{"id":77375,"date":"2025-02-11T15:22:10","date_gmt":"2025-02-11T20:22:10","guid":{"rendered":"https:\/\/todaysveterinarybusiness.com\/?p=77375"},"modified":"2025-02-11T15:22:10","modified_gmt":"2025-02-11T20:22:10","slug":"lab-contracts-money-matters-0225","status":"publish","type":"post","link":"https:\/\/navc.sitepreview.app\/todaysveterinarybusiness.com\/lab-contracts-money-matters-0225\/","title":{"rendered":"How to Save on Lengthy Lab Contracts"},"content":{"rendered":"

You heard this adage: \u201cA dollar saved is a dollar earned.\u201d But what if you could save $50,000, $100,000 or more than $300,000 over the life of your next long-term laboratory contract? Great news: You can. If raising prices is your primary approach to drive revenue and profits, the time has come to look at your veterinary practice\u2019s cost of goods sold and use your leverage to potentially save tens of thousands of dollars \u2014 or more \u2014 on lab services.<\/p>\n

As companion animal hospitals focused on wellness care over the past 20 years, the laboratory became a significant part of revenue growth. Gone are the days when you had to explain to clients why you recommended a senior profile. Today, clients are often surprised if you don\u2019t order bloodwork during an annual exam. Equipment sellers and reference labs understand this reality very well. The lab is big business.<\/p>\n

The Old Days<\/h3>\n

At one time, lab contracts were straightforward. You signed a five-year agreement with an equipment seller or service provider and received cash upfront, points or coupons roughly equal to one year\u2019s annual spend. The required yearly minimum spend was based on your prior year\u2019s usage, so as long as you did the same amount of lab work or more, everyone was happy. If you were lucky, you would get a guarantee that prices would not increase more than 8% a year. Ah, the good old days.<\/p>\n

Over the past several years, some lab providers have increased their prices at rates higher than overall inflation. And as standards of care<\/a> improved, lab profiles included additional and costlier tests. As a result, you might have struggled with setting appropriate prices as vendors raised theirs, leading to lower profit margins for you.<\/p>\n

Today<\/h3>\n

Most lab contracts range from five to more than seven years. I also see big swings in upfront incentives and huge variances in supplier prices. The better contracts have rebate structures to account for growth, an annual limit on price increases and free tests for team members\u2019 pets. Some of the differences lie in the size of the clinics and each one\u2019s purchasing power.<\/p>\n

Unfortunately, many practice owners don\u2019t know what is possible. Let\u2019s change that.<\/p>\n

First, let\u2019s understand why lab providers love long-term contracts. For starters, the agreements lock in certain amounts of revenue for the companies over a defined period, which makes their plans for capital investments and staffing easier to forecast and their forward-looking profits much easier to display to investors.<\/p>\n

To be clear, I don\u2019t oppose any of that; it\u2019s good business. The equipment suppliers and service providers focus on what is best for them, just as you want what is best for you.<\/p>\n

Let\u2019s now shift to negotiating the best lab contract for your practice and the five areas you should focus on.<\/p>\n

1. Annual Minimum Spend<\/strong><\/p>\n

This section of the contract is a laboratory company\u2019s holy grail. It locks in a practice\u2019s minimum sales requirement and impacts the clinic\u2019s expected benefits. Generally, historical spending determines the annual minimum. You don\u2019t want to promise more than you can deliver.<\/p>\n

If your lab revenue rises and you\u2019re confident the growth will continue, you and the vendor might agree to a higher annual minimum. However, don\u2019t do it unless the contract spells out a significant increase in the benefits you receive.<\/p>\n

Here\u2019s an example: A two-doctor practice hired a third veterinarian three months before negotiating a new long-term lab contract. After those three months, the clinic\u2019s monthly reference lab bill jumped from $8,000 to $12,000. The practice was growing fast, the team was on board with lab protocols, and the rise in lab services was sustainable. Raising the annual minimum under the newly signed contract gave the practice $60,000 worth of additional coupons toward future lab invoices.<\/p>\n

2. Upfront Incentives<\/strong><\/p>\n

The upfront incentive can include equipment, cash or coupons (points). Vendors often start by providing their equipment free of charge, which isn\u2019t bad if you need it and will use it. Unfortunately, some practice owners<\/a> accept an ultrasound machine or chemistry analyzer and rarely use it. They think, \u201cIt\u2019s free, so I should get it, and maybe I\u2019ll use it.\u201d No, you won\u2019t. If you don\u2019t need the free equipment, ask for cash, coupons or points instead.<\/p>\n

How much upfront incentive should a contract specify? The answer depends on other factors. Some practices might get a mountain of money at the start but pay more for particular tests. The answer also depends on the contract\u2019s length. The longer you are willing to guarantee revenue for the lab company, the more benefits the vendor will share with you. In many cases, a five-year contract can garner 100% of the annual minimum purchase requirement. A six-year contract might deliver 120%, and a seven-year agreement could award 140%.<\/p>\n

3. Special Pricing<\/strong><\/p>\n

All lab contracts include a list of special-priced reference tests. The key for you is to ensure the agreement shows the four to eight tests you do most commonly and that each price is reasonable.<\/p>\n

Here are two other thoughts regarding special pricing:<\/p>\n