Diagnostic Test Markups

How much overhead and profit is really reasonable?

TL;DR summary: In this article, I critique excessive markups on diagnostic tests in veterinary medicine, highlighting how such pricing can negatively impact clinics and limit access to care. I argue for more nuanced and reasonable pricing strategies, rather than applying overly simplistic and rigid formulas across the board.

Dear Readers,

In today’s column (for paid subscribers) I am going to talk about a pet peeve of mine that has bothered me since residency: excessive diagnostic test mark-ups in veterinary medicine. This article probably won’t make me many friends among rank and file practice owners and companies, but I think this is an issue that needs addressing. In addition to access to care, diagnostic test pricing strategies can negatively impact the business of clinics themselves if done carelessly.

Before we begin, I should stress that I’m not anti-business: I have started and sold multiple diagnostic companies, and worked for both small independent labs and large corporations. Nobody shows up to work for free, and profit is what keeps the lights on. Vets work super hard and spend a ton of time and money learning how to care for pets; they’re entitled to make a good living (and virtually every vet I know makes substantially less than physicians or dentists, FYI). Furthermore, this article is absolutely not arguing that diagnostic tests are an unnecessary upsell; labwork and imaging is arguably even more important in vetmed than human medicine because our patients can’t talk!

Let me start with a personal example. When I was a newly board-certified pathologist finishing work on my PhD, I opened a small consulting business focused on evaluating smart phone photos of microscope cytology findings. There are some limitations to this modality, but it can provide a valuable service in the right context, and it is a low-cost option that can provide access to care in areas that are financially strained. In fact, several of my clients were clinics overseas that did not have ready access to labs, and when they did it was frequently cost-prohibitive.

I charged $35 a consult, which seemed fair to me based on the value of my expertise, market trends, etc. Then one day, I was accidentally sent a client invoice from one of the clinics and saw how much money they were making from ME:

This represents a 429% mark-up!!! I was flabbergasted.

I scratched my head trying to understand how they arrived at this number, even if you tried to build in overhead. Say you have a certified technician that makes $30/hour (this is high, especially for >5 years ago, but makes the math easy), and it takes them half hour to make the slides, stain them, take the photos, and upload them. That’s $15 labor, taking us to $50. Throw in $10 for material costs (even though glass slides can be pennies on the dollar and generic stain is bought in bulk for cheap) and you get $60.

Keep in mind when thinking about costs that the following are usually provided for FREE by the labs:

• Blood and sample tubes

• Sample pick-up and courier shipping

• Electronic portal for submitting tests and viewing results

• Consultations with veterinary specialists to discuss cases

• Sometimes even in-house analyzers will be provided “free” contingent on a contractual commitment to buy a certain amount of test supplies annually

That’s still a 250% mark-up AFTER making really generous assumptions on overhead. What about the costs to collect the sample itself, you may ask? Those are frequently charged as a separate line item (such as the $170 thoracocentesis fee here).

While we’re picking on this particular invoice, these prices don’t even strike me as consistent—$379 for an ultrasound is actually on the low end for market rate, and this high-skill procedure requires years of training after vet school to obtain and interpret the images. I think most pet parents understand vet care isn’t cheap, but they want to see bills that seem logical and coherent.

Sadly, this is not a one-off, isolated incident. Take this example from one of my own cats a couple years ago: