If you have read my previous posts, you might think I believe that all veterinary hospitals should be small. I actually don’t believe that larger hospitals are inherently bad. In fact, I ran two hospitals with 150 employees and joined BluePearl when it was veterinary owned. However, I know that investors from the financial sector do not have the continuous improvement of the quality of veterinary medicine as their top driving goal when they purchase and consolidate practices.
But how do smaller veterinary run and veterinary financed practices compete with larger organizations? Pharmacies discovered that the cooperative structure works to combine buying power with continued independent ownership.
What is a co-operative? The International Cooperative Alliance defines a co-operative as an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly owned and democratically controlled enterprise.
This might make you think of hippy groups from the 1960s and 1970s. However, there are an estimated 40,000 cooperatives currently operating in many different sectors of the US economy. Well known cooperatives you might have used or be members of include REI, ACE hardware, Organic Valley, and Equal Exchange.
Independent pharmacy cooperative, Compliant Pharmacy Alliance Cooperative and CARE pharmacies cooperative, inc. are all networks of independent pharmacies that work together for better purchasing power. Pharmacies become members of a cooperative and the larger entity leverages the group power to negotiate deals on purchases. The cooperative often also provides logistical and operational assistance. Pharmacists run their stores locally but work together to hire the CEO of the cooperative. In a buying group, profits and control may be in the hands of a single owner. At these cooperative pharmacies, pharmacy owners serve rotating elected terms on the board of directors and profits return to the members. The cooperative model allows for scale while keeping decision making and revenue in the hands of those doing the work, in this case pharmacists.
There must be something to this model as CARE pharmacies was recognized as the fasted growing pharmacy group in 2012 and continued their fast pace with 20% sales growth in 2016.
Pharmacies have a much higher percentage of their revenue from product sales than veterinary hospitals. This means purchasing cooperatives affect the bottom line more in retail than in service industries. However, The Veterinary Cooperative (TVC) has been helping independent veterinary practices combine their buying power since 2012.
TVC was founded out of a desire to help independent veterinary clinics compete with private equity backed consolidators. The cooperative currently has over 2600 independent veterinary practice members that use their buying power for better purchasing deals. According to Allison Morris, president of TVC, the cooperative saved their members approximately $15 million in rebates and discounts in 2017. Like pharmacy cooperatives, discounts are passed on to the veterinary member owners and end of year profits are also shared. The board of the cooperative is made up of veterinary clinic owners who are elected by the membership as a whole.
Membership in TVC is open to any practice that is at least 51% owned by independent veterinarians. The cooperative also provides business continuing education, networking, and works to leverage deals for other services and education.
These cooperatives were not set up to provide solutions to the problem of exit strategy and succession planning. However, Mark Ey, VP of Operations at Care Pharmacy, noted that sometimes he is able to connect a member who wants to sell with another member who wants to purchase or who has an associate looking for ownership. TVC is not yet providing this service but hopes it will be part of their future.
For more information about cooperatives:
http://ncba.coop/our-work/7-cooperative-principles
https://ica.coop/what-co-operative-0
https://www.shareable.net/blog/the-veterinary-cooperative-helps-independent-veterinarians-thrive