How can I tell if a private medical lab is profitable?

Profit in a private medical lab comes from a handful of things you can find in the books if you ask for them in the right form. This page is about reading those drivers. How a lab is valued, and what licensing a buyer must deal with, are covered elsewhere, and the people who answer those questions are a valuator and a lawyer.

Tests, volume and where they come from

Ask for the test menu with volumes for each test, and for the same volumes by who referred them: physicians, clinics, employers or other labs. A lab that depends on a few referral sources is exposed if one leaves. Ask which tests the lab does itself and which it sends elsewhere to be done, because the two behave differently in the books.

Who pays for each test

Not every test is paid for in the same way. Ask the seller to show, for each major test, who pays and how quickly. Do not assume you know the funding rules. Have an accountant and your lawyer confirm how payment works and whether it can change after a sale, then compare that against the lab’s receivables.

Costs behind each test

• Reagents and supplies, and how much is wasted.
• Send-out costs for tests the lab does not run itself.
• Specimen collection sites and courier routes.
• Equipment leases, service contracts and software.

Read each against the volumes above. The BDC guide to operating profit margin may help you frame the questions, and our laboratory due diligence guide covers the wider checks.