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Veterinary Forum November 2007 (Vol 24, No 11)

Equipment Upgrades: Big Questions for Small Budgets

by Paul Basilio

    If you take a look around the average veterinary practice, it's hard to imagine the interior landscape staying the same for any significant time. The process of upgrading and staying current is a constant, dynamic progression. What was hot and vital 5 years ago may be eclipsed by something newer, smaller and more efficient today.

    "To not continually advance could lead to a stagnation process. I think that unless you continue to advance — that's all of us and in any field — sooner or later you become a fossil," says Jon Rappaport, VMD, co-director and co-owner of the Center for Animal Referral and Emergency Services (CARES) in Langhorne, Pa.

    Sizing up your needs

    Before making the decision to upgrade a piece of equipment, a veterinarian must ask him- or herself questions to determine whether the upgrade will fit into the practice.

    Rappaport begins the search for new equipment by asking some big questions, such as, "Why do I want to do this, and what will it do for me, my patients, the quality of service, the owner of the pet, the doctors and the staff? Will it affect the workflow of the practice or the quality of care? These are all answers I would like to know."

    Once the goals and resources of the practice have been analyzed and all questions answered, the next issue is cost. There are different ways that a practice can finance equipment, with the most popular being leasing or buying. Depending on available capital and revenue, each option can be viable, so it is important for a practitioner to review the benefits and drawbacks of each carefully.

    "That's an important question," explains Thomas E. Catanzaro, DVM, MHA, FACHE, who is CEO of Veterinary Consulting International, "since only the interest on a loan can be deductible, whereas a lease is entirely deductible. The next consideration is funding. If a lease or lease-purchase is being considered, is there a no-penalty upgrade? Is there a buyout capability with no penalty if you're paying over time? The penalty for 'early out' of a lease is a critical aspect to review and can be detrimental to cash-flow planning."

    Understanding that some costs may go beyond the initial cost estimate also is necessary in making upgrade decisions. Hidden costs and unexpected pitfalls can have a negative effect on a practice and can end up impeding the quality of care provided to pets.

    "Depending on the piece of equipment," says Gary D. Nors­worthy, DVM, DABVP (Feline Medicine), owner of Alamo Feline Health Center in San Antonio, Texas, "you have to look at what kind of changes may be required in your facility in order to house it. You have to look at how long it is going to take to get it installed, and then on the operation side, you want to know what kind of training is necessary. And then, of course, you get down to what it is going to cost per use and what you're going to charge per use, and, hopefully, there is a significant difference between the two."

    Sometimes dealing with these costs may not be as easy as basic addition and subtraction. In many cases, the cost of a new piece of machinery may never be directly recovered. The equipment can, however, still contribute to the overall quality of the practice and, in some instances, indirectly related profit centers.

    "Once we decide that something is good medicine and good for the patients, we'll try to sort out how we pay for it," Rappaport says. "If you're not going to break even, then whatever service that specific item enables you to do, you either have to be willing to take a loss — and, in some cases, you are because it may just be plain good medicine — or in some instances, over time, the other services that the new test opens up may indirectly pay for the unit."

    Rappaport plans to purchase one item for his practice, an electroretinalgram (ERG), which falls into this category. "Our ophthalmologist wants one, and we are going to purchase it for him," he explains. "It's probably going to be a $10,000 item, and I believe that the typical fee for use of the item is around $150 to $200. My understanding is that — at that fee structure for an item of that cost — it's not likely to pay for itself, at least not until some great time down the road."

    The usefulness of the ERG, however, is important to his colleague's practice. The machine will be used to detect whether patients with advanced cataracts will have vision once the cataract has been removed.

    "I think it's important that we do what we can to make sure we don't take this patient and perform surgery to remove the cataract, only to find that it's going to be blind anyway," Rappaport says. "That's not taking good care of the patient. It's not good for the dog, the pet owner, the referring practice or for us. That is an expenditure we are going to make that, in essence, is just going to be good care of the patient. I think that as long as the decisions we make are in the best interest of patients, everything will ultimately work out."

    For practitioners without a lot of capital who believe a new piece of equipment may take them to the next level, the timing now is perfect. "The market [for borrowing money] is easy," says Catanzaro. "I came out of the AVPMCA [Association of Veterinary Practice Management Consultants & Advisors] conference, and lenders are beating the walls. They want to lend money to veterinarians. They're just waiting in line, saying, 'Okay, who wants the next set of money?'"

