U.S. veterinary prices soar amid strong demand and faster consolidation – Indianapolis Business Journal
The worst bout of inflation in the United States in four decades has inflated the cost of taking a dog or cat to the animal doctor. Prices for veterinary services have jumped 10% in the past year, according to government data – the biggest such rise in two decades.
Soaring costs for veterinary services illustrate how high inflation has spread far beyond physical goods, such as cars, which have become scarce as the economy accelerated after the pandemic recession, to many services of which pet care is an example. This trend has fueled fears that inflation is taking root and that the Federal Reserve feels compelled to keep raising interest rates with an ever-increasing risk of triggering a recession.
From dental care and apartment rents to car repairs and hotel rates, prices for services keep rising. Such inflation is particularly difficult to control, as it is primarily driven by a tight labor market and consumer demand, which is unlikely to slow unless the economy slows significantly or slips into a recession.
The cost of housing is the main driver of rising service prices. But even excluding rents, service prices rose 7.4% in August from a year ago.
Fed rate hikes, which affect consumer and business loans, are not ideal for controlling services inflation. And in today’s economy, the service sector accounts for the bulk of consumer spending.
“It takes more to move service prices,” said Joseph Gagnon, a former Fed official who is a fellow at the Peterson Institute for International Economics. “The real question is: what level of unemployment will it take to calm all this pressure?
The government’s latest report on Thursday showed wholesale inflation rose 8.5% in September from a year earlier, far outpacing average American wage gains.
Even as services become more expensive, inflation in goods is slowing. Excluding volatile food and energy, the rise in goods prices eased from an annual rate of 12.4% in February to 7% in August. On the other hand, inflation for services has continued to rise, at an annual rate of 6.1% against only 2.7% a year ago.
Soaring services prices are a key reason Fed officials have underscored their determination to keep raising rates to bring inflation back towards their 2% target, even as concerns grow over the fact that they will go too far and derail the economy.
Speaking last week, John Williams, president of the Federal Reserve Bank of New York, likened inflation to the layers of an onion, with goods representing the outer layers that are peeled first and prices of services the layer. stickier underlying.
“Therein lies our biggest challenge,” Williams said. “Prices for services have increased at a rapid pace. …And labor shortages are everywhere, leading to higher labor costs.
Like many services, veterinary care is labor intensive; worker compensation is about half the cost of running a practice. With wages rising nationwide at the fastest rate in decades, many clinic owners have had to pay more to find or keep employees. These wage increases have generally been passed on to pet owners in the form of higher prices.
Other veterinary costs, including for medical supplies, lab testing fees and advanced pharmaceuticals, also accelerated.
The industry has also been transformed by corporate purchases of veterinary clinics and hospitals, a trend some independent vets blame for driving up prices. The Federal Trade Commission responded by forcing some major chains to cut acquisitions after finding they were a threat to competition.
Like many industries, veterinary care went through heartbreaking changes after the pandemic hit in 2020, due to increased demand from pet owners and a change in the way they do business.
Alexandra Kintz-Konegger, owner of K.Vet Animal Care outside of Pittsburgh, said the combination of more visits and the need to implement new protocols was overwhelming her staff. It quickly lost eight employees, about a quarter of its workers.
“We were literally working tirelessly…simply because the demand for our services had definitely increased and we were less efficient,” she said.
Nationally, traffic to veterinary clinics grew 4.5% in 2020 and another 6.5% in 2021, according to Matt Salois, president of consulting firm Veterinary Study Groups and former chief economist of the American Veterinary Medical Association.
Yet at the same time, he said, surveys have found that the number of pets vets treat per hour has fallen by 25% in 2020. Such a drop in efficiency, combined with a increased demand, has left veterinarians and their staff exhausted. Many left the field for other jobs.
Kintz-Konegger raised salaries 25% to 30% from pre-pandemic levels, which first helped it replace many of the staff it lost, only to see more departures . She would like to hire another five technicians and assistants.
Government data shows hourly wages in the veterinary industry jumped 7% in August from a year earlier, well above the 5% average for all workers. Measured year-over-year, wages jumped 14.2% in January, the biggest jump on record since 2007.
The cost of surgical supplies, medications and lab tests also continues to rise. Kintz-Konegger said his fees for blood tests and other lab work rose 8% in January and August.
It passes those costs on to consumers and has increased its fee for a basic wellness exam by 10% to $62. It also increased the prices for sick and emergency visits.
“I feel very cramped in the cost of services, the cost of staff, the cost of supplies,” she said. “It gets to a point where I go, ‘How much higher can this spiral go up before something gives way here?’ ”
Kintz-Konegger said it will likely have to raise prices again soon unless its costs keep rising.
Across the economy, other services are also soaring. The cost of dental care soared 1.9% in June alone, the biggest one-month increase since record-keeping began in 1995, and 4.7% in August over the year previous year, the highest in 14 years.
Auto insurance prices have accelerated, due to the sharp increase in vehicle prices since the pandemic. More expensive cars cost more to insure. And the price of medical care for people is also rising, fueled in large part by higher labor costs.
One of the factors in the rising cost of pet care is that it increasingly mimics human health care. Specialized pet hospitals use MRI machines, expensive drugs have become available to fight cancer in pets, and cats can receive kidney transplants. Veterinarians and their technicians need advanced training to provide such sophisticated services, which can also further inflate the costs and prices paid by consumers.
Many pet owners are increasingly willing to spend more, and large veterinary service providers are happy to accommodate them. Although the industry began to consolidate long before the pandemic hit, the pace has picked up over the past two years.
John Volk, senior consultant at Brakke Consulting, estimates that 25% of the 30,000 veterinary clinics in the United States are owned by large chains. Consolidation is much higher among the 1,200 emergency and specialty veterinary hospitals, about 75% of which are chain owned.
Mars, the candy and pet food company, is the largest owner of veterinary practices, with 2,500 clinics and hospitals worldwide. Another chain, National Veterinary Associates, has 1,400 veterinary practices in the United States and abroad. It was acquired in 2020 by a Luxembourg-based private equity firm, JAB, and recently came under scrutiny from the FTC.
In June, the FTC forced it to sell veterinary hospitals in order to make two new acquisitions. FTC Chair Lina Khan claimed that “serial acquisitions” by private equity firms and large corporations allow them to “increase market power and reduce incentives to compete, which which can lead to higher prices and lower quality”.
Some industry experts say big chains can keep prices low by using their size to secure lower prices for supplies and drugs. The extent to which industry consolidation has contributed to rising costs is hotly debated within the veterinary industry, as well as in the wider economy.
In the meantime, many vets are still looking to hire, a sign that inflationary pressure from rising wages may take a long time to subside.
“We still don’t have enough vets to handle all the demand that’s out there,” said Michelle Vitulli, who has eight veterinary clinics in Northern Virginia and Maryland.