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.