    A brand new machine may be an attractive draw for a practice in search of the best and most advanced equipment, but the price tag on new items may be a hindrance to some bank accounts. Fortunately, there is a large market for refurbished, preowned veterinary equipment that can satisfy some needs and specialties.

    "Right now, you can get the best dental x-ray machine by going to a dentist and asking who his or her supplier is," Catanzaro says. "There also are reconditioned dental x-rays for $1,000, whereas, new ones are selling for $5,000. If you have a reputable vendor, then preowned, reconditioned equipment may work well as an initial investment. You can use it for 3 or so years, then decide if you're going to upgrade as the technology upgrades."

    Rappaport agrees: "You don't necessarily need to spend a boatload of working capital right off the bat," he says. "That's when I talk to my accountant and ask what the best way would be to do it. I try to worry about practicing medicine and let my accountant guide me by taking care of the financial aspect."

    Preowned human medical equipment also can be a big part of upgrading the veterinary practice. There are many machines that transfer well between human and animal medicine, and the bargain-hunting veterinarian may realize significant savings.

    Catanzaro explains that about 8 years ago, the Joint Commission on Accreditation of Healthcare Organizations (JCAHO) changed the requirement for pediatric endoscopes so that they had to be totally immersible. "The number of pediatric endoscopes that came on the market after that was amazing," he adds. "Veterinarians who had linkage to their local hospital had their choice of many small endoscopes that fit dogs and cats. Vets have forever tried to get human health care anesthesia machines and portable x-rays, but they forget that there is a lot of other common equipment, as well."

    The growing use of digital radiography in veterinary medicine is driving many practice owners to look into refurbished human medical setups for a good deal, although special veterinary software may be needed for the machine to fully live up to its potential.

    The big payoff

    Norsworthy began using digital radiography in December 2005 and almost immediately saw a profit. "I take many more x-rays now than I used to, not because I have to pay for the equipment but because the quality is so good that I know if there's an abnormality, I'm going to be able to find it."

    He adds that in the first 3 months of digital operation, the practice income generated by radiography was up about $10,000 compared with the same 3 months of the previous year. Add to that the savings from not having to buy film and processing fluids and pay the processing fees, and the overhead savings was an additional $3,000.

    Rappaport adds that digital radiography has freed his technicians to do other things since they do not have to spend time in the darkroom waiting for x-rays to be developed. "It frees them up to spend more time either carrying out treatment orders on the floor or assisting clinicians in surgery or the exam room by conducting tests."

    Dental radiography in particular can offer a quick investment recovery. Catanzaro explains that a preowned digital dental processor is only about $1,000, and that money can be quickly recouped with little technologic expertise. He adds that clients tend to come back for dental x-rays for each visit and that it's a recurring trade that tends to also spread to potential clients by word of mouth.

    "About 85% of adult animals coming through the front door need some kind of dental care," Catanzaro says. "The AAHA [American Animal Hospital Association] study on compliance showed that an average practice lost a potential $300,000 a year per doctor just on dentistry. What if you only had half of that? For most practices, that's fat city."

    Endoscopes, according to Nors­worthy, would fall into the category of equipment that may not pay for itself on any short-term schedule. "We don't use endoscopes more than three times a month," he explains. "Over the course of 10 to 15 years, they'll probably pay for themselves, but it just takes a long time. Endoscopy was popular 20 years ago, and everybody had to have one. We thought it would do things that — it turns out — it didn't do very well. It's one of those things that I'm glad I have them, but if I had to buy new ones, it would take me a long time to make the investment profitable."

    "On the other hand," offers Catanzaro, "I know a guy with nine different-sized endoscopes. He loves that. He gets two or three referrals a day and does some within his own practice, so he's just having a grand old time. He got a good buy on them."

    This difference illustrates the importance of creating and updating a practice philosophy to ensure the equipment you buy is a good match to your practice.

    Catanzaro describes how, as a consultant, he works with practices to find the right fit. He has them write a job description as if the machine were a staff member and then put that piece of equipment to work. "If they can work with the vendor to get it on a 90-day lease-purchase or a 90-day test," he explains, "and then actually work the machine according to the job description, the practitioner can see if in fact that piece of equipment works according to the job description," he says, explaining that would validate the purchase for that practitioner.

    He adds that when a machine does not live up to expectations or realize a return on investment, usually it is because of a failure in the practice philosophy, not the equipment itself. He has seen many good machines become dust collectors because a practitioner or owner misunderstood the needs or resources of that particular practice.

