Nationwide® Purdue Veterinary Price Index...recessionary and post-recessionary period of 2009...

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Veterinary Price Index Mid-year 2018 update Nationwide® | Purdue NationwideDVM.com

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Page 1: Nationwide® Purdue Veterinary Price Index...recessionary and post-recessionary period of 2009 through 2014 by 2.2 percent. In 2015, a sharp recovery began. Overall, veterinary pricing

Veterinary Price IndexMid-year 2018 update

Nationwide® | Purdue

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The Nationwide® | Purdue Veterinary Price Index:

Expanded analysis tracks pricing increases by specialty vs. non-specialty, and corporate practice ownershipAnalysis of more than 27 million medical and well-care treatments with a combined value of $2.8 billion shows the U.S. veterinary pricing recovery continued through all of 2017. New to this edition is an analysis of pricing trends for specialty vs. non-specialty and corporate vs. non-corporate ownership practices.

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Overview

From its initial release in January 2015, the Nationwide® | Purdue Veterinary Price Index has been a key benchmark in the veterinary industry. A collaboration between Nationwide®’s pet health insurance division and the Krannert School of Management at Purdue University, the Veterinary Price Index remains notable for the breadth and depth of Nationwide’s claims data, and for the disciplined academic analysis by both the Nationwide and Purdue teams.

Each semi-annual refresh of the Nationwide | Purdue study has traced U.S. veterinary pricing trends in comparison to the U.S. Consumer Price Index (CPI), as well as analyzed trends for medical vs. well-care conditions, species differences, regional variations, and veterinary practice zones (i.e., rural vs. suburban vs. urban). As the multi-year collaboration has matured, the Veterinary Price Index authors have expanded the scope of analysis. New to this edition is an analysis of claims data by type of veterinary practice. Specifically, specialty vs. non-specialty practices, and corporate-owned vs. independent, non-corporate practices. The results add more detail to our growing understanding of companion animal veterinary practice, while revealing some perhaps surprising differences about how various practice types respond to economic pressures.

In previous editions, the index uncovered that although veterinary pricing in the United States continues to recover sharply, it significantly lags behind both government estimates for the veterinary industry as well as the CPI for

all consumer prices. Specifically, the federal government’s reporting on veterinary pricing assumed a 30.9 percent increase for 2009 to 2017; meanwhile, the CPI reports a 14.3 percent increase for all consumer spending on goods and services over the same period.

Based on more 27 million pet health treatments from January of 2009 through December of 2017 with a total value of $2.8 billion, the Nationwide | Purdue study shows that veterinary pricing (what consumers actually paid for care, not the practices’ “list prices”) decreased in the recessionary and post-recessionary period of 2009 through 2014 by 2.2 percent. In 2015, a sharp recovery began.

Overall, veterinary pricing during the last three years, inclusive (January 2015 through December 2017), has increased by 10.2 percent, offsetting the period of 2009 to 2014 when veterinary pricing was effectively stagnant or negative. Given the notable shift in 2015 and the continued rise over the last three years, veterinary pricing has now risen even higher than during that period of stagnation (2009-2014). Figure 1, on page 3.

Background

The pet-care industry is a considerable force in the U.S. economy, estimated to be worth $69.5 billion by the American Pet Products Association (APPA) in 2017, with a projected value of $72.1 billion in 2018.

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Within the pet-care industry, the APPA values thesub-sector of veterinary services at $17.1 billion(2017), behind spending on pet food, general petsupplies and over-the-counter pet medications.1 As the popularity of companion animals and the amount spent on them continues to climb, both anecdotal reports from pet owners and statistical releases from the U.S. government have held that the cost of veterinary care has risen more quickly than pricing for all consumer goods.

With more than 700,000 currently insured pets, Nationwide is the first and largest pet health insurance provider in the United States; as such, the company has access to millions of treatment prices through its peerless claims data. Executive leadership in the pet health division at Nationwide believed this claims data could be used to depict veterinary pricing trends with much greater accuracy than previously available numbers, and that the work could be of great benefit in the veterinary industry.

