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)1 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:
A two-site cytology (a more time-intensive review of full glass slides, different than my consult service above) was billed at $425!
The list price of a one-site cytology at most commercial labs is roughly $80-120, and a second “add-on” site is usually charged at a substantial discount from the first because it takes less effort to evaluate and report two related sites on the same patient at once compared to two random cases (at least in theory). Furthermore, many hospitals pay substantially less—sometimes as much as a 50% or greater discount—due to negotiated pricing. For reference on labor costs, the pathologist who read that case was probably compensated at roughly $15-30.
I could go through and list similar examples for x-rays and ultrasounds, microbiology cultures, PCR, bloodwork, etc, but you get the point. The practice is ubiquitous across diagnostics.
Mark-Ups and Loss Leaders
These clinics are not outliers. Rather, marking up diagnostics and supplies is a cornerstone of practice management consultant recommendations:
“Laboratory services = (Two to two-and-a-half times the cost of list price + blood drawing fee + cystocentesis, if needed)
Remember that some of your prices on lab services (like heartworm tests and fecals for my practice) are based on a historical basis. For example, a heartworm test may cost you $3 to $5, but not a lot of us are charging as little as $10 to $15. The same holds true for fecals.”
No, I would agree that few clinics are charging $10-15 anymore! The direct cost of a fecal is within the range quoted above, but this is what I was invoiced at a clinic in 2021:
To be fair, the “+Giardia” does add-on an antigen test that increases the base cost beyond a simple microscopic ova and parasite (O&P) screen. Still, based on my industry knowledge, I would be very surprised if the lab billed the vet clinic more than $30.
So what is the rationale for this oft-repeated mantra “2.5x mark-up on tests”? The argument for these huge mark-ups from practice owners and management consultants goes like this:
“Keep in mind that some services-for example, physical examinations, neuters and spays and phone consults-are often loss leaders. We undercharge for these, and other items increase a bit more than normal each year and it balances out.”
This is true…to a point. But there is paying overhead and making up for lower-cost services, and then there is just profiteering. My guess is most people understand charging a substantial amount for a doctor’s expertise or a surgical procedure, but have a harder time swallowing across-the-board doubling, tripling, or quadrupling prices on items the vet doesn’t even directly contribute to.
Keep in mind that a rigid, inflexible formula for mark-ups has a bigger impact for tests that are inherently more expensive. The difference between a 2.5x mark-up and a 4x markup on a $5 test (like a simple fecal parasite screen without add-on testing) is less than $10. But for a test with a cost basis of $100 (like a biopsy), this difference swells to $150, which actually exceeds the exam fee itself! At the extreme ends of price, this can disincentivize labs to develop more expensive but potentially better tests because vets can’t mark it up the same amount.
The difference between a 2.5x mark-up and a 4x markup on a $5 test is less than $10. But for a test with a cost basis of $100, this difference swells to $150
I would argue that more nuanced and granular pricing based on the specifics of each test (such as cost, complexity, and medical importance) is a better approach than a one-size-fits all multiplier.
Point-of-Care Testing Or Reference Lab Testing?
A related issue that can increase the cost of testing is the trend of shifting diagnostics from those performed at an external reference laboratory to point-of-care (POC) testing with in-house analyzers:
This recent article in AAHA Trends explains in more detail:
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
[…]
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.
Now don’t get me wrong, POC testing can be an amazing tool in the right situations. When a sick patient is in the clinic, getting the right answer quickly is critical, and minutes and hours can count. POC tests can also be beneficial due to fresher samples than those sitting in a shipping truck for days. When I co-founded Lacuna, our entire niche was POC cytology testing through digital slide scanners.
Where this becomes problematic is if clinics push POC testing in scenarios where the rapid turnaround is not medically necessary, like the majority of healthy wellness screening cases or pre-anesthetic labwork before elective procedures.
Why is recommending in-house testing over reference lab testing an issue? Setting aside price (send-out diagnostic lab tests are usually the cheaper option), there are numerous potential pitfalls with in-house analyzers:
Different test methodologies. In general, the instruments in commercial diagnostic labs are advanced, FDA-approved analyzers optimized for accuracy and high-throughput. I definitely trust the WBC differential and other quantitative parameters from an Advia 2120 or a Sysmex over a POC machine. In-house analyzers may also be more susceptible to certain interferences or artifacts.
Different results. You don’t always get equivalent outputs from POC vs reference lab tests. For example, most in-house hematology analyzers don’t provide a reticulocyte count, a critical measure of the body’s response to anemia.
Different experience. The technicians/technologists in a reference laboratory are highly trained professionals—many have four-year degrees in medical technology and are certified MT-ASCP, like in a human hospital. They understand how to run and maintain the machines, and have the expertise to recognize and troubleshoot errors. In contrast, in most vet clinics, anyone from a vet tech to an untrained assistant to the DVM themself might take turns running the machine, and most have no training beyond what the company provides end-users.
Clinics need to keep up with maintenance and run quality control (QC). Finally, an analyzer is only as good as its upkeep. In my experience, many clinics do not keep up with maintenance or QC. Then they wonder why they get weird, unreliable results on their tests…
High Prices Create Demand Headwinds
We frequently hear consultants in the industry say things like “the demand for veterinary care is inelastic” (meaning it does not decrease with higher prices) or “veterinary medicine is recession-proof.” But is that really true???
