An approach to cost analysis of clinical laboratory services

How Much Quality Control is Enough?

Quality assurance testing represents a substantial proportion of the clinical laboratory budget, but current guidelines are based on criteria that pertain to analytic error rather than to optimization of the cost-effectiveness of patient care. A general Bayesian mathematical model for the cost-effectiveness of assay quality control has been developed, and is demonstrated using previously published data. The cost-effectiveness of quality assurance as defined here depends upon the prevalence of disease, the shapes of the distributions of test results observed in the non-diseased and diseased populations, the decision limit selected for labeling results positive or negative, the costs and benefits associated with each of the possible therapeutic outcomes, the magnitude of random and systematic analytical errors, the statistical power of the quality control test in use, the costs associated with delays due to re-assay, and the proportion of total test cost attributable to quality control procedures. Given current clinical laboratory practice, much of this information will not be routinely avail able. The model combines these factors into a simple equation with three terms: one for the cost of the original and any required repeat laboratory analyses, one for the cost of delay entailed by the rejection of an assay batch, and one for the change in total costs consequent to rejection of erroneous assay results.

Association between the implementation of a laboratory information system and the revenue of a general hospital

CONTEXT

A laboratory information system (LIS) is a useful tool for the management of laboratory processes and data, as well as for improving quality.

OBJECTIVE

To examine the association between the implementation of a LIS with the outpatient and inpatient revenues of a general hospital.

DESIGN

This study analyzed the outpatient and inpatient revenue data of all 212 general hospitals in South Korea; data were obtained from the Korean National Health Insurance Corporation during the period from 1996 through 1999. The mixed model was used for the repeated measure data. The following listed variables were used in the analysis: LIS implementation status, the population size, the state of competition, average local income, the hospital location, the hospital size, whether or not the hospital was a teaching hospital, whether the hospital was private or public, and the effect of the implementation time.

RESULTS

The revenues from both the outpatient and inpatient departments were significantly higher 1 year after implementing a LIS, even after controlling for confounding variables.

CONCLUSIONS

Although the causality needs to be clarified, the implementation of a LIS was found to be significantly associated with higher outpatient and inpatient revenues.

Enhancing the financial performance of a health system laboratory network using an information system

We describe the improvements created by successful implementation of a laboratory information system for a multi-institutional integrated delivery system, including an analysis of the financial results. Conditions at the outset of the project, methods of management and project design, selected aspects of services redesign and consolidation, integration of services among the sites and their effects on laboratory staff and productivity are illustrated. A method for and example of measuring the financial outcomes in the sense of quantifiable improvements in operating expenses and new revenue for a whole health system clinical laboratory computer system are discussed. In this health system, the measurable financial improvements facilitated by an information system were the ability to control operating expenses and to grow the hospital laboratory network through the development of an outreach program. With organizational commitment to process innovation and improvement, using team processes and customer-driven decision-making criteria, the financial performance of our consolidated laboratory network was enhanced substantially. A fully implemented laboratory information system is considered the major enabler of positive change when combined with a genuine commitment from all levels of staff and leadership. Over time, this system's financial return is several times that of the information system investment.

Laboratory cost control and financial management software

Economical constraints within the health care system advocate the introduction of tighter control of costs in clinical laboratories. Detailed cost information forms the basis for cost control and financial management. Based on the cost information, proper decisions regarding priorities, procedure choices, personnel policies and investments can be made. This presentation outlines some principles of cost analysis, describes common limitations of cost analysis, and exemplifies use of software to achieve optimized cost control. One commercially available cost analysis software, LabCost, is described in some detail. In addition to provision of cost information, LabCost also serves as a general management tool for resource handling, accounting, inventory management and billing. The application of LabCost in the selection process of a new high throughput analyzer for a large clinical chemistry service is taken as an example for decisions that can be assisted by cost evaluation. It is concluded that laboratory management that wisely utilizes cost analysis to support the decision-making process will undoubtedly have a clear advantage over those laboratories that fail to employ cost considerations to guide their actions.

Laboratory costing system based on number and type of test: its association with the Welcan workload measurement system

A laboratory costing system which recovers all costs against tests, rather than using both test and request charges, was developed. Methods of recovering costs of routine and emergency services, of capital investment in equipment, of instrument maintenance costs and of general hospital overheads were considered. The Welcan unit system of workload measurement was applied to a range of test procedures. Both the Welcan unit value and unit value adjusted fro calibration and quality control (Welcan based weighting) correlated only moderately with locally derived analytical time per test and correlated poorly with direct analytical cost per test. The correlation of direct analytical cost per test with total cost per test was much stronger than that of analytical time per test with direct analytical cost per test. The data suggest that neither Welcan unit values, Welcan based weightings, nor locally derived analytical time per test can truly reflect total resource consumption for the provision of a range of test procedures. This factor should be borne in mind when applying operational or performance indicators based on Welcan units.

Costing clinical biochemistry services as part of an operational management budgeting system

The process of costing clinical biochemistry tests as a component of the commissioning of a unit management budgeting system based on an International Computers Limited (ICL) minicomputer system was examined. Methods of apportioning consumable and labour costs under direct and indirect cost headings and as test and request charges were investigated, and in this currently operational system it was found that 38% of consumable costs and 57% of labour costs were not a direct component of the routine analysis function. Means of assigning test costs to a given request source and the incorporation of such charges into clinical budget statements were looked at. A reduction in laboratory workload did not produce a comparable reduction in laboratory costs. For a theoretical reduction in workload of 20% only a 3.8% laboratory saving in recoverable costs could be expected.

The costing of tests in a laboratory for clinical chemistry and haematology

The total cost of a haematology and clinical chemistry laboratory, including external and hospital costs, was studied in a district general hospital in The Netherlands. The main conclusion is that the number of samples analysed is the most important cost-setting factor, but that reduction in the number of requests does not result in the proportional diminution of costs.

Benefits of costing in the clinical laboratory

This paper urges the benefits of applying more widely a method for pathology laboratory costing originally devised for a clinical chemistry department, and illustrates these with examples drawn from costing studies in three clinical laboratories. Heads of pathology departments, laboratory managers, administrators and clinicians require different kinds of costing information, each of which can be obtained by the costing procedure outlined. The method also yields valuable and sometimes surprising insights into the workings of a pathology service. Cost comparisons between different laboratories can now become more informative. Flaws in the concept of the "cost per test" are discussed and the value of this concept is questioned; for most purposes the cost per request has greater application.

A new approach to the costing of clinical laboratory tests

A method of costing clinical laboratory tests is described which avoids the assumptions and omissions of previous methods and overcome the basic theoretical difficulty of allocating indirect (overhead) costs, which form the major component. The method develops the concept of a "cost per request' to cover the indirect cost, which reflect the cost of providing laboratory facilities, and a 'cost per test' to cover the direct analytical costs of the individual tests done. The direct cost per test was found to vary with the workload, which makes it difficult to predict the effect of changes in demand on expenditure. The Canadian Schedule of Unit Values was found to be an unreliable basis for calculating direct labour costs. Examples are given of the direct and indirect costs of consumables, labour, and capital, and their contribution to the total cost of clinical chemistry tests done either during or outside normal working hours. The total annual cost for each analyte may be a more useful indicator of expenditure than the cost per test.