks for veterinary practices. Low security storage of these controlled drugs, whether it’s a countertop safe or cabinet, allows staff or clients to access stocked narcotics quickly and easily. These uncontrolled environments open practices up to risk and lead to increased drug diversion. While diversion may not be the largest leak in the bucket, potential DEA liabilities threaten to make the risks larger.

Controls: Tightening your daily practice process is key – don’t leave your narcotics safe unlocked during the day and limit who can access the safe. Additionally, find hardware and software solutions that reduce the risks associated with narcotics safety and missed charges. Consider adding a “Controlled Substance Handling Fee” commensurate with the additional measures required to keep your practice, your patients, and your pet parents safe. CUBEX has built two solutions around these needs: CUBEX Mini and CUBEX Tower. Both systems accurately capture charges, log inventory, and secure drug accessibility.


For more help improving financial health in your practice, download our KPI Worksheet to start identifying missed revenue opportunities:

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If you are interested in a FREE detailed assessment of your practice and benchmarking of your practice, contact us.   

Topics: Inventory Management, Practice Management, Controlled Substances