The figure below is a bit out of date, but shows that veterinary prices have been rising faster than inflation since the early 2000s (like human healthcare, at least in the US). You can see a concurrent drift upwards in the proportion of dogs and cats receiving no veterinary care:
This isn’t simply a case of people with pets who have never seen a vet increasing over time. The rate of owners in a practice who haven’t been in for a visit in >14 months has been steadily increasing over the past three years:
For a more recent example focused on the testing market, we can look to the latest quarterly report of IDEXX, the single largest diagnostic lab in veterinary medicine. Their customer data shows positive revenue growth despite a sustained decrease in vet visits over the past two years (indicating rapidly increasing clinic prices):
These data from different sources showing declining clinic visits as price increases certainly suggest demand for veterinary care is not inelastic, and we may be approaching the limit to what we can charge for certain services. In the AVMA news article that contains the figure above, consultants at the Cleveland Research Company conducted a survey on pet owner price sensitivity:
"When asked to react to the statement, “Higher prices will impact how quickly I take my pet to the veterinarian,” respondents who said they strongly agree rose from 10% in the second quarter of 2022 to 16% in the second quarter of 2023. For the statement, “I plan to go to the veterinarian less over the next 12 months to save money,” respondents who said they strongly agree jumped from 10% to 19% during the same period.
At the end of the day, higher prices only translate to more revenue and profit if owners come into the clinic and accept the estimate. Whatever the strategy, increasing prices faster than the market can bear will ultimately hurt veterinary practices themselves. Even the consultant quoted above goes on to say:
Remember, though, that if your lab services are too pricey, clients may decline tests you recommend.
When I found out that clients were declining our urine culture and sensitivities testing at our normal markup, I lowered the price from $130 to $99. Suddenly, we were performing more tests. My associates also appreciated the discount and are now even more aggressive in recommending the test when needed.
Eyeball your services and consider cutting the markup on services you feel are important to run on a frequent basis (for diagnostic benefit), but aren't being performed often.
What would I do differently?
The problem of optimizing pricing for diagnostics in veterinary medicine is complex. I have different recommendations for people who are pet owners versus veterinary professionals:
Advice for Pet Owners
Ask your vet what results are expected from the recommended test(s) and how it will change your pet’s care plan. They should be able to justify the test beyond a vague “it’s just part of our minimum database”
If a POC test is suggested, ask whether or not sending the sample to a reference lab would be a medically acceptable option
For appropriate POC tests, inquire about their quality control (QC) measures
Advice to Veterinary Professionals
Be more thoughtful about the pricing of each item tied to the specifics of the test, cost basis, price level, and how medically critical it is. We teach vet students that “Twice maintenance” isn’t an appropriate rule of thumb for IV fluids anymore, so why would you be doing the same for a complicated price menu???
Bundling tests can smooth over fluctuations in pricing and may improve overall compliance. In my cat’s invoice above, seeing a single line item for four different lab tests (CBC, chemistry panel, urinalysis, T4 hormone) looks like a great value at $243.90, while $75 for a fecal comes across as overpriced
Some clinics have experimented with a subscription pricing model that includes certain amounts of testing each year. This encourages baseline labwork and owners feel like they are getting a deal
Counter-intuitively, providing less detail about some prices may reduce people balking at the cost. While a super granular invoice like the first example in this article evolved to provide transparency, a lot of people feel “nickel-and-dime’d” seeing things like injection fee, medical waste disposal fee, treatment room fee, etc
Long term, I would love to see the profession shift towards charging more for our precious expertise and skills than subsidizing those with mark-ups on consumables. We can and should be remunerated generously for our ability to do a thorough exam, assess the patient, come up with a treatment plan, and perform surgeries and procedures, rather than essentially functioning as a Chewy-like middleman
What are YOUR thoughts on veterinary diagnostic test pricing? Whether you are a veterinarian in practice, lab specialist, or pet owner, leave a comment with your perspective below 👇
EJF: I have since removed the paywall on this post for broader access as of 6/6/25
I had the need to send a blood sample for canine Ovarian Remnant Syndrome testing today, destination lab Cornell. Cornell transparently publishes tests and fees (thank you, Cornell), and this particular test looks to be $86 inclusive of accessioning fees. The experience, from blood draw to billing, was extremely revealing to me!
1. Idexx as a middleman with zero value add: My vet initially tried to route this diagnostic through Idexx. But Idexx just outsources the test to Cornell. So the blood sample I presume is just traveling unprocessed for additional days. I guess if this were somehow a cost saving method it would make sense, but as I learned eventually this whole rigamarole would have cost me more too!!
2. Separating a single test into two tests (for more money?): When trying to route through Idexx, this single test (the Ovarian Remnant Syndrome panel which measures AMH and P4 on the same sample and which is advertised as a single test by Cornell) was split into two separate Idexx tests - one for AMH another for progesterone, each test of course conveniently marked up independently totaling to $752! That’s an 874.4% total markup on an $86 baseline test cost?!!
3. Markup after cutting out the Idexx middleman: When I reviewed the invoice in (2) above, I realized how inane (or evil?) this Idexx-based plan was and asked the vet to pull the sample from the Idexx queue and send it straight to Cornell. This made things a little better by costing me $404 ($153 shipping overnight + $251 for the test) i.e. a 291.9% vet markup on the $86 test, which still seems rather steep to me.
Thanks for your article. It helped me analyze all this better and understand some of the behind-the-scenes business calculations that go into these markups. I am in the camp that believes in paying professionals a fair fee, and would prefer if the vet practice was more straightforward with me -- getting rid of its loss leaders, charging full price for the expertise as you say, and avoiding greed on the services where they're just a cog in the process. I'd also prefer a less predatory experience at the front desk at billing time, right now only the well informed and persistent are able to skillfully opt out of the nonsense that the vet billing defaults to and are able steer/muscle the vet into doing the fair thing. The others are SOL.