A new report from the National Bureau of Economic Research looked at veterinary medicine. Veterinary medicine is different than human medicine in important ways. The rate of pet insurance among pet owners is thought to be less than 1 percent. There are no government programs to provide veterinary care to poor pets or elderly pets. Indigent pets can be turned away from emergency veterinary hospitals. Health policy analysts have long blamed the inefficiencies that befall the U.S. health care system on our over-reliance of third party payment. A logical extension of that argument would assume pet care should function very different from human medical markets. Yet, despite this theory, the authors found many characteristics of vet care matched human medical care:
1) Spending on care for pets rose faster as a share of GDP than medical care during the past 20 years. 2) Spending is correlated with income. 3) There has been rapid employment growth in the veterinary sector. 4) Pet care also experiences significant spending on end-of-life care.
As Figure I illustrates, human health care spending increased by about 50% from 1996 to 2012. However, spending on pets increased faster — by 60%. The authors compared medical care and pet care spending somewhat arbitrarily to spending on housing and entertainment. Housing and entertainment increased modestly with entertainment acting dipping below 1996 levels finally leveling off to 1996 levels by 2012.
It is easy identify the Great Recession in the graphic. Medical care dipped briefly, housing trended downward and entertainment took a nose dive. Pet care, by contrast, shot up peaking around 2009. People may have been cutting back on their own medical care, but still spent on care for their pets.
The analysis also found comparisons of spending across income groups, illustrating how pet spending and health care share similar growth patterns that are somewhat correlated to income. The richer people are, the more likely to spend on medical care — and pet care.
U.S. employment growth grew about 18% from 1996 to 2012. Employment in physicians’ offices grew at rates more than double that amount. Veterinarian clinic employment almost doubled during that time period. [See Figure II.]
Finally, as a proportion of average spending, spending on end-of-life care was also much higher for dogs with lymphoma than humans with lymphoma. In the last two months of life, average monthly spending was about 50% higher than average spending for humans than prior to their illness. Average monthly spending on dogs with lymphoma was 350% higher than prior to their illness.
Pet insurance is far less common than health insurance and the regulation of veterinary medicine is not as rigid as human medicine. Yet, veterinary medicine looks similar to human medicine in many ways. The authors suggest that some of the same characteristics that make human medicine “uniquely inefficient” may also make pet medicine inefficient:
- Spending is often episodic and difficult to forecast.
- The decisions are often emotional.
- Training of veterinarian is similar to medical doctors.
I suspect there are other factors not explored by the authors that may also explain some of the similarities in human and pet medicine.
Barriers to entry. Not only is veterinary medical training similar to physician training, the supply of veterinary schools is relatively constrained to roughly one school in each state. State veterinary board sometimes limit competition. A veterinary board in Texas successfully prevented a semi-retired vet from providing paid advice on his website.
Revenue enhancement. Comparisons to medical doctors, their fees and lifestyles, may make veterinarians look for ways to tap into the concept of pet medicine as a costly service. Consultants teach veterinarian practices how to market and adopt “best practices” from human health care. Valuation consultants broker sales to corporate entities and help them boost revenue. The industry is going through consolidation with multi-practice chains becoming increasingly common.
In my experience (and friends and neighbors I’ve talked to), the way it often works is a sole proprietor works and hires vet techs and young veterinary graduates to help out. It’s a labor of love. Fees are reasonable and care of the animal and consideration for its owner are the primary concerns. When the vet wants to retire, he or she looks to find someone to take over. Younger veterinarians often don’t have the cash to buy an established practice so a corporate entity may acquire the firm. Corporations and their consults have more knowledge about the growing demand for veterinary care and the elasticity of demand. They know what the market will bear and understand how badly you (and your young children) want to keep the dog or cat alive. The new owners slowly raises prices and gradually begin recommending more aggressive care. I noticed a difference when I moved to the city from a farming community. I also noticed a difference when I transferred from a city vet to one in the neighboring rural community. Prices tended to be much lower in the country than in areas of the city with high median incomes. Of course, rural veterinarians may treat farm animals in addition to companion animals. Two-thirds of vets treat companion animals exclusively, whereas three-fourths treat companion animals predominantly.
Information asymmetry: the old Kenneth Arrow argument. Fluffy or Spot cannot tell you where it hurts and you may be susceptible to recommendations for care of marginal value. People who make trade-offs on their own medical care may not do the same with children or pets. Pets are increasingly considered members of the family and parents may feel compelled to aggressively care for a pet in its final days because their children are attached to it.
Of course, it isn’t always corporations that learn how to enhance veterinary practice revenue. It may be a sole proprietor who begins to hire younger veterinarians and grows the practice. Or maybe it occurs in a small practice after a veterinarian has spent years practicing and income growth stalls.
