1. Value-based Pricing: Adjusting Fees Based on Values of Bovine Veterinary Services Floron C. Faries, Jr., DVM, MS Professor and Extension Program Leader Texas AgriLife Extension Service Texas A&M System College Station, TX 77843 http://extensionvetmed.tamu.edu

2. Integration Consultation services Technical services Product sales For services and products to be cost-effective

3. Financially Benefit Veterinary Practices

4. Financially Benefit Clients’ Operations Enhance productivity of animal populations Increase profitability Increase economic efficiency

5. Money Is What Production Medicine Is All About To the veterinarian To the farm

6. Implement cost-effective Health management practices

7. Think population Think production Think profit

8. Basic Philosophy Is Do Enough Of the right things At the right time To improve production and profits

9. Help Producers Run Efficient And Profitable Operations Recognize effective production practices Diagnose inefficiencies Prescribe corrective action

10. Promote profitability Evaluate production and financial performance Provide information and advice Provide the best service

11. Identify The Veterinarian’s Mission Statement Practice production medicine for animal populations Interest and desires Special competence and talents

12. Help clients achieve production goals Tailored use of latest technology Keep producers in business

13. Identify The Client’s Mission Statement Implement production and environmental health management practices Interest and desires

14. Foster health of an animal population unit Enhance productivity Increase profitability Increase economic efficiency

15. Establish The Veterinarian-client Relationship Full cooperation and desires A business and friendship

16. Veterinarian’s time cost money Veterinarian must receive adequate compensation Veterinarian must make a profit Veterinarian must provide cost-effective services and products Veterinarian’s services and products must be profitable to client

17. Veterinary practice Ethical Responsible With respect With caring attitude

18. Prevent lay drug distribution from undermining VCR Keep prices current Keep prices competitive Maintain or access drugs, biologicals, and supplies

19. Maintain Continuing Education Be knowledgeable and comfortable Bovine industry Vertical integration Horizontal integration

20. To relate to implementation of practices To relate to cost-effectiveness of practices Listen to clientele Participate in lay organizations Read their publications Attend their seminars

21. Participate in professional organizations Read their publications Attend their seminars Continuing education is a must

22. Receive new and advanced technology Receive basic understanding of financial statements and accounting systems Develop skills Team work Goal planning Finance, accounting, and economics Decision-making

23. Achieve The Client’s Goals Help client achieve production goal Improve production Help client achieve profitability goal Improve economic efficiency Reduce unit cost of production

24. Define a goal Identify objectives Applicable to a goal Impact on profit and efficiency Attainable and measurable Integrate production and finance Identify performance measures

25. Establish individualized health management plan Integrate new and advanced technology Population animal health Nutrition Genetics Production records

26. Reproduction Environment Marketing Financial records

27. Establish integrated team of specialists Private veterinarians Public veterinarians University personnel Diagnostic laboratory personnel Allied industry personnel

28. Nutritionists Accountants Bankers

29. Make recommendations Measurable Collect data Evaluate, analyze, and quantify Assess impact on objective and goal

30. Provide latest technology Counseling Consulting Outreach education Evaluate new information Determine profitability of services and products

31. Evaluate Services And Products Provided Integrated team Periodic reviews Qualified accountants Determine cost-effectiveness of practices for producer Decision support tools Integrated services and products

32. Responses to practices Response to input is positive Response to input is zero Response to input is negative

33. Return exceeds cost Return equals cost Cost exceeds return Evaluate compensations for veterinarian

34. Implement Marketing Strategies Sell production medicine Relationship Commitment Communication

35. Develop relationship in bovine industry Extension Associations and organizations Exhibitions and sales Provide client education Be a communicator Be an educator

36. Participate in outreach education Bovine industry seminars Client seminars Publications Mass media

37. Value-based Practices Producers know the “same old stuff” Producers need latest technology Advice Services Products

38. Veterinarian must integrate services and products To be cost-effective Veterinarian must turn data (cost) into value Use in management decisions

39. Veterinarian must make a profit Producer must make a profit Think population, production, and profit

40. Objectives Maintain and improve animal health and well- being Control disease and improve production Produce at the most efficient level Biological efficiency

41. Maintain and improve productivity of the farm business Ensure actual production meets expectations Obtain optimum production Biological efficiency

42. Maintain and improve profitability and economic efficiency of the farm business Focus on financial performance of the farm Provide maximum economic returns

43. Maintain and improve hygiene of the farm’s production Produce wholesome food at a reasonable price to the consumer Produce wholesome food yielding a net profit for the producer

44. Determine producer’s goals, values, and needs Develop objective criteria that can measure progress and results in a population Integrate health management plans with production management Create data bank for production planning and prediction Conduct statistical and financial/economic analysis for simultaneous measurement and assessment

45. Suboptimal Performance Clinical disease Sub-clinical disease Management inefficiency/inadequacy

46. Success Quality of producer’s management skills Producer’s desire and ability to comply with veterinarian’s recommendations keeping good records/record system Monitor health events Monitor levels of production Monitor incidence of disease Compare targets of performance

47. Integration of health and production management Identify problems Formulate cost-effective corrective actions Apply information to solutions Evaluate responses Make data-based management decisions Make decisions based on comparisons of other farms

48. Place more emphasis on management factors than on treatment of disease Production economics Nutrition Reproductive performance Housing and environmental management Clinical epidemiology Infectious disease control Marketing

49. Computing data analysis Based on selection of parameters required to monitor performance accurately Report results back in numerical and financial terms Provide financial values for measured production gains

50. Report warnings of deviations from set targets and goals Production performance Disease prevalence Resulting in economic benefits Consider costs and benefits of veterinary services Whether the expenditure provides the best economic return Veterinary services do not have a cumulative benefit

