Labs adjust sales obligations by veterinary clinics in pandemic

Some 'pay later' offers come with contract extensions

June 9, 2020 (published)
By Jennifer Fiala

Photo by Sunnyside Veterinary Hospital
Business has picked up at Sunnyside Veterinary Hospital since Dr. Richard Hill reopened his practice late last month to dogs, cats and the occasional python (pictured). The impact of the pandemic slowdown, he said, was offset by companies such as Idexx Laboratories, which cut him a temporary break on his monthly contract obligations.

With few dental procedures and laboratory workups on the schedule, Dr. Richard Hill quickly discerned that his practice in Happy Valley, Oregon, might fall short on its monthly obligation to Idexx Laboratories.

It was late March, and governments throughout the country had closed or restricted businesses to help quell the spread of the coronavirus that causes COVID-19. As a result, many veterinary practices were limited to handling emergencies and other essential procedures.

So Hill, 42, phoned his sales representative for Idexx, the national reference laboratory to which he made payments on in-house diagnostic equipment and a digital radiography system. Under the terms of a contract he has with Idexx, Hill's practice is obligated to generate enough diagnostics business and associated services to meet a monthly quota.

"I knew I wouldn't be able to make it," he told the VIN News Service by phone. "I think they knew it, too."

Idexx agreed to put Hill's volume commitments on hold until fall, with no repercussions. "It's even in writing (an email)," Hill wrote in a message board discussion of the Veterinary Information Network, an online community for the profession and parent of VIN News. "They have not informed me of any other pending action such as requiring make-up [payments] at the end ... but they immediately reached out to us, [for] which I was very appreciative."

While Hill's situation is not unique, veterinarians report a spectrum of experiences in negotiating with diagnostics providers.

The contracts that some clinics enter into with laboratories and/or in-house diagnostic instrument companies such as Idexx, Antech Diagnostics and Heska often provide practices with equipment, rebates, loans or other sweeteners in exchange for commitments to spend a certain dollar amount on laboratory business each month. As a result of the pandemic-related economic slowdown, some veterinarians are struggling to meet those obligations.

Idexx acknowledged as much in a quarterly financial report dated April 30, in which officials asserted that the "primary impact" of COVID-19-related business interruptions have been on the company's clients in companion animal practice. "Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our business as a result of any economic impact that has occurred or may occur in the future," the filing reads.

Dr. Kerrin Hoban of Santa Cruz, California, is among those experiencing a downturn in business. She says she regrets the contract she signed in 2018 with Idexx, which involves an equipment lease that she doesn't have to pay if she generates at least $4,600 worth of laboratory business per month. Hoban's had to lay off one associate due to the COVID-19-related slowdown, and two others recently left the practice. One retired; the other jumped to a higher-paying corporate practice, where some clients followed. 

She's now practicing solo. "Back when I had associates and there was no COVID, I had no problem generating the lab work. Now, it's not the same," Hoban said by phone. 

In the VIN discussion, Hoban explained she's allowed one year in her six-year contract to fall short of the quota without penalty. She hasn't gotten around to calling Idexx to ask if they'll be more lenient, but plans to. "I need to do that," Hoban told VIN News. "I don't know what's going to happen if the year goes by and I can't make the investment in their lab services. I'm sure there are answers in the contact, but right now, I don't even want to read them."

Officials with Idexx didn't respond to inquiries from VIN News to discuss the company's response to pandemic-impacted clients.

Idexx's biggest market rival, Antech Diagnostics, said it's taking an "individualized approach" to supporting each practice's circumstances. Officials with the company say they've proactively contacted more than 2,000 customers since March. When asked if they're offering any deferments on payments and orders, a company executive responded by email, "Yes, absolutely!"

"A one-on-one approach is allowing us to support each practice's specific circumstances," said Jennifer Klein, vice president of Antech Marketing and Corporate Affairs, in a statement provided to VIN News. "… For those practices facing business issues, we're of course working with them to support their unique needs."

Such care goes both ways, Klein said. "As testament to who veterinarians are as people, we received many compliments and well-wishes for our couriers."

Trading forbearance for contract extensions

Dr. John Daugherty, owner of a practice in Poland, Ohio, said he hasn't heard from Antech, be he has been contacted by Heska, with which he has a contract for laboratory equipment.

When Ohio's first stay-at-home order was issued in March, Daugherty said Heska offered to give his practice free reagents if he'd agree to extend his contract with the company by 18 months. The veterinarian declined. "We were running almost no lab work at the time …" he said.

Soon after, Daugherty received a second offer from Heska to extend his contract, this time in exchange for a two-month billing reprieve and free supplies and tests through July. "Starting August 1st we go back to your normal payment & credit, and we would ask for an 18 month extension to your current agreement," the email said. "This amount based on your normal usage would total approx. $5,000."

Daugherty took that deal, he said, "to help with cash flow at the time."

Dr. Jill Patt was hoping for similar help from Heska when client traffic slowed at her practice in Mesa, Arizona. Terms of her contract allowed Heska to debit her account approximately $1,900 month — payments Patt knew she'd have trouble making. "We requested a three-month forbearance from Heska and were told, 'No problem, happy to help,' " she said in a VIN discussion.

But when she received Heska's terms in writing, she noted that the company planned to automatically extend her contract by two months for every month of forbearance. In other words, "… for a three-month forbearance, they add six months to the contract," Patt said.

When Patt called to complain that the company hadn't disclosed that condition earlier, a Heska representative agreed to extend the contract for just two months "as a gesture of good faith."

Unwilling to extend her contract, Patt rejected the offer. "Read the fine print carefully ...," she told colleagues on VIN. 

Steve Eyl, an executive vice president of Heska, said company offers of temporary relief are "humanitarian goodwill gestures" meant to help veterinarians faced with uncertainty due to the pandemic-related slowdown. 

When asked about Heska's forbearance options, he noted that requests for help from veterinary practices have slowed recently, but that the company has done "a little bit of everything" to aid practices. He confirmed that some deals have involved extending contract expiration dates in exchange for the temporary suspension of quotas and debt payments. 

"The overwhelmingly positive message from our customers is that very few found themselves in a position where they needed relief from payment options over the past 90 days," Eyl said. "For those that did, however, Heska worked with each request to provide a solution that worked for each individual scenario. Our goal was to do our part in providing the needed assistance. Some of our short-term solutions included payment delays, free terms, extended agreements, or other requests. Whatever worked best for the individual customer."


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