Like the lab business, animal hospitals are very scalable. Additional revenues carry high margins, since marginal variable costs are fairly low. Moreover, increased penetration of laboratory services is expected to be a key driver of hospital revenues and margins.
Spend per vet clinic visit is on the rise. Since 2001, vet clinic visits have been costing pet owners a growing amount, though the perceived value of the services provided remains high. This can be attributed to the rising costs to technological advancements in the services provided, including routine checkups, vaccinations, and surgical operations. In 2006, approximately 63% of dogs and 45% of cats received a routine physical examination; 10% of America's dogs underwent dental care, and 75% were brought to a groomer. According to studies by the APPMA, dogs averaged 2.6 visits per year and cats 2.0 visits per year. Vaccines enhancements and the growth of specialty retail and online delivery of pet medications and food have reduced clinical visits.
Research and development efforts from the industry's leading pharmaceutical companies are creating increasingly human-like medication options for pets. Pain medications and antibiotics are commonly prescribed for pets and recently, a weight loss medication was approved and launched for pets.
As the cost of pet ownership rises, so does the initial cost between pets and their owners. In 2006, according to APPMA data, dogs cost an average of $331 to purchase (vs. $127 in 2000). Cats, on average, cost $32 to purchase (vs. $12 in 2000). These statistics include the pets obtained for 'free' and at animal shelters.
The veterinary care industry also has other notable characteristics, including:
Training Requirements
Although the number of pets and pet services is growing rapidly, the number of veterinarians and available hospitals is limited, with the potential for increasing the number of veterinarians constrained by the extensive training requirements for veterinarians.
Fragmented Service Sector
Although the pet care market is large and growing, no single entity accounts for more than 5% of the hospital industry. The market consists mainly of independent private practices consisting of sole practitioners or small groups of veterinarians. Most practices do not offer a broad range of products and services. Many veterinarians spend a significant portion of their time handling the administrative burden of running a small business, versus seeing customers. The veterinary care delivery system in the U.S. consists mainly of a network of private practices consisting of sole practitioners or small groups of veterinarians working together from a single facility and providing primary veterinary services. The Company believes that these small animal hospitals tend to be profitable in spite of the inefficiencies associated with poor operating scale and no marketing clout and that these factors make veterinary hospitals an attractive consolidation opportunity.
Attractive Payor & Pricing Characteristics
The animal health care services ind ustry does not experience the problems of extended payment collection cycles or pricing pressures from third-party payors faced by human health care providers. Fees for animal hospital services are due, and typically paid for, at the time of the service via cash or credit card. Pet care services are predominantly provided on a cash-pay basis. Thus, (unlike human healthcare) there are (i) few accounts receivable to finance, (ii) no government payors, and (iii) no managed care contracting. Also, because of constrained veterinary care competition, expanding care services and pet owner sentiments to their pets, veterinarians typically enjoy good ability to pass through pricing increases to their customers.
Opportunity to Increase Productivity
By deploying an MIS program that will monitor each veterinarian and hospital on products and services delivered, productivity and prices, veterinary hospitals are able to identify opportunities and areas for growth and to monitor veterinarians and target individuals who may benefit from additional training in specific treatment disciplines.
Limited Malpractice Liabilities
Unlike for human healthcare, veterinarians have limited corresponding medical malpractice liabilities.
Recession Resistant Revenues
Although the practice of veterinary medicine is subject to seasonal fluctuations in colder climates, recent history shows that veterinary care revenues have been recession resistant with one of the lowest failure rates of any business.
Hospitals
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