Nationwide began its collaboration with the Krannert School of Management at Purdue University in 2014; the relationship was developed to provide third-party analysis of Nationwide’s vast proprietary claims data. (Note: Early years of data are from the Nationwide business unit formerly known as Veterinary Pet Insurance or VPI.) Nationwide has its own expert research team for both the financial and medical analysis of its

pet health insurance claims database. Despite that, the industry-academic collaboration was formed to provide a more independent analysis of veterinary pricing, with the mutual goal of creating a standard for the entire companion animal veterinary industry.

The inaugural Nationwide | Purdue Veterinary Price Index was presented at the North American Veterinary Community (NAVC) conference (now known as VMX) in January of 2015 and again at the Western Veterinary Conference (WVC) the following month. After a refresh of the data and a subsequent analysis, the second edition of the study was presented at the American Veterinary Medical Association (AVMA) convention in July of the same year. The Veterinary Price Index has been refreshed at regular intervals since, with presentations to industry groups such as VetPartners, and various state and regional meetings of veterinary medical associations. Concurrently, the executive summaries of each edition are publicly available along with an overview of the original methodology on the website NationwideDVM.com.

As the collaboration between Nationwide and the Krannert School of Management at Purdue University continues into a full fourth year, the Veterinary Price Index has illustrated a recessionary multi-year decline in veterinary pricing, the current recovery, and most importantly, the point at which the trajectory reversed. Despite

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Figure 1

1Pet Industry Market Size & Ownership Statistics," American Pet Products Association, March 2018.

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the recovery in veterinary pricing and strong percentage gains since January 2015, the overall movement in veterinary pricing still tracks well below both the U.S. government estimate of veterinary pricing and the U.S. Consumer Price Index for consumer goods.

Methodology

The Nationwide database breaks down claims filed by pet insurance policyholders (members) into specific treatments. The expense of each treatment is separately recorded in the claims database. The Nationwide | Purdue Veterinary Price Index analysis uses this claims database, representing $2.8 billion in veterinary services purchased by Nationwide members from 2009 to 2017. (Since the bulk of the database is comprised of canine claims, the focus of the analysis this time is on veterinary services for dogs.)

The total dataset contains 1,353 distinct treatments for canines; it classifies 1,226 of these treatments as “medical” treatments, and the remaining 127 are classified as “well-care” treatments. In all, more than 27 million discreet treatments are included in the analysis. (By comparison, the CPI’s information on veterinary pricing is derived from a few hundred phone calls answered by whoever picks up the phone at the veterinary practice.)

To construct a price index, it is important to have a large number of price observations of treatments spread over the entire time period being considered. Only treatments that have at least 5,000 claims over the nine-year period from 2009 to 2017, inclusive, and at least 500 claims each year during this period were considered. The price observations are obtained from actual financial transactions, representing 24,000 of the estimated 26,000 veterinary practices in the United States. After these considerations, the formulation reduces the number of canine medical treatments to 169, and reduces the number of well-care treatments to 43. The resulting dataset — called “common” treatments for canines in this analysis — still represents 82 percent of total claims recorded across all treatment codes. In addition, outliers were carefully excluded to render a trend that most representative of the most common treatments for canines. Figure 2.

To remain consistent on a year-over-year comparison basis, the 2013 base year for the basket of treatments used to calculate these indices was again used. Movement in the price indices reflect only price changes as the proportion of claims of each type are held constant at the level observed in 2013. In April 2014, VPI had a change in its claim process that impacted the way physical exam costs were represented in the dataset. To preserve consistency of the data before and after April 2014, the affected physical exams after April 2014 and those that would have been affected prior to April 2014 were excluded from the analysis. More than 80 percent of the physical exams were retained in the final analysis.

Breaking down the data: well-care vs. medical

As previous editions of the Nationwide | Purdue Veterinary Price Index have shown, medical and well-care pricing trends behaved very differently from one another in the years 2009 to 2014, inclusive. Despite the recessionary and post-recessionary climate, well-care treatment pricing continued at a positive clip of 7.8 percent and followed a similar pattern of price increases to the CPI. Medical treatment pricing, conversely, experienced a downward trend in 2009 to 2014. Its surprising -5.2 percent trend line appeared to be the source of the overall stagnation of pricing during the 2009 to 2014 years.

