A Closer Look: Michigan
Eden Myers DVM MS
Ryan Gates DVM
Oversupply and under-demand are woefully inadequate terms to describe the picture of the current veterinary services market. Let’s see if we can improve the resolution, focusing on Michigan. Why Michigan? Pure convenience; the records were already on hand.
So, how can we refine our understanding of the veterinary services market? Let’s start with the number of veterinary service providers. That number is closely approximated by the number of licensed veterinarians. While some licensees do not provide services, or provide less than others, we can assume very few are providing services without being licensed.
That last assumption may be wrong, as the definition of veterinary service is changing. Much of what has traditionally been considered "veterinary services" is no longer provided by veterinarians. In the food animal field pregnancy diagnosis can be done by blood test, lame cow work can be done by foot trimmers, ration balancing can be done by PhD nutritionists. Routine husbandry practices- dehorning, castration, tail docking- are producer performed surgeries. In the pet sector, prescription drugs and non-prescription preventatives have moved to retail outlets. Vaccine "clinics" provide "shots." So while the same number and types of services may still be performed, they may simply no longer be performed by a licensed veterinarian.
While we can’t say for sure who’s doing what, we can look at the documented number of licensed veterinary service providers.
That’s not really what we expected. There are fewer licensed vets now than ten and twenty years ago? But.. there’s an oversupply! Right?
OK, so maybe the oversupply is relative. Given that we now know the number of licenses issued and thus the potential maximum number of service providers, we need to know how many people each one of those licensees has to serve. If the number of DVM licenses is falling but the population of Michigan is falling faster, then there’s a growing oversupply even if number of vets is dropping.
That didn’t really change the picture. Turns out, even on a relative basis, the supply of veterinary service providers in Michigan has been dropping since 2000. While the rate of growth in the number of DVM licenses per year has been higher than the rate of growth of the population from 1950 to 2000, it’s been dropping steadily since the mid 80s, and has actually been negative for a decade.
But it’s not enough that there are people. A market is not just people, it’s the exchange of money by those people for the goods or services they value enough to pay for. So we really need to look at how much money those people have. Maybe the total amount of money available to people to purchase everything, including veterinary services, has dropped. Then we’ll feel like there’s an oversupply even though the absolute and relative numbers of vets has been declining for over a decade. It’d be nice if we could classify veterinary services as necessity or luxury- but we can’t. A service may be considered a necessity by some, a luxury by others; some services are always a luxury, some always a necessity. So we really have to consider total income, not just discretionary or disposable income.
So, now we’ve got an estimate of the number of service providers and we know how much money the consumers have to spend. More, relatively, than they used to. Quite a bit more, turns out; the amount of aggregate income per license in MI has risen steadily since 1993, and in 2011 was 134% of what it was in 1993. And yes, those numbers are adjusted for inflation.
Well, let’s take a step back for just a sec. Check out this graph.
While aggregate income has gone up, median household income has stayed pretty flat. So while there is more total money in the state, the amount of money most households have to spend relative to the number of licensees has stayed about the same.
But... consumers have to actually spend that money at the clinic. Practitioners of all settings will tell you that just because someone has it, that doesn’t mean they’ll spend it! We are homo sapiens, not homo economicus. In the real world we make spending decisions very differently than the economists say we do on paper. We are, as Dan Ariely has founded an entire field showing, predictably irrational.
So maybe times feel tough for vets in Michigan because while the amount of money people have to spend is about the same, they aren’t spending as much at the vet's as they used to spend there. Gas costs more, groceries cost more, health insurance costs more… maybe those increased costs leave less for vet care. We already decided we simply can’t know, at this level*, whether the individual people spending the money think of that purchase as luxury or necessity.
Are we even able to know how much people actually spend at veterinary clinics?
Why, yes. Yes, we are.
It’s not perfect- and an explanation of all the flaws is beyond this article- but a useful way to look at changes over time in how much people spent at veterinary clinics is the US Economic Census. Conducted every 5 years, numbers for vet services are available at the county, state and national levels. This includes any money spent at a vet clinic, regardless of what it was spent for, but does not include spending at a separate business that provides primarily non veterinary services. So boarding, grooming and food paid for at the vet clinic would be counted, but not boarding at a boarding kennel, grooming at a groomer’s, or food at the pet store. Veterinary services was split out as a separate category in 2002, so we have numbers to look at from the 2002 and 2007 censuses; 2012 results won’t be out til 2014.
Adjusted for inflation to 2011 dollars, average revenue per clinic in MI in 2002 was $403,809 and payroll $148,352 for 5 employees (including 1.69 licensed vets). In 2007, revenue was $577,057 and payroll $206,497 for 7 employees (including 1.57 licensed vets). So the amount left over after payroll in 2007 was $115,102 *more* than in 2002.
Aha! So now we know the actual market! We know how many of us are at the table, and we have estimated the size of the pie. So now we can show that the size of the piece we can all expect is ...growing? But that doesn’t fit our expectation of an oversupply. How can this be?
Gross revenue is up, net after payroll is up, size of staff is up, number of vets per practice is down. If you’re an associate, true, odds are your pay didn’t go up much; average pay per employee, which includes employed veterinarians, only increased $21 from $31,003 to $31,024. If you’re an owner, your bottom line should look better- unless costs of employment went up disproportionately, or costs of operation are eating up that increased net after payroll?
Well, there’s this thing called geography. The pie isn’t round and we aren’t all seated evenly spaced around a table. Those consumers and that money and those service providers are very unevenly distributed. The economic census doesn’t cover every clinic in Michigan.. but the counties represented in the numbers presented here contained 71% of DVM licenses resident in the state in 2002, and 93% in 2007.
Why, then, does it feel like hard times for vets in Michigan? Is there an oversupply only in some areas within the state? Is the data in Michigan consistent with other states? Stay tuned for numbers from Texas, Ohio, California...
*The percentage of household income spent at the veterinary clinic can be determined at higher resolution. The data already exists and is freely available, and I've worked out the way to do it. We just haven't gotten to it yet. Nobody pays us for this, ya know?
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