    Another lucrative profit center that some veterinarians may be missing is the well-care visit. These visits rely heavily on the use of diagnostic equipment and can lead to more recurring trade.

    "The challenge we have," Catanzaro says, "is that veterinarians were trained at a teaching hospital that capitalized on sick animals. Yet, the most money we can make is on animals that are not yet sick," adding that by charging reduced prices for wellness visits that involve different members of the staff, clients will bond to practices and keep requesting potentially profitable services.

    Catanzaro offers that when his consulting company does a standards-of-care wellness consultation, the amount of net growth for the practice in the following quarter is 16% on the low end and 68% on the high end. "Most of the people coming through the front door want wellness. It's a fast ramp-up program. When you're getting into the technology [of wellness care], you're getting more and more into PCR testing for genetic predispositions." He adds that these tests are not a big equipment expenditure for the average veterinary practice, although they are a high-technology outlay.

    Odds and ends

    When searching for new ways to improve your practice, raise the standards of care and increase the efficiency of the office, the nonmedical equipment can sometimes be overlooked. The heart of the veterinary practice does not always lie in the medicine.

    Rappaport praises his commercial laundry machines for reducing the amount of time and labor required to keep his practice clean. "We have a few of each in the hospital, and the amount of work that they save a staff member from running small load after small load and transferring the loads is an enormous saving of labor."

    The need for precise and efficient recordkeeping is increasing in veterinary medicine and a top-notch computer system is becoming vital. Memory upgrades, hardware, software and practice management integration are all nonmedical features that can raise the standards of the veterinary practice.

    As technology and the need for interactivity continue to rise, more veterinarians are using the Internet to spread the word.

    "Web pages need to change regularly and need to include information and options that bring people back," says Catanzaro, "but a lot of people put it out there like a practice brochure and never touch it again," adding that having a person on staff assigned to watch web page trends and keep the flow of content updated can be beneficial.

    He says that posting cases of the month or other items of interest to clients can keep people coming back and keep the practice in the minds of customers.

    Text messaging is another facet that often gets overlooked. "In Australia," Catanzaro says, "all adults, no matter their age, use it. They text-message each other rather than trying to email or call on the phone. We haven't learned that yet." He adds that a lot of Americans under the age of 24 who have grown up with that technology will soon be hitting the mainstream, and practices that aren't ready for technology-laden communication will be left behind.

    "I should be able to tell my computer to send a text message to a client the night before a surgery that says, 'Don't forget: No food after midnight, but you can feed him all the water you want. See you at 8:30 for the appointment.' I only know of one system that is capable of doing it, and that's because they've been working with text messaging in other countries," Catanzaro says.

    Norsworthy has operated a paperless practice for 5 years and has had considerable success with upgrading his computer system, which has a total of 26 computer stations. His transition to a paperless practice was long, but it emphasizes the caution needed for making significant changes in a practice without enough research.

    "We used the software program with the written records for a year," he says. "That allowed us to understand how the program worked." Norsworthy also contracted a person to assist his staff with the transition. The consultant gave the staff one new task each week for 3 months. There were several steps to the process, such as creating lists of diagnoses, procedures and dispensable drugs that were entered into the computer system.

    "He came in one weekend, and we closed at noon on Saturday. We had training Saturday afternoon and most of Sunday, and then we went live on Monday. It was very smooth because we spent 3 months getting ready to make it happen. I'm not aware of anyone who has gone paperless and then had to go back to paper. It's [the process of] making the decision to go paperless that's tough and scares people to death."

    Making the commitment

    Upgrading a piece or group of equipment is not a quick fix. There are fancy, expensive machines that add nothing to the overall level of care that a practice offers, let alone the bottom line. Therefore, upgrading is a process that requires introspection and pragmatism relating to the aim of the practice and the follow-through for proper training.

    "We're enamored with equipment, but too often we're not ready to take the time," says Catanzaro. "It has to fit into the standards of practice, and since most practices don't have clear standards of care, you don't know if it fits or not. You just think it's a new toy that's going to fit. I don't know how many practices I've seen with ultrasound machines that just sit in the corner."

    "You have to be sure that the economics work, and you also have to be sure that the learning curve is something that you're willing to work through," Norsworthy offers. "Some [technology advances] have short learning curves, and some have fairly substantial learning curves.

    "I would just say to my colleagues that the profession is changing rapidly, and a lot of that has to do with equipment. If you have decided that you're never going to buy a new piece of equipment or learn a new procedure, then it is probably time to retire. You're probably going to get left behind quickly."

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