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Maintaining Veterinary Hospital Profitability Despite Lab Cost Increases

January 31, 2023

Veterinary Services Group

The start of a new year means veterinary hospitals can expect laboratory service cost increases. Hospitals do not have to absorb these costs, but there’s no reason to wait until after the first quarter to address it. After all, it will impact your hospital’s profitability. So, what can you do to combat lab cost increases every time they come around?

Lab price increases normally hit twice a year, and the companies (e.g., Idexx, Zoetis, Antech, etc.) send out notifications to inform their users of the coming increases. When the notification is received, the person in charge of pricing should set aside time on the calendar to ensure the following items are addressed.

  1. Update costs in your practice management system. Since many prices are calculated by applying a markup to the cost of the service, it is imperative that each cost increase is reflected in your system to maintain the correct profit margin. This could also be an opportunity to have a conversation with a consultant about goal markups on your lab costs and other costs.
  2. Review pricing margins on the most common services. Reviewing every pricing margin can be a daunting and time-consuming task. In order to expedite the process, prioritize your review based on how often each lab test is run. Updating the margins on the most used services will ultimately have the largest impact on your bottom line.
  3. Establish a schedule for price updates. If you have not recently increased laboratory fees, substantial price increases could draw negative reactions from clients. Instead of increasing all laboratory prices at once, develop a schedule for updating various lab services throughout the year. If you are working on getting your markups to a certain level that’s much higher than the current markup, we would recommend making slow increases until you get to the goal markup. Following this approach when it comes to the timing and rate of price increases will help keep clients from receiving a surprisingly large bill but will still allow you to pass along some of the increased service costs over time.
  4. Make sure to bill for all laboratory services. Once initial lab results are received and a doctor orders more tests, those additional services often go unbilled. Make sure you have a process in place to ensure additional lab services are added to the patient’s bill.

Keep in mind that drastic changes, or prices that put you too far above competitors in your area, could impact your demand. But the quality of care and customer service that veterinarians deliver will support price increases that allow you to continue providing top-notch care while making smart business decisions that will inevitably benefit everyone involved.

If you have additional questions or need help looking at markups and pricing strategies, please contact KSM’s veterinary consulting team.

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