Launch of clinic benchmarking tool hits speed bump

Chewy's purchase of veterinary analytics firm raises questions about AAHA initiative

June 13, 2023 (published)
Photo courtesy of Garth Jordan
After becoming CEO of the American Animal Hospital Association in 2020, Garth Jordan spearheaded the development of a benchmarking program for practices. AAHA accredits companion animal hospitals in the U.S. and Canada. Of the estimated 35,000-plus practices in both countries, nearly 5,000 are accredited by AAHA.

The American Animal Hospital Association's launch of a program that enables veterinary practices to compare their performance against peers was meant to be a win for the 90-year-old nonprofit accreditation organization.

Some of the nearly 5,000 member hospitals had been urging the association to develop benchmarking software so practice owners could gauge their financial and productivity performance in close-to-real time. The software uses data extracted from participating clinics' digital practice records.

AAHA CEO Garth Jordan certainly believed that the organization had netted the best available benchmarking program for veterinary clinics when it partnered with Petabyte, a 5-year-old veterinary company in Seattle.

Then, about a month after the program debuted in September, Jordan got a call from Petabyte co-founder and CEO Michael Hyman. Hyman told him Petabyte had been bought by Chewy, which has a giant online pet store and pharmacy, with ambitions for more. Hearing the news made for a classic "oh no!" moment.

Jordan said later that he worried Chewy "would not be aligned philosophically about the original intent and direction of the AAHA Benchmark product."

What he left unsaid is that many veterinarians are leery of Chewy, seeing it as an economic threat to traditional independent practices. Could the ownership change at Petabyte cause practice owners to balk at letting the company pull financial and client information from their digital records?

Two hospitals already have withdrawn from the program due to concerns about Chewy's role, and a few AAHA board members expressed trepidation, according to Jordan, but the board ultimately stayed the course. He said this month that "several hundred" AAHA-member and non-member practices have signed up for benchmarking to date.

In brief

Pulling the plug would have been hard. "We learned Chewy acquired Petabyte after spending a half-million dollars of our members' money," Jordan said. "If you want to walk away from a half-million investment and a product already launched ... you can do that. Or you can work with Chewy and understand their intent and figure out if there's a way to turn the relationship into something that makes this better … even though there might be skeptics."

Asked how Chewy's involvement could improve the program, Jordan said, "Chewy is a large company with many more resources than what Petabyte brought to the table, so we can/should make this a much better product for everyone who wants to use it."

Since the sale of Petabyte to Chewy, Jordan said he, the rest of the AAHA executive team and the board have met with both parties and come to an understanding. "Not only are we philosophically aligned and trust Chewy in stewarding this product," he said, "but we are doing extra due diligence to ensure that the utmost privacy and data security standards are reflected in the agreement."

Petabyte and Chewy declined to be interviewed by the VIN News Service, but executives responded to some questions via email.

Jon Alexander, vice president of business-to-business services for Chewy Health, said that the decision to buy Petabyte was made independent of its partnership with AAHA. 

"Chewy's acquisition of Petabyte reaffirms the company's deep commitment to the veterinary space and dedication to practice health, enhancing veterinary/client interactions and improving outcomes for pets," he said.

Data worries are common

As digital services have proliferated in veterinary medicine, so has unease about data security. Some practice owners and managers fear that as more companies reach into practice records, clinic information could fall into the hands of competitors or be used to solicit their clients without permission.

"I am concerned about the trend I see in some companies that want to harvest data from veterinary clinics," Dr. Kenneth Cox, who has owned a practice in Florida for 22 years, said in an email. "I know this type of data is seen as a powerful marketing tool. My concern is that they will use this to promote and grow their businesses while bypassing the direct link individual veterinary clinics have with clients."

VIN News contacted Cox in reference to a post he made about Chewy on a message board of the Veterinary Information Network, an online community for the profession and parent of VIN News.

Cox also objects to companies potentially cashing in on his practice's hard work.

"My database in my practice is an accumulation of 21 years of our work. It is perhaps my most valuable asset," he said. "Other companies should have no right to use any of my assets without reimbursing me." He also raised a worry that data sharing could be a violation of client confidentiality under some state's laws.

Mergers and acquisitions further stoke general data anxieties. A bevy of veterinarians and industry leaders expressed concern in 2018 about a sprawling veterinary company amassing vast amounts of clinic data when Covetrus, a global animal-health services company, was formed from the merger of Henry Schein Animal Health, an owner of practice information management software, with Vets First Choice, an online pharmacy, prescription management and analytics business. 

