The consolidation of independent veterinary practices by national and regional corporations is on the rise. These acquisitions reflect a similar growth in human healthcare.
But veterinary practices, like all medical practices, have experienced a significant increase in administrative burden and complexity in recent years. While less regulated than human healthcare, investors in the veterinary sector must still be aware of compliance considerations.
In this article, we explore the opportunities and risks associated with buying a veterinary practice.
Growing demand for pet care
According to the ASPCA, nearly one in five U.S. households adopted a pet during the COVID-19 pandemic – triggering a staggering demand for veterinary services and catching the eye of private investors.
Pets are an integral part of families and owners increasingly demand quality care for their animals. In addition, pets are living longer, so they need more sophisticated treatment Indeed, veterinary care accounts for 33.5% of total pet spend in the U.S. and is growing annually.
In spite of the increase in new veterinary practices in large national pet stores, most are small, independent clinics or sole proprietorships (approximately 25,000 in total) with only a few employees. These practices are ripe for acquisition.
Although attractive targets, such practices are often under-resourced and lack a consistent process for regulatory compliance.
Compliance risks of buying a veterinary practice
Veterinarians face unique compliance challenges. Many of the regulations and rules that govern these physicians' practices also apply to human medical practices. Even so, there are differences since animals are involved. Businesses that do not comply with federal, state, and local laws, as well as ethical rules of conduct, can face fines, penalties, and forced closure.
Consider the following:
- “Corporate practice” laws: Many states prohibit the “corporate practice” of veterinary medicine – meaning a non-veterinarian or an entity such as a business corporation is prevented from owning a stake or employing veterinarians for the purpose of practicing veterinary care. These laws are intended to prevent non-clinicians from interfering with a vet’s judgment and are something that any potential buyer should consider.
- False advertising laws: As professionals, veterinarians must not engage in advertising or marketing that is false, deceptive, or misleading. For instance, in Texas, veterinary medicine is regulated by the Texas Board of Veterinary Medical Examiners. This board prohibits any Texas-licensed veterinarian from engaging in advertising that “intends to create or is likely to create an inflated or unjustified expectation” or “an expressed or implied material misrepresentation of fact.” For example, a practice can’t advertise that it is open all hours for any emergency if a veterinarian is not present at the premises 24x7. Violations can result in sanctions such as revocation of the veterinary license and fines of up to $1,000.
- Prescription drugs and controlled substances laws: Because veterinary practices prescribe drugs and medications, they are subject to federal Drug Enforcement Agency (DEA) requirements as well as state-specific laws and registry and reporting requirements. As any practice grows, navigating these requirements becomes more complex and requires additional licensed and certified staff to support compliance.
- Additional state regulatory requirements: Veterinary care has become increasingly sophisticated incorporating human-grade diagnostic equipment, leading to additional state regulations for many practices. For instance, practices that use x-ray or radiation-producing equipment or produce biomedical/hazardous waste must comply with a variety of regulatory requirements including inspections, registrations, and permits.
Investors interested in buying a vet clinic must consider these and emerging regulations during any veterinary practice evaluation.