Starting at the beginning of 2015 and running through the end of 2017, medical treatment pricing

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Figure 2

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has taken a notable upward turn. In fact, the overall increase of 10.2 percent in the Nationwide | Purdue Veterinary Price Index from 2015 to 2017 is predominantly driven by medical treatments (+10.3 percent), as compared to well-care services (+5.1 percent). Figure 3.

A new data cut: specialists vs. non-specialists

We’ve discussed above how veterinary pricing trends for medical treatments can be very different than pricing trends of well-care treatments. We’ve also observed that the impact of medical treatment pricing can be profound. In fact, it appears to have been the force behind overall veterinary price stagnation from 2009 to 2014. But, what about the traditionally higher priced services rendered by veterinarians at the specialty level?

New cuts to our claims data reveal that specialty practice pricing was even more severely impacted in the period from 2009 to late 2014, with a pricing trend of -10.5 percent. These results seem to follow anecdotal stories of a reduced willingness of consumers to pay for specialty services during the recessionary and post-recessionary period. Perhaps less dramatic of the new revelations, but still significant, is the pricing drop among non-specialty practices (-2.8 percent).

Just as we saw a notable transition towards recovery for companion animal practices in early 2015, the recovery came swiftly for specialty practices, too. In our separation of specialty vs. non-specialty practices, we see that they both have been experiencing pricing increases in 2015 through 2017. With a 10.6 percent increase from 2015 through 2017, specialty practices effectively recovered all their ground lost in 2009 to 2014.

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Figure 3

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Non-specialty practice pricing has recovered too, although it has not been quite as robust for primary-care veterinarians at 9.5 percent. (Note: In figures that follow, the y-axis has been changed to dollars.) Figure 4.

An interesting observation when comparing specialty practices to non-specialty practices is the gap or deviation in pricing changes over time. Early in the study period (2009), specialty practice pricing exhibited a $124 or 40 percent pricing differential compared to non-specialists. At the end of 2017 this pricing differential had been reduced

to only $54 or 16 percent. Whether or not the gap will widen again is something to watch in future studies. Figure 5.

Breaking out practice ownership

During presentations of the Nationwide | Purdue Veterinary Price Index, members of the veterinary industry frequently ask the study authors if there were observed differences in pricing between corporate-owned and independently owned veterinary practices. Inspired by these questions, this edition of the Veterinary Price Index includes

Figure 5

Figure 4

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pricing trend comparisons between two different models of veterinary practice ownership: corporate owned (non-specialist) practices vs. independently owned (non-specialist) practices, which we term “Main Street” practices.

Throughout 2009 to 2017 corporate-owned (non-specialist) practice pricing consistently tracked above the overall Index. Meanwhile, independently owned (non-specialist) practices consistently tracked below the Index. The data show that independently owned practices took the biggest pricing hit (a 3.4 percent drop) during the 2009 to 2014 period. However, since 2015 they have also posted a slightly more robust recovery, a 9.9 percent increase vs. and 8.3 percent gain for corporate owned (non-specialist) practices. Notably, there is a steady +10 percent difference in the nine years of data between corporate-owned and “Main Street” practices for the same treatments. Figure 6.

Wrapping it all together

Although specialty practice pricing fell the most during the recession and has recovered, specialty practices overall have yet to return to their original pricing gap (40 percent differential, as depicted in Figure 5 above) compared to non-specialists. However, specialty practices continue to post the highest average weighted prices,

$353.21, experiencing a 3.1 percent increase in 2017 compared to 2016, compared to non-specialists. Price increase trends of corporate-owned (non-specialty) practices trailed their independently owned competitors over the last three years (+8.3 percent vs. +9.9 percent, as depicted in Figure 6 above), but the former posted the highest rate of increase of average weighted price of $316.85 (a 4.2 percent increase in 2017 compared to 2016) among the cohort of non-specialists.