Shortly after my wife and I adopted an underweight rescue dog, we took her to a new vet who specialized in holistic care. Our new dog was a very picky eater and significantly underweight, but was otherwise happy, healthy and energetic. We wanted to get some weight on her and took our dog to the vet for advice on ways to boost her appetite. After being surprised by a bill of about $800, we discovered from online Yelp reviews that $600 to $800 was not an uncommon charge for a single office visit to this particular veterinary practice. Many Yelp comments complained of being blindsided by $600 vet bills (the office visit was $75 and all services were a la carte). One reviewer even stated that she had paid numerous bills of $500 or more without complaint. However, she was angry over a treatment that she thought should have gone better. A few days later our new veterinarian called with lab results, saying out dog’s blood count was odd and she needed another ($500) intravenous vitamin C supplement/detox treatment. We sought a second opinion from a conventional vet who told us our dog’s lab results were within the normal range and worked with us for a nominal cost of about $50 to $70 a visit.
I’ve had great veterinarians and I have had ones whose practice I decided to leave. I’ve patronized older vets who were sole proprietors and young vets who worked for group practices. Most treated me great because they felt no pressure to “sell me” on a therapy. I’ve also had young vets, which I assume were being paid a commission, because they tried to sell me costly treatments they later basically admitted were not likely to work. Like in human medicine, it often pays to ask questions about treatments.
Source: Liran Einav, Amy Finkelstein and Atul Gupta, “Is American Pet Health Care (Also) Uniquely Inefficient?” National Bureau of Economic Research, NBER Working Paper No. 226699, September 2016.
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Pet spending goes up along with disposable income much like entertainment expenses. Additionally, recent technologies added substantially to the veterinarian tools and to the costs in recent years.
I wonder if the recent costs of veterinarian care parrallels the recent costs of home theaters. If they do then would one conclude that home theaters do not function like an ordinary market?
Good point! I will have to research that.
More evidence that health care in the late 20th and early 21st centuries does not function like an ordinary market, even when you take government programs and insurance out of the picture. This is yet another indication that patients having more skin in the game is not going to control costs, let alone get them down to European levels. They already have their skin in the game (and their heart, pancreas, kidney, etc.) and that is why this market is different from the markets for cars and computers.
This is an excellent point but I’m not sure it is true. Pet care is probably considered a luxury more than human care. As a luxury, the consideration of the marginal benefit divided by the marginal cost is probably less finely weighed in the mind of the shopper than if it were human care. Eg. A diamond purchase for a jewelry item for your loved one would probably be a different mental exercise than the routine diamond purchaser for machine tools. Of course, this is just price elasticity and probably varies all over the place in health care just as it does for other things. What I am thinking is that price elasticity is probably less in veterinary medicine. The customer cares less about the price. Just as he would with a luxury (generally, ceteris paribus.) So, if he has skin in the game and pays for much of this OOP, he probably still cares less about the price.
Thus, skin in game may still be a useful concept in bringing down prices in human medicine. We shouldn’t be afraid to try it. Eg. Try some indemnity plans, send the claim money to the patient, and see what happens.
Elasticity is easy to measured so that we don’t need to argue.
I experienced vet care full bore–my dog developed canine influenza and died intubated in an ICU in NYC. Big bill, but thankfully, I had coverage for the pooch and my OOP was minimal. I gambled and won. I found the vets to be reasonable and evidence-based–but interventions were advanced and analogous to care people get in in similar acute situations. You can get wiped and the ethics, if you will, of “how to navigate” will vary from family to family.
Also, the NYT recently did a nice piece on vet schools and demand. You should review–it counters some of what you discuss above. Its a crappy and costly life for many.
Brad, Sorry to hear about your dog. We had a similar experience with our Airedale.
I believe the two conditions in the job market are not mutually exclusive. The veterinary work force has expanded faster than vet spending. Under those conditions young vets could suffer a loss of bargaining power and lower pay, while established vet practices would enjoy revenue growth.
sorry to hear about your dog.
Fascinating. I would like to see more research like this.
Perhaps the Dartmouth folks could extend their groundbreaking research by doing cross-species comparative research.
Some questions —
— How does pet healthcare compare to human healthcare, how often do pets get better healthcare than humans?
— Are pets informed consumers?
— Do dogs get better healthcare than cats?
— How do pet patient satisfaction scores compare to human patient satisfaction scores?
John, when it gets closer to the time we plan to publish, I will post some of my research on cosmetic medicine. The average price of Botox is only about 10% higher than it was 15 years ago; and there are deals on Groupon for half the going rate.