Veterinary Practice in the UK: The Free Market in Animal Healthcare and Some Market Failures
In keeping with its image as a nation of pet lovers, around 17 million households in the UK include at least one companion animal within the family. More than half of adults in Britain own a pet. But this companionship comes at a cost. Apart from regular expenditures on food, toys, clothes, other pet products, grooming, dog walking, and a miscellany of expanding pet-friendly recreational activities, there are the inevitable and inescapable costs of preventive and curative animal health care. Unlike their human owners, who benefit from free health care at the point of delivery courtesy of the NHS, household pets mostly depend on the private sector for their care. A small number of owners, who cherish the companionship of their animals but are unable to afford the high costs of veterinary care, benefit from the ministrations of charities such as the PDSA (People’s Dispensary for Sick Animals), Cats Protection, Dogs Crisis, and the RSPCA (Royal Society for the Prevention of Cruelty to Animals).
Within the £2 billion veterinary sector, independent practices are in the decline, down from 89 per cent of UK operators in 2013 to 45 per cent in 2021, just as large corporate providers enter and begin to dominate the market. From 2013 onwards, around 1,500 of the 5,000 veterinary practices in the UK have been acquired by six large corporate groups: IVC Evidensia UK (the largest provider of veterinary services in the UK), CVS Group, Linnaeus Veterinary Ltd, Medivet UK, Pets at Home (Vets4Pets), and Vet Partners. The new corporate owners include private equity investors and others who are not veterinary professionals.
The UK veterinary market can be characterised by the rapid consolidation of practices, opaque pricing structures, and inflation-beating prices for consumers. The Competition and Markets Authority (CMA), a non-ministerial government department which helps “people, businesses and the UK economy by promoting competitive markets and tackling unfair behaviour”, has thus stepped into the fray to set matters right.
The CMA review of the veterinary sector commenced in September 2023. A Call For Information yielded 45, 000 responses from the general public and 11,000 from those working in the vet industry. The CMA also sought feedback from ‘vet practices, industry bodies, charities, and others” to identify their concerns with veterinary services. These concerns then featured in a report published by the CMA on 12 March 2024.
The five key issues identified by the CMA can all be considered ‘market failures.’ Asymmetries of information mean that consumers cannot reliably identify the best practice for their needs, the most appropriate treatments, and the most competitive prices. Sector consolidation, which can be obscured by the fact that four out of the six largest corporate groups tend to retain the original name and branding of chains of smaller independent practices, has weakened competition and reduced choice. These oligopolies have increased their market dominance by investing in advanced equipment and by spreading their tentacles to acquire specialised referral centres, out-of-hours care providers, diagnostic laboratories, and crematoria by a process of horizontal integration. Consumers may be overpaying for prescription medicines and other treatments, well above the true market price. Vet practices, for whom medicine sales may make up a quarter of their income, have not provided consumers with the alternative of cheaper online dispensaries. Finally, the regulatory framework, which dates back to 1966, is no longer fit for purpose, having been designed with independent vet-owned practices in mind rather than large non-vet-owned corporate groups.
The CMA is currently engaging in a four-week consultation, due to end on 11 April 2024, before launching a formal ‘Market Investigation’ of the veterinary sector. This move has been welcomed by the British Veterinary Association and Royal College of Veterinary Surgeons, but has also affected the share prices of some corporate providers who seem less enthusiastic about reforms that could stifle their market domination.
A growing shortage of vets may, however, be contributing to higher fees, driven by forces of supply and demand. Individual practices have to entice, and then retain, vets and support staff (nurses, receptionists, administrators) with attractive salaries, even as rising costs of drugs, equipment, and supplies, high electricity and gas bills, mortgage and other loan repayments, and business rates eat into profits, which remain the main incentive of any private business. The need to include 20 per cent VAT further inflates vet fees.
High vet bills have encouraged the growth of the pet insurance industry, which has itself become big business. But this insurance, which can help reduce costs, has its limitations. Insurers may cover prescriptions, treatments, and remedial therapies for illnesses and injuries, but only within agreed limits and for specified conditions, and often require an upfront excess payment. To minimise the scale of payouts, most pet insurers do not cover pre-existing health conditions and increase premiums for older pets. Besides, the costs of insurance premium tax are also passed onto the policy holder.
The CMA intervention has come at an opportune moment. Pet ownership increased during the pandemic, but the unforeseen costs of feeding companion animals and catering for their health needs have led to many unfortunate pets being neglected or abandoned. For those who have stayed loyal to their pets, the cost-of-living crisis has been compounded by high vet bills. Review and reform of the veterinary sector is overdue and welcome.
Ashis Banerjee