The lowest average weighted price in this analysis is $294.23 (experiencing a 3.8 percent increase in 2017 compared to 2016), and is attributed to non-specialist, non-corporate (“Main Street”) practices. Figure 7.

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Figure 6

Figure 7

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A final cut: population density and region

Not surprising based on earlier analyses, we see differences when restricting the data set by region or by population density (“zone”). Although all population densities saw increases over the 2015 to 2017 period (9.0 percent for urban; 8.8 percent for suburban; 10.9 percent for rural), the recovery has been strongest in geographic areas identified as rural (pricing up 5.9 percent at $292.27 in 2017 compared to 2016).

Other average weighted prices for 2017 compared to 2016 show urban prices as the most expensive

($328.48), with a modest pricing rise of 3.0 percent that is comparable to price increases at practices in suburban locales (2.9 percent). Figure 8, Figure 9.

The percentage gap between urban and rural pricing data has narrowed considerably during the time period studied, as country practices caught up a bit to their city counterparts ($63 gap or differential in 2009 reduced to $36 gap in 2017).Figure 10, on page 5.

Figure 8

Figure 9

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Differences across geographic regions continue to reflect the pricing pressures in play. Both of the more modest regions for veterinary pricing – the South and the Midwest – were first to show price increases in early 2015. Now all four regions show an increase in the 12-month period that began in January of 2017. The Western region remains the nation’s most expensive for veterinary care ($322.32), with the Northeast falling to a close second ($319.59) after a multi-year run at the top.

The South and Midwest are likewise closely paired in pricing, at the other side of a pricing gap below the other two regions. Pricing in all four regions gained in the 12-month period that began in January of 2017, with the Midwest showing the largest increase at a significant 7.3 percent. Figure 11.

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Figure 10

Figure 11

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Summation

This latest refresh of the Nationwide | Purdue Veterinary Price Index continues to show the strong pricing recovery reported in the previous analyses. After years of falling veterinary prices reflected in pet health insurance claims, Nationwide’s data through the end of 2017 confirms increases across all sorts of treatments, all geographic regions and all types of population densities or zones. Over the 2009 to 2017 period covered by the Nationwide | Purdue analysis, however, veterinary pricing still significantly lags cumulative pricing increases for other consumer goods and services. Despite the increase reflected in data from January 2015 through December 2017, the Nationwide | Purdue analysis of millions of actual claims shows veterinary pricing still remains below U.S. Consumer Price Index estimates of the cost of veterinary services.

Nationwide considers such uses of its data to be of service not only to the small animal veterinary community but also to the broader community in the pet-care services industry, individual pet owners and Nationwide members. The ongoing commitment to the Nationwide | Purdue Veterinary Price Index

represents a considerable investment in service to those overlapping communities.

In providing data to show trends in veterinary pricing, Nationwide continues to deliver on its promise to the veterinary community to provide information that will help pet owners and veterinarians work together as a team for the better health of companion animals that are so important to the continued well-being of people of all ages.

The next presentation of the Nationwide | Purdue Veterinary Price Index will be offered at the 2018 convention of the American Veterinary Medical Assoc. (AVMA). That study will reflect claims data from all of 2017, as outlined in this paper. Subsequent presentations for 2019 will be noted on NationwideDVM.com website and NationwideDVM social media platforms. The refreshed studies that accompany these presentations are always available for downloading at no charge at NationwideDVM.com.

1 “Pet Industry Market Size & Ownership Statistics,” American Pet Products Association, February 2017.

AuthorsFor Nationwide: Kerry O’Hara, Ph.D., Director of Research, Data and Strategy; Carol McConnell, DVM, MBA, Chief Veterinary Officer, Angela Leung, Senior Consultant in Market Research, and Gina

Spadafori, Veterinary Communications Specialist.

For the Krannert School of Management, Purdue University: John M. Barron, Ph.D. and Kevin Mumford, Ph.D.

Nationwide, the Nationwide N and Eagle, and Nationwide is on your side are service marks of Nationwide Mutual Insurance Company. ©2018 Nationwide. 18VET5471

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