The rise of the corporate veterinarian
Growing presence of national chains in Virginia reflects dramatic shifts in industry

by Heather B. Hayes
for Virginia Business
August 2006

Like many small business owners hoping to fund a comfortable retirement, veterinarian Dr. Andrew Murphie expected to eventually sell his Boulevard Veterinary Hospital, the small animal practice he’d founded in Newport News in 1975. In the past, veterinarians ready to head out to greener pastures passed along their clientele and equipment to another veterinarian — typically at a price equal to one year’s gross revenues — and provided financing.

But when Murphie, 62, began investigating the possibilities five years ago, he quickly realized that he might end up the victim of his own success. With seven veterinarians on staff and $3 million in annual revenues, Boulevard Veterinary Hospital was too big and too expensive for a traditional deal. And Murphie already had nixed the idea of providing financing to a would-be buyer. “I wanted a 100 percent cash buy-out at closing,” he says.

“Ultimately, that meant there was no individual out there that I could sell to.”

Fortunately, he did have an option besides compromising his terms: selling to a national corporation. Healthy Pet Corp., a Connecticut-based chain that owns more than 80 animal hospitals, purchased Boulevard Veterinary Hospital in July 2005 for $3 million. Company officials paid cash at closing and signed a 15-year lease on the building, which gave Murphie another $120,000 a year in annual income. What’s more, they asked him to continue running the practice.

“ It’s kind of the best of both worlds,” Murphie says. His retirement is assured, but he is still practicing veterinary medicine and dealing with clients in the same manner that he has for 30 years. “They just monitor expenses a little more closely than I ever did,” he says of Healthy Pet.
Murphie is hardly alone in his decision to turn over his business to a veterinary corporation. Increasingly, a collection of national chains is buying up animal hospitals and improving their bottom line using economies of scale, management efficiencies and marketing techniques.

The first company to build a national veterinary chain was Veterinary Centers of America (VCA), which purchased its first animal hospital in 1986. The Los Angeles-based, publicly traded company now owns 375 animal hospitals in 37 states, as well as a clinical laboratory system that provides diagnostic services to more than 14,000 veterinary clinics. VCA employs 7,500 people and had gross revenues of $613.8 million in 2005.

Another company, Banfield: The Pet Hospital, based in Portland, Ore., has opened more than 540 animal hospitals since 1992 in conjunction with PetSmart, the world’s largest retailer of pet products. Healthy Pet and National Veterinary Associates (NVA), a California-based corporation that owns 86 veterinary clinics in 28 states, both began business in the late 1990s. Together, these four corporations own 47 clinics in Virginia, roughly 7 percent of the 667 full-service veterinary practices in the state.

The trend toward this new model has taken hold so quickly that many veterinarians worry about its long-term effect on pricing, client relations and the ability of traditional private practices to compete. “There is the risk that it will take the personality out of the practice, where individual clinics will lose their identity, and that would be a real downside for clients,” says Dr. Rick Hartigan, president of the Virginia Veterinary Medicine Association.
Dr. Richard Henshaw, co-owner of Great Falls Animal Hospital, says it’s too early to draw any conclusions. He competes with a dozen private and corporate practices within a five-mile radius of his clinic in Northern Virginia.

“It’s hard to say whether it’s a good or bad thing, because it’s still evolving,” he says. “I can’t really say that we’ve lost business because of practices that are corporate-owned.”

Industry observers say that corporations are only taking advantage of an opportunity resulting from a significant transformation in the veterinary profession. “Corporate involvement in the industry was really inevitable given the direction that the industry is heading,” says Dr. Grant Turnwald, associate dean of academic affairs at the Maryland-Virginia Regional College of Veterinary Medicine at Virginia Tech.

For starters, the profile of the average veterinarian today is nothing like the down-to-earth, rural archetype created by James Herriot, the English veterinarian who popularized the profession in the 1970s with his best-selling book “All Creatures Great and Small.”

Veterinarians now are more likely to live in the suburbs. They’re more likely to specialize in small-animal medicine. And they’re more likely to be women. At Virginia Tech, 80 percent of veterinary graduates are women, and female enrollment at most other veterinary schools tops 60 percent.

The growing role of women in the profession has had an effect on at least one other trend: Today’s average veterinarian has almost completely rejected the idea of working 80-hour weeks and being on call on nights and weekends. And many veterinarians eventually scale back to part-time hours.

“ Quality of life and work-life balance are hugely important priorities to all kinds of professionals today, and that includes veterinarians,” says Dr. Karen Johnson, vice president of the client advocate team at Banfield: The Pet Hospital.

The company even offers veterinarians opportunities to become an owner of a Banfield hospital, either as a partner-owner, in which the veterinarian pays for 50 percent of the capital expenditure required, or as charter-owner, where they contribute nearly 100 percent of the necessary capital. In both cases, Banfield offers business, medical and marketing support but requires strict adherence to set standards of medicine, quality assurance and continuing education.

