Building an Office-Based Lab
Updated: Aug 13, 2019
The OBL, or office-based lab, is a practice model that is becoming more frequent amongst endovascular specialists across the country. From financing to contract negotiations, Dr. Mary Costantino talks about her experience building an OBL in episode 36 of the BackTable podcast.
The BackTable Brief
Building a successful OBL requires understanding how financing, insurance contracts, equipment options and employee negotiations work; Dr. Costantino suggests financial planning is the most important consideration, as startup expenses may be cumbersome.
At best, expect a 14-16 month time frame to develop and open an OBL.
As a rule of thumb, Dr. Costantino says it will be around 6 months after opening your OBL before you will be doing cases regularly; building a referral base will take time as you establish your practice.
If your OBL is not tied to a hospital, do not count on hospital referrals; Dr. Costantino frequently gives lectures and meets other physicians to increase referrals to her practice.
Disclaimer: The opinions expressed by participants of the BackTable Podcast belong solely to the participants, and do not necessarily reflect the views of BackTable.
Understanding the Ins and Outs of Office-Based Labs
Prior to starting her OBL, Dr. Costantino spent a few years learning the ins and outs of OBLs including financing, insurance contracts, equipment options and employee negotiations. Financial planning and understanding the timeframe to set up an OBL are two very important considerations. Although you may be without a salary for the first 1-2 years, there will be a favorable turnaround after establishing your practice. At best, Dr. Costantino says to expect a 14-16 month interval for setting up an OBL.
Well, I think an OBL is a really great thing for someone who is always learning. There's a lot of business. I have to be really cognizant. This goes back to having some good luck of having the business development person at the outpatient imaging center. She had a human resources background. We would talk about, why didn't things work out in the first group that I was part of, and why is A so easy and B is so difficult. Some advice that I took away from that is finding your happy place, right? For me, I'm very cognizant of what my happy place is. That's in a cath lab with my hands on a catheter doing cases. You have to be really cognizant of that because the business side of it can take over. It's interesting. It's fun. It's different. It's entrepreneurial.
Over the last year, I've looked at every piece of equipment known to mankind. You can be really distracted by that because it is really fun. It works the brain in a different way. There's the marketing. You learn all about marketing. You learn all about construction. You learn all about equipment. You learn all about product cost and contracts and the whole business of medicine. When you have a corporation or a hospital behind you, they are doing all that.
You don't even know what insurance products you cover or how that works. One fun part is that I get to know all of that stuff. It also can be an endless job. I always keep in mind what's the thing that I like to do. I would say that's a challenge for people who are going into it is, you want to be really, really cognizant of how you spend your time. I do believe in hiring good people, they're expensive also.
Another challenge is that you're not going to make any money. I haven't really had a salary in a year. For me, the financial part of it, preparing, anyone can do it because IRs make enough to be prepared for the investment, but it really becomes a startup like you would see a software startup or a device startup or really, any other type of startup. That mentality is very different than the hospital-based IR who is used to making their big salary every year.
Right. You're talking about just until you reach that break even point?
Yeah. Depending if you lease or rent, you're looking at buying a building, paying contractors. Yeah. It can be a very lucrative situation on the other end, but what does that year or two years look like.
I don't know. About 25% of OBLs closed is what I've heard. I find that hard to believe if done correctly because it's favorable for everything. It's favorable financially. It saves the healthcare system money. It's much easier on the interventional radiologist. I don't think anybody loses in an OBL, but you just have to be prepared for it.
If somebody is going into building an OBL, I think the number one thing you want to do is, you want to approach this as a startup. In general, everybody is different, but we're used to being employees. We're used to getting a salary. We have lifestyles that demand a certain level of income. To have that be not so steady, that's not for everybody.
What I would say to anybody who's interested in doing this, start financially planning for it because you're going to be down for a year or two. It's okay because that is how startups go, but then the upswing will come, and the pay-off will be there. To anybody who wants to start an OBL tomorrow, you're looking at 14 to 16 months type time frame at best. In that time frame, I would say, the number one thing is, get your financials in order and start saving money because you're going to start writing checks like you would not believe. You're going to have six months to get insurance contracts negotiated. A lot of people in hospitals don't understand how that works, which is, your group bills under your group's NPI. When you leave, you have to build on your own NPI, which means you have to renegotiate your contracts with every single insurance provider. The value of being in a group like CIC is that they have people to negotiate these contracts. Because if I call up as an independent person, my rates are not going to be as good.
… You got to remember, there's anywhere between two and four years of work, kind of a second, job going into building these things, right? Every vacation I take, I'm on the plane to go visit an OBL. I did a lot of visiting of OBLs.
