With toxicology confirmations generating reimbursements as high as $250 per sample and all-in costs at less than $50 per sample, it’s no surprise that I often get approached by people looking to start their own reference lab.  They’re ambitious, see a great opportunity, and can’t wait to get involved in the industry.  However, they want to start correctly and need consultants who knows the tricks of the trade, which is why they call Elite Diagnostics. 

As the top laboratory consultants in the country, Elite Diagnostics and partners quickly became known for speaking honestly and openly with clients rather than just telling them what they want to hear. That said, success in the reference laboratory business takes sophisticated planning and disciplined execution.  Those just getting started should avoid these four common business mistakes we’ve identified, as well as four solutions that can help your team troubleshoot.

MISTAKE #1: Forgetting about payor contracts and chasing every sample in America

Solution #1: Pick a distinct geographic area and stick to it until you’re the dominant player in the market

It’s understandable that you’d like to capture the largest percent of market share possible.  However, samples are worthless without the payer contracts.  You’ll spend money finding them, running them, and reporting them with no realistic expectation of a profit margin.

Getting payor contracts in today is a lot more challenging.  Most networks are closed, so getting in-network contracts takes persistence, focus, and time.  Focusing on dozens of contracts simultaneously in many diverse states with different political environments is tricky. 

Narrow your focus and execute on the contracts you truly want and need.  Payor contracting needs to be an early focus of every owner of the business. If your co-owners don’t understand this, find new co-owners.

MISTAKE #2: “Saving Money” By Hiring the Cheapest Billing Company Out There

SOLUTION #2: Hire a competent billing company with lab experience that understands the denial and appeals process

Getting third party payors to pay consistently takes a refined approach, since reference labs need to be experts in billing.  Plus, many companies change billing companies multiple times in their first 2 years. 

Partnering with an experienced billing team that knows the landscape and understands the denial/appeals process can be the key difference between profits and losses.  Good billing companies stand by their results, and their compensation is typically paid on a contingent basis because reputable billing companies must deliver the goods.

Even the worst billing company should be able to navigate easier scenarios, so what’s really needed is a company that knows how to properly process challenging claims.  A competent billing company will cover their 5 or 6% fee many times over.  As you gain experience and begin to understand the process, utilization, and medical necessity requirements, you can attempt to learn billing software packages and consider bringing this process in-house.    

MISTAKE #3: Waiting Until “Go-Live” to Ramp Up the Sales Effort.

Solution #3: Spend the 90 days leading up to “Go-Live” pre-selling your services and honing your sales operation.

The lab business is a volume business.  The first few hundred paid samples cover your overhead. It’s the additional paid samples where your profit begins to build.  Start early and lay the groundwork for as many early bedrock customers as possible.  Open many sales channels early until you see what is going to ultimately generate consistent business.

 

MISTAKE #4: Burning Through Cash

Solution #4: Keep Expenses Low from the Start

Keep your operations lean and your expenses as low as possible while payor contracting and sales generation efforts are in-process. 

It can take a significant amount of time for your business to take off, an early liquidity crunch can put you farther behind than you’d realize. The first time you have to tell a sales representative that their paycheck is going to be smaller than it should be or delayed is the last time you’ll have that sales rep’s full loyalty and motivation. 

For that reason, cash flow management and running lean is something we at Elite Diagnostics focus on during all of our engagements.  Building efficient programs early is a major key to success.  Every dollar saved is an extra dollar that can be put towards growing your business. 

Stay focused. Stay lean. Stay credible. Do these three things, and you’re well on your way to successfully avoiding the business mistakes that your competitors are out there making as we speak.

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