Fear Drives Irrational Decisions about Laboratory Outreach

We are all familiar with the expression “killing the goose that laid the golden egg.” Outreach is the goose of our industry—it can generate up to 50% of hospital EBITDA (earnings before interest, taxes, depreciation, and amortization) or profits. And the best part is that it keeps on laying golden eggs year after year!

Yet some hospitals have shot and dressed their “goose” because of:

  • Short-term capital restraints.
  • Need to reduce operating costs.
  • Lack of understanding or belief about profitability.
  • Inability to execute on the business.

They’ve sold their “goose” to a national or regional lab for a one-time cash payout because of a short-term need for cash or a lack of understanding of the business. Viewing outreach as a cost reduction opportunity is a flawed strategy. While you might get a one-time savings, you give up all future golden eggs (recurring revenue and margin). Few believe that a company can shrink to greatness. Many that have sold have gotten back into the business when their non-compete clause expires.

Two key questions:

  1. What other services are scalable to the extent of lab and can drive replacement revenue and margin?
  2. Who has another plan that is better?

I don’t hear any answers when I ask these questions. I believe it’s because the decision to get out of outreach is often fear-based and therefore, irrational. There is no plan to offset revenue losses; if the decision were thought through and vetted, a different decision might have been made. And no other service can scale like lab in terms of geography or volume.

Sustainability into the future requires business savvy. Only those hospitals that learn to move away from fear-based thinking and make sound, rational decisions will be around in 10 years. If you find yourself caught in this irrational bind, insist on answers to the two questions above. The discipline of rational thinking based on good business savvy improves the chances that your hospital will be one of the ones still around in 10 years.

Kathleen A. Murphy, PhD
Chief Executive Officer
Chi Solutions, Inc.

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