How to Start a Medical Lab Business

by Annie Sisk; Updated May 03, 2018
Lab Worker

As the general population continues to age, more and more people will require additional medical care, including the services of medical laboratories. Opening a medical laboratory business, whether built “from scratch” or purchased from another existing business, can help provide much needed medical support services to this growing segment of the population. However, medical laboratories are highly regulated, expensive to fund and complex to manage.

Familiarity With Regulations and Laws

Medical services companies are generally highly regulated for both safety and efficacy reasons. In the United States, jurisdictions at all levels, from local to state to federal, have enacted laws, ordinances and regulations that you’ll need to familiarize yourself and comply with to launch your business and keep it running.

In the U.S., medical laboratory testing must comply with regulations and requirements administered through the Centers for Medicare & Medicaid Services (CMS). These regulations cover all human laboratory testing for medical care purposes (excluding research) through statutes known as the Clinical Laboratory Improvement Amendments (CLIA).

The Division of Laboratory Services administers the regulatory CLIA program, the objective of which is to ensure lab testing services maintain consistent, reliable quality and reliability.

At the local level; towns, cities and counties may also have enacted various ordinances and regulations that can impact a new or existing medical laboratory business.

Zoning ordinances, for example, may restrict lab facilities that deal with potentially hazardous bodily fluids to specific geographic regions or areas. It’s important to check the applicable zoning laws and classification for any building or property you’re considering before you commit to a rental or purchase agreement.

Personnel: Hiring, Training and Managing

As with any business, you’ll need to be familiar with laws that govern your rights and responsibilities as an employer. Both state and federal laws regulate the employee/employer relationship. These laws include such statutes as the Americans With Disabilities Act, the Family Medical Leave Act, the Fair Labor Standards Act and more. Additionally, state laws may prescribe certain obligations concerning managing payroll, safety notices and more.

You will also need to ensure you’ve hired lab workers who are properly licensed to draw and process blood and other physical specimens. Additionally, there will be training and supervisory duties to avoid liability for improperly trained or grossly negligent workers who may cause injury.

Hire the appropriate people for the positions of leadership. A pathologist, a physician with specialized training in laboratory medicine, will oversee the lab’s drawing and testing operations. A lab manager will oversee the budgeting and personnel aspects of the lab. Support staff, such as administrative assistants and sample-processing staff, are also vital.

Start-up Capital

Medical laboratories require a substantial financial investment. One of the most significant expenses is securing suitable premises for the laboratory and offices, either by renting existing premises if you can find suitable premises for rent or by constructing them from scratch. You’ll also need to secure the necessary equipment for the laboratory, whether by lease or purchase.

Apart from these costs, you’ll also need sufficient cash flow on hand to cover operating expenses. Most medical laboratories will bill Medicaid/Medicare agencies and insurance companies for a good portion of their fees, but this process can take a long time. You’ll need to be sure you can cover expenses such as wages and vendor costs until this source of payment is fully integrated into your accounts receivable systems.

Insurance and Liability

Any medical services business, including laboratories, should purchase and maintain errors and omissions insurance. Sometimes referred to as malpractice or professional liability insurance, this type of insurance covers negligent employees who cause injury while drawing a blood sample, for example, or whose carelessness results in false diagnoses for the patient

Premises liability coverage is also a smart idea. This type of insurance provides coverage for your business when customers or vendors injure themselves by slipping and falling on your property, for example. Adequate insurance coverage is a must to protect your business and your employees' livelihood.

Buying an Existing Business

Because of the extensive equipment and other costs associated with building a medical laboratory business from scratch, many individuals planning to launch a new lab business opt for a different route. They may purchase an existing or about-to-go-out-of-business lab, or they may look for laboratories that are closing to buy their tangible assets, such as equipment.

Utilizing an already existing business this way can help a smart entrepreneur save money and significant effort. However, this presumes that a suitable company with owners willing to sell it to you can be located in your timeframe and for a price that’s within your budget, whether you’re purchasing assets or the entire business itself.

About the Author

Annie Sisk is a freelance writer who lives in upstate New York and is originally from North Carolina. She has written for multiple online websites and media outlets, including recapping hit TV show "This Is Us" for the Baltimore Sun website.

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