COMMENTARY

Business of Oncology: An Office Lab Can Turn a Tidy Profit

Neil Chesanow

Disclosures

February 22, 2011

Introduction

If your oncology practice has a physician office lab (POL), is it losing money, breaking even, or earning significant revenue?

Chances are it isn't the latter. Yet a POL could be a profit center for your practice.

"Most oncologists are at least running CBCs in their offices but often don't realize those tests should be making money," asserts Tim Dumas, MLT, CLS, aka "Tim the Lab Guy," a clinical laboratory scientist for 35 years and now advisor to 45 POLs across the country, 7 of them in community oncology practices.

How much money? One of Dumas' clients is a 3-doctor oncology practice in his hometown of Raleigh, North Carolina. Their small lab generates $400,000 a year in revenue. "A 10-12 doctor oncology practice with a POL is easily looking at $700,000-$800,000 a year in revenue," he maintains. "I tell doctors, 'Someone is going to run and get paid for those tests. Why not you?'"

If your POL isn't earning this kind of money -- or any significant money -- here are 3 recommendations:

Turn CBC Tests Into High-Revenue Generators

Most oncology practices that perform CBC tests do so in the office. If you run 500 CBCs a month, which a 2-3-doctor group could easily require, the cost per test is under $1 by Dumas' calculation. Reimbursement for a CBC test (CPT code 85025) is about $10. So do the math: 500 x $10 = $5000 in monthly revenue.

To calculate your profit, deduct your fixed costs. "Say you lease a CBC analyzer for 5 years at $600 a month," Dumas says. "Figure you pay $2000 a month for a tech [the minimum educational requirement to run CBCs is a high school diploma, according to federal regulations], $80 in federal regulatory fees, and $20 for a service contract. Say all that comes to $3000 a month. You still net $2000 a month."

When Dumas is called in to assess whether a POL makes sense for an oncology practice, lab work is generally being sent out to a large clinical lab. Dumas then phones the lab and requests a utilization report for the practice for the previous 12 months (which, incidentally, you could do, too); it shows total CBCs ordered. For a 4-doctor group, 15,000 CBCs a year is common, Dumas says. At a $10 average reimbursement per test, that comes to $150,000 in potential revenue -- given away just like that.

"Dumbfounded" is how Dumas describes the typical doctor's response when this reality sinks in.

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