I still will do that forever. I learn from every single visit I make. Contracts are really important including finding a good contract attorney. I would say not a healthcare attorney. You're entering into a business relationship with people forever. The reason there are contracts is because if things go bad, you want it to be clear how a separation is going to exist. It's not so much about the startup, it's about what happens when things don't work out. We have a lot to learn as IRs and physicians about that process, especially if our history is just being handed an employment agreement and saying, "Here's your employment agreement." Maybe we're negotiating for a 5% salary difference or one last day of call. It's not really about those things in your corporate agreements.
The financing. The financing is really interesting and I've seen all different models. Certainly, what is out there has evolved. When I started thinking about OBL, probably six years ago, the deal for physicians was much different than the deal now. Right now, there are many more people out there being consultants who will tell you they'll startup your lab. They all have a good sales pitch, so be careful.
How long until I start seeing patients in my office-based lab?
Following the establishment of an OBL, Dr. Costantino suggests it will be around 6 months before you start regularly doing cases. Many patient referrals to the OBL are for elective procedures, which may not require immediate intervention on behalf of the patient. Patients needing uterine fibroid embolization, for example, may wait months to schedule the procedure. Furthermore, building a consistent referral base to your practice takes time.
… You hit on a really important topic about starting ... "When are you going to see your first patient in OBL?" I usually tell people, "Six months. Don't be surprised if you don't do any cases in six months."
Why six months? It's so long.
It's different for every person, right? Everybody has different experiences, but you can't really count on getting income through the door for about six months. Maybe you're doing some procedures earlier, but the minute you open your doors, then you now need to let people know you're there. Then they actually have to send patients to you, and then patients actually have to show up, right?
Especially for elective procedures. We're not talking about cold legs. We're talking about women with fibroids who have been bleeding for two years. They may be doing whatever in their lives, and they have the referral, and they show up two to three months later. They then have to decide if they want the procedure. This is all this very long process.
Obtaining Referrals to Fuel Your Office-Based Lab
Maintaining a constant referral base may be difficult if you’re depending on referrals from hospital-based physicians. Unless your OBL is associated with a hospital, the hospital system will try to keep referrals local. Dr. Costantino has used various forms of marketing to increase her referrals including giving talks and meeting local physicians. She says, “if you get a couple (referrals) that trickle in from the hospital, you'll be super excited.”
… The other thing is, as much as people are liked in the hospital, they usually do not get referrals from the physicians they know in the hospital.
That's a good point. I haven't thought about that.
Yeah. This is a really common mistake. Again, everybody's situation is a little bit different. For some people, their OBL is tied in to the hospital. That's, maybe, a different situation, but in general, IRs were well-liked. The GI doctors and vascular surgeons and everybody you see in the hallway … even if they say, "Oh, yeah. We'll send patients to you." Once you're gone, you're gone in their mind.
Locally, our hospitals have their own insurance products. They're very big on keeping people within their system even if they don't have their own insurance product. If you're a primary care provider at a hospital system, you're going to be hounded by your administration to send to your own gynecologist or your own IRs. Some of the local systems here are so bad that if they order a referral, on the order it says my name, Mary Costantino, a non-legacy provider in big capital letters. I’m sure, someone sitting on the back is screening those, right? They will then go to the gynecologist and say, "Why are you sending outside of our system?"
For those reasons, I think it's just easier to start fresh just to not really anticipate on having a whole lot follow you. You'll just be happier in the end. If you get a couple things that trickle in from the hospital, you'll be super excited.
Tell me this, before we get into what your practice looks like now and everything. What has worked for you both for UFE and for other things in building your business?
I've done all sorts of ads and TV. Ads haven't really worked. The patients respond differently. I don't actually like the print ad and the fancier magazines. I've done, basically, every type of marketing. I don't like the kind of marketing that I actually have to do that's any more than meeting physicians. I don't even really like driving around and meeting physicians but you have to do it. I like the talks.
… I go around and meet physicians. I have to stay active in giving talks. I don't think there's anything you don't do when you don't have any patients.
Dr. Mary Costantino is a practicing interventional radiologist at the Comprehensive Integrated Care practice in Portland, Oregon.
Dr. Michael Barraza is a practicing interventional radiologist at Radiology Alliance in Nashville, Tennessee.
Cite this podcast:
BackTable, LLC (Producer). (2018, December 19). Ep 36 – Building the UFE and OBL practice with Dr. Mary Costantino [Audio podcast]. Retrieved from http://www.backtable.com/podcasts
The Materials available on the BackTable Blog are for informational and educational purposes only and are not a substitute for the professional judgment of a healthcare professional in diagnosing and treating patients. The opinions expressed by participants of the BackTable Podcast belong solely to the participants, and do not necessarily reflect the views of BackTable.