Since then, some clinics have related experiences of Covetrus inappropriately using practice information or enabling third-party businesses to access practice information, reinforcing concerns in the veterinary community about data privacy.

Previously, a round of dire predictions was spurred by the 2021 purchase by Mars, the world's largest owner of veterinary practices, of Vetsource, another online pharmacy, prescription management and analytics business. In that case, critics of the acquisition worried about independent practice data ending up in the hands of a practice consolidator that competes against them. 

At the time, Vetsource CEO Kurt Greene told VIN News that the deal with Mars was made precisely as a bulwark against online retailers such as Chewy. He said Mars' size, scale and financial backing would help Vetsource build systems and infrastructure so veterinarians could deliver a customer experience that competes with large internet retailers that he called "a threat and a challenge" to the profession.

Concerns particular to Chewy

The general unease about how companies might use practice data is the backdrop to more specific apprehension about Chewy and what its ambitions in the pet health sphere could mean for practices.

AAHA says Chewy data security, privacy are 'watertight'

The distrust is rooted partly in the online retailer's success. In the past, sales of prescription medications and therapeutics were a steady source of revenue for many veterinary clinics, but during the past decade or so, online pharmacies, as well as retail chain pharmacies, have made deep inroads in the market. Chewy started its pet pharmacy in 2018.

Many veterinarians complain that the playing field with Chewy has been anything but level.

Dr. Matthew Pike, a practice owner in upstate New York, is frustrated by how often Chewy, which didn't turn a profit until the first quarter of 2021, is seemingly prepared to undercut the market with low prices.

"They can continue to throw money at this until the cows come home, and the only people who will suffer are their competition," he posted last year in a VIN message board discussion about the company. He predicted that Chewy would "low-ball until they've decimated competition, take up an increasing market share, and then profits will happen when everyone else is gone from the market."

After learning about the Petabyte deal, Pike said he worries that all of that data could bolster Chewy's market power. He speculates that even if the company doesn't access data on the level of individual practices, it likely will be able to obtain aggregated data.

"Giving Chewy back-door access to your practice's data will allow them to target your clients even if they don't receive specific client information," Pike said in a conversation by email. "They don't need to target your clients directly. They can analyze your pharmacy and preventative sales and exploit them by increasing and decreasing their own ad buys and special offers to gain market share in your region. If I used Petabyte, I would choose a different analytics service immediately."

As Chewy's market share has increased, so apparently has some veterinarians' frustration with its prescription-filling process. Veterinarians describe being hounded by the company to authorize prescription drug purchases and losing valuable staff time to Chewy's clunky email or fax interface, and — on top of that — being misrepresented to pet owners when the process goes awry.

"I do not trust Chewy," Florida veterinarian Cox wrote in May 2022. "They have flat-out lied to several of my clients, saying they contacted us and we refused prescriptions. We never refuse a legitimate request based on need and valid VCPR." (A VCPR is the veterinarian-client-patient relationship. Most states require that the patient be examined in person by a veterinarian to establish a VCPR before a diagnosis is made or medicine is prescribed.)

When asked about such complaints, Chewy's vice president, Alexander, said the company continues to invest in improving technology to streamline processes for reviewing and approving prescription requests, and more than 10,000 practices are using these "digital solutions."

"Regardless of whether a practice uses one of our digital solutions or not, when a prescription is refused, we enable the practice to select a reason why — for example, 'the pet needs to be seen' — and communicate that directly back to the customer so they can follow up with their veterinarian as appropriate," Alexander said in an email. "Our end goal in all of this is to ensure that pet parents get the right medication, increase compliance and ensure there are no gaps in care."

Unfavorable reviews are not universal. Plenty of practice owners say they are happy, or at least resigned, to letting go of the inventory headaches of selling products themselves, conceding that Chewy offers a cheaper, more convenient outlet and good customer service to pet owners.

Dr. Kerry Lindemuth, a house call veterinarian in Vermont, wrote last year: "Chewy has better prices, better customer service and better order fulfillment. I wish it wasn't true, but it is. Plus, they send pet bereavement cards and flowers. Unreal."

Taking bigger steps into the profession

Beyond filling prescriptions, Chewy is expanding its footprint more directly into veterinary medicine, raising new questions about its future relations with clinics.

