The Economics Of The In-House Lab

In-house lab services are a cornerstone of progressive medicine and profitability in successful equine practices, says Kent Adams, DVM, Appalachian Veterinary Services, Christianburg, Va.

Commercial labs make money by providing reliable results in a timeframe that was
acceptable 15 years ago, he says. However, with the advent of reliable hematology, chemistry and specialty analyzers, doctors have been able to take an important revenue source back under their control. They have increased both gross and net revenues by offering dramatically shorter turnaround times at lower cost to the practice. Many practices are able to increase the average client charge, double or quadruple volumes and reduce cost per patient.

Most important, of course, they have improved equine healthcare. That’s because the in-house lab provides the veterinarians with reliable results that can positively impact patient care in real time.

“Even in the most perfect of arrangements, with results available in 12 hours, important treatment decisions have already been made,” says Adams, who is a member of Abaxis’ scientific advisory board. “Send-out lab results offer only a retrospective view of a patient already under treatment.”

In the case of the critical care patient that may be hospitalized or sent to a referral center, blood chemistry results, electrolytes, lactate and even hematocrit can be available stall-side in a few minutes. Preliminary diagnoses can be made and appropriate, patient-specific treatments initiated. “In our practice, the same blood samples can provide an even broader assessment within minutes with a Complete Blood Count at our office. The hematology analyzer is the only piece of the diagnostic puzzle that is not portable.”

Self-fulfilling prophecy

Some doctors fail to understand the added value of in-house labs and the sources of that added value, says Adams. They may fail to grasp the enormous increase in value offered by fast, accurate results effectively communicated and shared with owners within minutes.

“We live in a world in which one in eight jobs is in human healthcare,” he says. “More than ever, the public is keenly aware of cutting-edge healthcare from diagnostics to therapeutics. They spend considerable time educating themselves, often consulting Dr. Google before calling the veterinarian, or getting a do-it-yourself second opinion from the same illustrious sources and figures. Increasingly, veterinarians are expected to deliver sophisticated diagnostic and therapeutic plans in a clinical arena in which the standard of care is evolving quickly.”

Twenty years ago, a 12- to 24-hour delay for results that might have an impact on treatment choices was acceptable, says Adams. But as point-of-care diagnostics become more common, it seems inevitable that in the not-too-distant future, misdiagnosing something and mistreating it for 24 hours – given the availability of equipment and technology that can deliver results much faster – will be an indefensible position.

An example would be point-of-care tests to determine a foal’s absorption of colostrum, he points out. “If that test is negative, the foal, without a doubt, requires a plasma transfusion. But if the veterinarian sends that test out over the weekend, with a two- or three-day delay, he or she has missed the window of opportunity to save that foal’s life.”

Similarly, if the veterinarian can run a stall-side test, he or she can quickly make the decision whether a horse’s diarrhea is parasitic or infectious, the treatments for the common causes of Salmonella, Potomac Horse Fever or parasites being very different and potentially life-saving.

Calculating the return

All too often, doctors may balk at investing 25K on lab equipment, when the send-out lab has no upfront costs, says Adams.

“They may justify this stance partly because their lab volumes are relatively modest, and they fail to see labs as a source of revenue. By doing so, they become their own worst enemies. After all, processing samples for pick-up is time consuming; cut-off times always loom large; and the low value of delayed results trains doctors to be less than enthusiastic about blood work.

“When labs are moved in-house, the turnaround time is reduced dramatically, the value results soar, and the added value increases client compliance. Many veterinarians report that their lab volumes double within three months and quadruple within a year of making the switch to an in-house lab.”

When considering acquiring in-house lab equipment, doctors often miss the boat on applicability, says Adams. “They know that a new digital X-ray unit can be used on a very limited subset of patients – those presented for lameness or a pre-purchase exam. They may believe the same is true of the in-house lab, that is, tests can only be applied to sick horses, a pre-purchase exams or pre-surgical evaluations.”

However, with the use of well-designed wellness plans, point-of-care diagnostics can potentially be applied to every patient in the practice, he says. “Offering routine labs as part of an annual exam, from fecal exams to CBC and blood chemistry, can boost lab volumes and reduce costs. It also trains clients to understand the value of labs. Some results will open the door to a work-up of a subclinical problem previously unknown to doctor and owner alike, generating new revenue.”

To justify a capital expense of $25,000 or $30,000, the practice needs to make sure that the equipment is working steadily. One hundred samples a year might not be an adequate return on the investment. But if the practice can double that volume, such as through wellness testing, the expense is more easily justified.

“The fact is, we veterinarians often reduce the demand for lab work by our own behavior,” says Adams. Among themselves, veterinarians will admit that at 2:30 or 3 p.m. on a Friday afternoon,
they might avoid a test rather than rush back to the office, get the sample spun down and smear made, then send it to the lab. Dealing with send-out labs can be so cumbersome, they don’t want to do deal with it. “The veterinarian may be thinking – wrongly – that they are doing the client a favor by saving them money, but really, the doctor has shortchanged them by failing to give the full capability of what he or she can offer, including timely interpretation of appropriate lab values.”

Veterinarians who resist investing in in-house lab equipment may also be stuck in the past, when such equipment was more expensive, less accurate and unreliable. Older equipment called for much routine maintenance and standardization, at a sizable cost. That’s not true today.

Getting clients used to testing

Clients are willing to pay – and pay well – for results delivered in a timeframe that impacts the diagnostic and treatment choices made for their horse, says Adams. When they get results quickly, they gain peace of mind and confidence that their horse is in competent hands and receiving excellent care.

“Our doctors at Appalachian Veterinary Services are trained to pull blood at the beginning of any exam of a horse presented for sickness of any kind,” he says. “This simple action, not unlike listening to the heart, begins a dialogue with the client that establishes lab work as a potential extension of the field exam being done.”

At the conclusion of the exam, clients will invariably ask three questions of the doctor, he says: “Do you think you need to run the blood work? How soon will the results be available?” and less predictably, “How much will it cost?”

“When they ask, ‘Do you think you need to run the blood work?’ they have already decided that if the doctor thinks it would be of value to do so, they will accept the charge,” he says. “It takes the veterinarian out of the uncomfortable spot of selling – something which veterinarians typically stumble through.”

Beyond ‘Normal’

At some point during the sales cycle, the sales rep will often hear, “So many times, when I run a CBC and chemistry, the results are normal. I have decided that with my 15 years experience, just by examining the horse, I can get a good idea whether the results will be normal or not – and whether a test is necessary.”

Such veterinarians may fear pushback from their clients, who in the past may have paid $100 for testing, just to be told, “Everything’s normal.”

But simply hearing “Everything’s normal” and then “good-bye,” can make a client wonder where the money went. That’s why the veterinarian should take three to four minutes to describe the lab results as a narrative, says Adams. Instead of simply saying “Everything’s normal,” the veterinarian should give the client a summary of what the tests show, e.g., “Liver enzymes are correct, there’s a good balance of albumin and globulin, etc.” Then follow up with, “And that makes me comfortable with the treatments we have chosen thus far,” or “I would like to modify his treatment a little bit based on the results.”

That narrative solidifies the bond between client and veterinarian, and instills the client with confidence that he or she can trust the doctor’s competence, and that their horse is in good hands.

What’s more, when owners are exposed to the availability and value of labs in a wellness setting, they are far more likely to choose those services when their horse is sick.

Developing a strong in-house lab program can help veterinary practices ride through lean years, such as the recession of 2008-2009, when breeding effectively stopped, notes Adams. The results will show up in increased revenues as well as improved equine health.