51. Producers purchase goods and services based on their cost and the potential return generated by their use Limited information on economic benefits that can be realized from production medicine Economic impact of medical decisions is not certain in most cases Paucity of data More cost effective as populations become larger

52. Costs On-farm professional services Data analysis and report preparation professional time Drugs, vaccines, and supplies Travel Telephone charges

53. Traditional Fee Methods Charge per professional hour (hourly fee) Charge per head per unit of time (annual fee per animal) Contract charge for all professional services (annual salary) Percentage of profits possibly included Additional charges for supplies, travel, and telephone

54. Traditional Fee Basis Cost-based pricing Charge based on cost of professional services and products Market-based pricing Charge based on demand and difficulty of professional services

55. Targets Of Health And Production Performance Optimum levels that yield the best economic returns on investments Related to purpose, not to disease

56. Shortfalls In Performance Performance-related diagnosis (inadequate performance) Differences (deviations) between targets (expected levels) of performance and actual performance Interaction of management, environment, animals, and pathogens

57. Mathematical/Statistical Techniques For Production Medicine Mathematics is a tool To summarize and clarify data To test the truth of conclusions Mean Standard deviation (variance, estimates of risk) Confidence interval (attitudes to risk) Confidence level To quantify the financial impact of biologic events

58. Decision Analysis For Production Medicine Decision analysis is a tool To help ensure that appropriate decisions are made Systematic decision tree process Graphic model for probabilities of expected outcome events (values) To determine potential economic impacts of choices ( interventions) Quantitative approach to decision-making process

59. To determine break-even points between decision sequences Sensitivity analysis (technique) Break-even curves compare two intervention strategies Break-even curves examine value of intervention over nonintervention

60. Partial Budgets For Production Medicine “Standards for production effects (outputs) are unacceptable due to variability in environment, animal, and management.” Projection Project the nonstandard value of a program strategy in the future Regarding effects of disease and management on productivity Specify courses of action and responses Make income and expense projections about the outcome of an event

61. Demonstrate the effect of factors in monetary terms Value all implications of a change Increase the amount of each input until the last additional unit produces the same value in output  Point of maximum benefit  Each subsequent unit, cost exceeds return

62. Comparison Compare the nonstandard values of two or more programs (economic comparisons) Current program values Proposed program values

63. Costs Of Disease (Economic Effects) In Production Medicine Biologic effects Reduced productivity and efficiency Express morbidity, mortality, and production loss in physical units Express morbidity, mortality, and production loss in dollars at current market price Low animal value, little consequence High animal value, catastrophic impact

64. Increased preventive and therapeutic inputs Drugs, chemicals, vaccines, and supplies Veterinary services Increased labor inputs

65. Control Of Disease In Production Medicine Increased revenues Increased reproductive efficiency Increased amount of product Improved weight gain Improved feed efficiency

66. Decreased revenue losses Reduced deaths Reduced culling rates Reduced market channel loss Reduced genetic value loss

67. Reduced expenses Decreased veterinary service costs Decreased drug, chemical, vaccine, supply costs Decreased feed costs Decreased replacement animal costs Decreased labor costs

68. Economic Analysis/Veterinary Economics In Production Medicine Economic analysis is a tool To evaluate the past To quantify or describe the present To predict or plan the future To conduct repeated cost/benefit analysis (technique) Economics is about making efficient choices (a science of choice) Accountancy is about calculation and interpretation of financial values

69. “Forecasting is like trying to drive a car blindfolded, following directions given by a person who is looking out of the back window.” Types Partial budget Decision analysis Capital budget Simulation

70. Measures Reveals approximations Involves assumptions

71. Objectives Determine losses Economic impacts Biologic impacts Draw conclusions Recommendation for action Solution to a problem

72. Determine motivation to increase production and profit Reduce risk Predict bad outcomes (probabilistic and low visibility) Utilize “minimax” approach Minimize the chance that the maximum bad outcome occurs

73. Set time horizon Determine time limit within which economic analysis is made Determine revenues (outputs) Calculate value of product Product times price Little control Determine production effect of a program Low visibility

74. Determine expenses (inputs) Types of costs (most control) Fixed costs, costs regardless of which choice or action is taken  Costs regardless of production level Variable costs, costs depending on what actions are taken  Costs vary with production level  Costs dependent on production level

75. Cash costs, costs annually for purchased inputs (high visibility) Opportunity costs, costs by not making some other choice  Return foregone by not using resources elsewhere

76. Calculate profit of farm before and after interventions Revenue (output) - expenses (input) = profit (VALUE) Calculate net increase in profit of farm after interventions Calculate percentage increase in net profit of farm after interventions

77. Calculate economic efficiency/performance of interventions Revenue (output) ÷ expenses (input) = efficiency (VALUE) A criterion to use in judging the desirability of alternative methods Benefit: cost ratio (rate of return) Should be greater than 1 Rates of returns not cumulative

78. Calculate economic efficiency of farm before and after interventions Calculate net increase in economic efficiency of farm after interventions Calculate percentage increase in economic efficiency of farm after interventions

79. Value-based Pricing In Production Medicine Objectives Be involved in decision-making process in farm business Learn to evaluate economic benefit of interventions Demonstrate their impact Document value of technical and consultation services Be compensated on financial improvement and rate of return

80. Fee Basis Charge not based on cost of professional services (cost-based pricing) Charge based on values of professional services (value-based pricing) Net profit payment A percentage of net increase in profit of farm business Net increase in profit in response to a choice (intervention) Percentage increase in net profit x net increase in profit + interest = FEE

81. Marketing justifications Degree of difficulty Degree of demand/scarcity Increase in economic efficiency Hourly fee = fee ÷ hours spent