In a conversation with a VIN News reporter in 2021 about new initiatives, Mita Malhotra, president of Chewy Health, said the company plans to make pet health care about 30% of its overall business.

Citing the company's mission statement "to be the most trusted and convenient destination for pet parents and partners, everywhere," Malhotra said, "We realized that part of ‘the destination' means we have to play in spaces that we haven't played in before. Health care is a massive market and a massive need for customers; we have to have a presence there."

CNBC reported in January that Chewy "has been stymied by repeated annual net losses and slim margins" and that CEO Sumit Singh believes "expanding into pet health and wellness, which are higher-margin categories than pet food, will be essential to getting the company on the path to profitability."

(The approach appears to be working. Chewy posted profits of $22.2 million in its first quarter 2023, exceeding market expectations. Sales rose to $2.78 billion, up 14.7% from $2.43 billion a year earlier, and net sales per active customer and sales from autoship customers reached record highs in the quarter.)

Part of that strategy appears to be enlisting veterinarians as partners and customers. In 2020, Chewy launched a free online portal called Petscriptions, where veterinarians can review and approve prescriptions, potentially eliminating some of the headaches lamented by practitioners. It was Chewy's first foray into veterinary technology. But not their last.

Chewy introduced PracticeHub in 2021. This software enables veterinarians to prescribe and sell medications on and earn revenue. Some clinics using PracticeHub allow Chewy to access their practice information management database. It is often described as a competitor to clinic-branded online pharmacy services operated by Vetsource and Covetrus.

The acquisition of Petabyte for $43.4 million brought several additional veterinary software products into Chewy's fold. These are, in addition to the analytics platform and benchmarking products, Rhapsody, a cloud-based practice information management system, and Boop, a mobile app for pet owners to manage their pets' veterinary information.

A new field of play

In October 2020, at the height of the Covid-19 pandemic, the company launched Connect with a Vet, a chat-based "tele-triage platform" that allows customers to chat virtually with a veterinarian about their pet's health.

Descriptions of the service specify that Chewy veterinarians "are not diagnosing medical conditions, providing treatment, or prescribing medications." With this language, Chewy appears to acknowledge rules in most states that forbid veterinarians from performing these duties until they establish a VCPR with an in-person exam.

Online consultations are free to all Chewy customers. That is "not OK" with Dr. Angela Chesanek, who practices in the Orlando area.

"I would rather my clients ask me for advice and schedule a visit if appropriate," Chesanek wrote about the Connect with a Vet tool on an April 2022 discussion on VIN. "I hope most vets don't do this. Chewy is not benefiting our profession in any way. They should stick to selling food." 

There are indications that Chewy is seeking to expand what its virtual veterinarians can do. Chewy is a sponsor of the Veterinary Virtual Care Association, a lobbying group aiming to make it legal across the country for veterinarians to diagnose conditions and prescribe medications without ever examining the animal with their own hands.

Such moves could put Chewy on a collision course with veterinarians who do in-person care, many of whom are concerned that looser restrictions on telemedicine could undermine animal welfare. In May, an informal poll of VIN members asked: In your opinion, should an in-person exam be required to establish a VCPR? The majority of 2,389 respondents, nearly 54%, said, "Yes, in all cases"; 36% said, "Yes, but there should be exceptions." 

AAHA and Chewy forge ahead

It remains to be seen whether veterinarians' complaints about and conflicts with Chewy will hurt Petabyte's effort to sell its benchmarking products. So far, the profession seems relatively quiet on the subject.

There are no posts about Chewy's purchase of Petabyte on VIN message boards. It's unclear whether the lack of response reflects ease with the deal or a lack of awareness about the acquisition or some combination of both.

Jordan said the organization made a reasonable effort to alert AAHA practices, but he didn't know the details. "We are very upfront about the relationship," he said. "Our partners from Petabyte, they have email addresses. We're not hiding this from anybody."

After his initial concerns, Jordan said he doesn't fear the effect of Chewy's reputation on the benchmarking effort. On the contrary, he believes it could end up being an asset, by stimulating improvements.

"If I knew I had a reputation like Chewy ... where the veterinary community thinks I'm only in it for me and I'm taking their customer, then I have got to put some goodwill into the industry and change my ways," he said.

He predicts the relationship between the veterinary community and Chewy will become only closer, saying, "I suspect that in the coming years, you'll start to see Chewy's name in event halls and sponsoring in our ecosystem."

Jennifer Fiala contributed to this report.

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