The increasing demand for a more family-friendly lifestyle — along with the heavy debt load that students face after graduation and the surging cost of equipping an office — means that younger veterinarians tend to have less desire and opportunity to start a practice. That fact has been critical in opening the veterinary industry to a new corporate ownership model.

“ There’s this assumption that you have to be a veterinarian to own an animal hospital, and I personally never believed it, and I don’t believe it now,” says Bob L. Antin, the co-founder, CEO, president and chairman of VCA, who has a degree in health-care management. “We don’t ask veterinarians to conform to us. We conform to the way they prefer to practice and deal with clients. We’ve just provided a structure to do the boring stuff, like doing the payroll and recruiting, setting up the benefits packages and continuing education programs and justifying and financing equipment. We can do that more efficiently and improve profitability in those areas.”

With fewer options open to them in selling their practices, many veterinarians have become less hesitant about selling to a corporation. In fact, Murphie notes why several veterinarians in his area haven’t been able to sell: They can’t find an individual buyer, and corporations aren’t interested because the practices don’t meet their criteria. VCA, for example, won’t even consider a clinic unless it employs at least three veterinarians and has annual revenues of more than $1 million.

Not all sellers want to retire immediately. Dr. Sam Babbitt and his wife and fellow veterinarian, DeNae, sold their Fork Union Animal Clinic to NVA in July 2005 in order to spend more time at home with their two children. “It seemed like all of our extra time went to doing accounting, payroll, all the money and management stuff,” he says. “I wanted someone to take over that part of the business and let me stay on and focus on the medicine and still have more time with my family.”

Like Murphie, Babbitt says that his corporate owner has given him free rein to practice as he sees fit, but unlike Healthy Pet, NVA does not offer a complete buyout. Instead, the company pays a lump sum of 50 percent of the total sale upfront and the remainder at the end of a five-year contract. The final payment is contingent on the veterinarian maintaining his original financial track record. If the practice tanks, Babbitt explains, the company takes whatever profit it’s made and walks away. “It does put a little pressure on us,” he admits.

In fact, the subtle emphasis on money that corporate involvement denotes is what worries many traditionalists. Despite the economies of scale, drug-buying discounts and other efficiencies they can bring, corporate veterinary practices have not succeeded in driving down the cost of veterinary medicine. In fact, the cost of veterinary services is growing at a 6 percent annual clip, according to the Consumer Price Index — double the rate of general inflation.

Turnwald notes that while prices are up, so too are the basic costs of doing business. Expensive diagnostic equipment and specialized skills such as orthopedics, oncology and dentistry have increased the industry’s ability to treat disease. And much of these high-end services are driven by a change in the status of pets during the last few decades. “Animals have moved from the backyard to the bedroom, and their owners see them as members of the family,” Turnwald says. “As a result, they want only the best possible care for their pets — and they are willing to pay for it.”

Some older veterinarians grumble that the new emphasis on high-quality treatment is leaving less well-off clients in a no-win situation. “They’re catering to the top 20 percent of wage earners,” says one private practitioner. “You can treat a lot of issues effectively without all this high-end stuff, but today’s vets don’t really offer people options. They do a lot of unnecessary testing and expensive treatments, and the client ends up walking out with a $1,000 bill that they can’t afford.”

This same group worries that the growth of corporate ownership will only tip the industry further in this direction. Hartigan counters that the trend toward higher-level treatments and higher prices runs across all models of practice. “There are a number of factors at play, not the least of which is the concern about legal issues and potential litigation if you don’t do as much as you possibly can to treat an animal,” he says.

Others say that corporations and their ability to leverage resources and best practices have the potential for real benefit and are already having a positive impact. Banfield, for example, has partnered with Western University of Health Sciences in Pomona, Calif., to build a teaching hospital for the university’s new veterinary school. The corporation has also developed an Optimum Wellness Plan that offers major discounts on basic preventative care and office visits to its participants. And through the creation and aggressive funding of its Banfield Charitable Trust, the company is now offering free medical care to low-income pet owners, as well as grants to animal shelters and humane organizations.

As for the long term, corporate officials and other industry experts think that consolidation is unlikely. “We do not own a hospital that the owner didn’t want to sell to us,” says Antin. “We’re simply providing veterinarians and clients with exit strategies and alternatives.”

Turnwald agrees. There is — and always will be — plenty of room in the industry for all types of business models, he says, from small, rural practices to partnerships to veterinarian group practices to chain hospitals to specialty and emergency clinics. “All in all, I think having some corporate ownership is a good thing because it promotes efficiency within the industry,” says Turnwald. “As with any industry, the more competition there is, the better the quality of the product or service and the more choice there is for consumers.”