Guess what? Adam Smith was right! (Well, kinda.) Recent economic concerns in the veterinary medical profession include a widely discussed shortage of veterinarians along with two important trends in companion animal practice: increasing prices and decreasing visits. Interestingly, basic microeconomic theory would suggest these three factors are closely related.
In the late 18th century, Scottish economist Adam Smith wrote about the “invisible hand” of the market, whereby the relationship between the supply of and demand for a particular product ultimately determines both product price and quantity. Markets with stable prices and quantities are said to be in equilibrium. However, shifts in either the level of demand or supply will result in changes in both price and quantity toward a new state of equilibrium.
The Simple Truth
Since Smith’s time, much work has been done to expand on this basic theory. However, the basic precepts still hold:
- Product shortages generally result in price increases, leading to decreases in the quantity purchased.
- Excess product generally results in decreased prices and, ultimately, increases in the quantity purchased.
Following Smith’s lead, recent dynamics in the companion animal veterinary services market make perfect sense. For example:
- The shortage of veterinarians and, consequently, the constrained availability of veterinary services have predictably resulted in increased prices in the companion animal services market.
- In turn, the higher prices have — not surprisingly — led to a fall in demand and an associated decrease in the number of visits sought by pet owners.
Theoretically, a new price/quantity equilibrium will eventually be reached by virtue of the “invisible hand,” where both the price of and demand for service will tend to stabilize barring any further imbalance in the system.
In deference to recent press commentary, these noteworthy trends in prices and visits clearly signal a market in disequilibrium. In fact, the same trends provide strong affirmation for the existence of a current veterinary workforce shortage and lend credibility to projections that the shortage will continue if not addressed.
Some would contend that our current situation should not be concerning because the “invisible hand” will settle the market if we just ride it out. Unfortunately, it’s not that simple. Three distinct impacts of this approach are being recognized.
1. While traditional companion animal practices, in general, are seeing a decrease in workload, their revenues are mostly holding steady because of rising prices. In many ways, this might be viewed as a welcome relief from the stressful, overworked situations — and associated high levels of burnout — that have anecdotally become all too commonplace. In a sense, these practices continue to achieve financial success in their particular market segment and, from that standpoint, have little incentive or need to change course.
2. As prices increase, however, a growing proportion of pet-owning households are no longer able to fully access veterinary care financially. Direct consequences can be expected for both animal welfare and public/human health. Furthermore:
- With inadequate veterinary care, pets are expected to experience greater rates of morbidity and mortality and are at greater risk of surrender to a shelter. Adequate access to pet health care is vital to the welfare of millions of pets.
- The critical importance of pets to the physical and mental health of humans is widely recognized. And zoonotic diseases are much more common in pets than many people realize. Adequate access to veterinary health care stands to improve public health and reduce health care costs for millions of U.S. pet owners.
Studies suggest that these consequences are likely to disproportionately impact pet owners in cultural, socioeconomic and geographic communities that all too often have experienced marginalization in our society. This is where the shortage of veterinarians is being felt the most; the distribution of the negative impact is not equal across all pet-owning communities.
3. Accompanying this shifting market structure are emerging portfolios of services and products targeted at the underserved segments of pet owners. These include an assortment of viable business opportunities, but it will take some time for the market to adjust accordingly. Innovative business models offering nontraditional combinations of services and products with affordable pricing structures are starting to appear, while significant workforce adjustments are also underway. However, the new business models will require an adequate workforce, and growing the necessary number of well-trained veterinary professionals will take years.
What to Do?
The shortage of veterinarians is real, as are the accompanying restrictions in access to veterinary care. As an industry, we now face a critical choice between these three pathways forward:
- We can choose to sit back and allow the “invisible hand” to settle the market. At least in the short term, an increasing proportion of pet owners will consequently be left behind. In a sense, this laissez-faire approach to the current and future market economics for pet health care could be perceived as a “let them eat cake” attitude toward those communities increasingly facing challenges with access to veterinary care, largely rooted in the current and projected shortage of veterinarians.
- We can choose to double down on the “invisible hand” and take an active, protectionist stance to maintain the new status quo, whereby barriers to entry for new veterinary professionals are created and/or constraints are imposed on workforce and practice innovation. Again, communities of pet owners will be left behind, but in this case by a decision to be active rather than passive.
- Alternatively, we can recognize the limitations in Adam Smith’s theory and continue to explore creative approaches for providing access to underserved segments of the pet health care market. From this process will likely emerge new business workforce and operating models enabling the successful delivery of veterinary services in communities struggling with access to care. But this growth will require people — more than we have today — and the courage to expand the training capacity for veterinary professionals while the new models begin to achieve consistent success.
It’s our choice.
DID YOU KNOW?
According to the National Records of Scotland, Adam Smith “devoted 10 years to completion of his most famous work, Inquiry into the Nature of Wealth of Nations, which was published in 1776 and sold out within six months.”