In-house lab services, like all the other services and products that you have available to your clients, aren’t going to move well unless you believe in their value.

A Case for In-House Laboratory Services

by Bashore Halow, CVPM, LVT

Speed, Higher Compliance, Profit

Lots of veterinary managers fret over the notion of in-house laboratory services, citing high costs, the headache of machine errors, the hassle of credits for rotors gone awry, and so forth, but that’s needless hand-wringing. Priced right, there’s no reason that in-house lab services can’t be every bit as profitable, or more so, than reference laboratory services. There’s also a strong argument for the benefit of now versus later results. Answers that come while the client waits eliminate endless phone tag, give clients the immediacy they’ve come to expect, and increase compliance with recommendations because you are building on client education that happened just 20 minutes ago.

Accurate Data and Computing Power

Today’s in-house veterinary lab equipment report meticulous results. Some machines employ flow cytometry technology to review blood samples with proven accuracy. There are services that leverage the internet and technology to ensure that all machines are automatically updated and calibrated and that the results are qualitative and checked for drift. Additionally, today’s report results outside the reference range and track trends inside the reference range so that veterinarians can address potential future problems before the patient is clinical.

Fresh Is Best

It’s been known for some time that samples tested immediately, in-house, provide better results than those tested later. As more practitioners use in-house equipment to review samples within minutes of collection, the case for the trueness of in-house readings is resounding louder.

Are you convinced yet that an in-house laboratory could be a valuable part of your veterinary practice? Whether you have one or you are thinking about acquiring one, make sure that you follow these five steps to a better lab.

Calculating prices for lab services should use both the critical and creative sides of your brain, and you may also have to fuss with it until you get it right.

1. Ensure That Your In-House Lab Services Are an Extension of Your Mission

In-house lab services, like all the other services and products that you have available to your clients, aren’t going to move well unless you believe in their value. A strong mission statement and a hospital-wide commitment to a standard of care will go a long way in helping you decide if in-house laboratory services, and the equipment you need to provide them, are right for your business.

2.Categorize It Correctly in the Software

Our Madness Needs Method

After one year of employment at my first veterinary job, a coworker told me that it was time for me to learn “the inventory.” She powered on a computer, opened the inventory module in the practice management software (PMS), pulled a manufacturer’s invoice over, and showed me how to enter the inventory into the software. When we came across an item that we had never before purchased, she showed me how to enter it into the system. “See this?” she asked, tapping the computer screen with her fingernail. “This is the field for the code. I just make this part up. I just do this,” and then she drummed all of her fingers on the keyboard like she was playing an imaginary piano. That was our inventory coding system. It looked like a cat had walked across the keyboard and then hit enter.

Since then, I’ve traveled about and witnessed how other practices manage their inventory and services in the software. I have come to believe that the woman who trained me must have taken her show on the road.

How to Correctly Categorize In-House Lab Services

Use the AAHA/VMG Chart of Accounts (aaha.org/coa) and butter up your bookkeeper to journal your practice’s expenses the right way. Now, mirror your categories in your software to match, as closely as you can, those that are in the Chart of Accounts. I’m oversimplifying things here, but the direction I’m taking you in is this: If you have a record of all of your expenses, by category, in your accounting software, and you have a corresponding record of all of your revenue in your practice management software, you can evaluate your return on investment in each of your major revenue centers, including your in-house laboratory.

This is a boon to any manager looking for a surgical approach to cutting cost. Your cost of goods sold, otherwise known as your variable expenses, are typically your highest veterinary practice expense after payroll. If you are a general, private practice, this number normally ranges between 18% and 22% of your gross revenue, but if it’s higher, we can now zero in on why. Just pair up the expense and revenue categories and look for the ratios that are out of whack. Because these are guidelines embraced by AAHA and many other large American management groups, there is no dearth of comparisons. Benchmarks abound.

Oh, and don’t look away and dance your fingers across the keyboard when making up inventory or service codes. Read AAHA’s 101 Veterinary Inventory Management Questions Answered (press.aaha.org), and then learn how to do it right. A structured coding system allows you to sort data in greater detail. You’ll also be able to see trends and opportunities and be able to price with more precision.

3. Price It Right

How to price a service or a product is something that has bedeviled many a practice manager, but it’s not because the math is hard. The formula for pricing is:

Service’s variable expense + service’s share of fixed expense = price

1 − desired profit margin (written as a decimal)

The problem is that this equation only works when everything in the practice is priced this way, something I have yet to witness. Usually, hospital pricing is an amalgam of loss leaders, anecdotal markup rules, and stuff that the kid entering your services just made up. If you don’t take into consideration how unprofitable you are to begin with, a formula that works to provide you with perfect profit will always come up short. 

Calculating price should use both the critical and creative sides of your brain, and you may also have to fuss with the numbers until you get it right. Certainly start with the above formula and then take into consideration your current profitability, what your team thinks, what your competition is doing, and what you believe your clients are willing to pay.

You can also use these benchmarks to help you determine if you are on the right track.

• In-house lab revenue should be three to five times its variable expense. You can try multiplying your total variable cost expense by three to five and then using that product as your price.
• Total laboratory expense in a healthy, private, general practice, is typically 4%–7% of gross revenue. If you’re in excess of 7%, it could mean it’s time for a price hike or to reach out to your vendor to discuss costs.
• Total laboratory sales in a healthy, private, general practice, typically comprise 18%–22% of total sales (though many practices exceed 25%). Falling short? It may be a pricing issue. 

Remember that faulty pricing isn’t always to blame. Missed charges, excessive employee discounts, discounted wellness care that includes laboratory services, and unreported machine errors can all contribute to problems. Remember that nearly all veterinary practices have some hidden, missed opportunity in their fee schedules. The Veterinary Hospital Managers Association recently produced a white paper on the topic of pricing. You should further your understanding and exploration of pricing there. 

A straightforward recommendation of your lab services demonstrates that you care, establishes that you know what you’re talking about, and gets down to the business of healing the pet.

4. Strongly Recommend Your Lab Services

In my career, I have listened to hundreds of veterinary professionals discuss veterinary services. Here’s my verdict: A straightforward recommendation demonstrates that you care, establishes that you know what you’re talking about, and gets down to the business of healing the pet. As one veterinarian explained, “I tell clients that I am here today to be the best veterinarian I can possibly be. Then I make a straightforward recommendation for what I think they should do. Then I shut up.”

Recommending services, in the context of listening, discussion, and discovery, should never feel like selling. It should feel like job satisfaction. The people who come to you want one answer from one veterinarian whom they can trust. Don’t be a shopping aisle of choices; be an ally for a beloved pet who needs help. Take a stand; state what you think. You’ll never get ahead doing anything less. 

5. It’s a Fill Line, Not a Fill Area

Not long ago, I interviewed Graham Bilbrough, MA, VetMB, CertVA, MRCVS, an associate veterinarian in medical affairs with IDEXX who leads groundbreaking research in preventive care and disease using big data. Near the end of our conversation, I asked him for his thoughts on veterinary in-house laboratories. He seemed appreciative for the chance to weigh in.

“Modern in-house analyzers are a joy to use,” Bilbrough said. “If you do the basics well, like cleaning and QC [quality control], they will serve you and your patients well. Obviously, operator’s guides need to be followed and reagents stored correctly. Yes, there are areas that need careful attention, like carefully filling to the marker on the sample container; however, that applies to the reference lab, too.

“It’s important that you know how to interpret the results from your own analyzers. If you don’t, pick up the phone or get online. All the companies will want you to get the very best from their tests.”