Clinical laboratory costing

Ronald A Booth, PhD, FCACB

Division of Biochemistry, The Ottawa Hospital,
Department of Pathology & Laboratory Medicine, University of Ottawa
Objectives

• Explain the complexity of laboratory testing

!
• Understand the various components of laboratory testing and costing
!
• Understand the pitfalls encountered when costing laboratory testing
Background
The Ottawa Hospital is a large (~1200 bed) multi-site academic hospital.

TOH is the referral centre for 16 regional community hospitals

The EORLA (Eastern Ontario Regional Laboratory Association) reference laboratory

Hôpitaux Montfort

serves as the referral site for 16 regional community hospitals as well as other
Comtés de l'est Eastern Counties 0 1 2 Km

Lanark-Nord & Grenville-Nord Bruyère

North Lanark / North Grenville
Hospitals Ottawa-Centre Ottawa Centre

regional and national hospitals. Ottawa-Est

Ottawa-Ouest
Ottawa East
Ottawa West
Comté de Renfrew Renfrew County
Hôpital N
Hospital St. Vincent
Hôpital Régional Y
Regional Hospital

Heart Institute CHEO

Deep River
Institut de Cardiologie
Royal
Général (TOH/HO)
Ottawa Civic (TOH/HO)
Riverside (TOH/HO)
Pembroke

Hawkesbury

St. Francis Renfrew Victoria

(Barry's Bay) Arnprior

Glengarry
Almonte Queensway-Carleton

Winchester
Carleton Place McConnell (Cornwall)
Kemptville
0 50 100 Km
Second (Cornwall)
Service sites of agencies funded by the Champlain LHIN.
Points de service des agences financées par le RLISS Champlain.
12/2008
Laboratory: excellent value for the money
Hospital laboratories operate on a 24h-7day basis.
Perform high volume low-complexity testing
Perform low-volume high complexity testing
Perform STAT testing when the clinical need arises (ED, ICU, OR, trauma etc)
!
Laboratory medicine is an often forgotten yet integral part of patient care
70% of medical decisions are by based on laboratory results
!
Sadly, laboratories have little control over testing requested
Driven by physician ordering patterns
testing is funded and tracked across
Canada. The following questions will be
addressed:

Laboratory Funding
How are tests paid for in public and
private laboratories in Canada?
Is there a global budget or ceiling on
payments, or are they paid for on a
per-test basis?
Do laboratories keep track of the
numberIssue
of tests performed over a
19 April 2011
period of time?
Are there any jurisdictions that do not
have any publicly funded private
laboratories?
Context and Policy Issues efficiencies, and ensure a sustainable
laboratory system in Canada.
Canada is experiencing steady increases in
Findings
the utilization of diagnostic laboratory
Objectives
services. An interprovincial study
Among
It is not other
intended
demonstrated findings…
rising that the findings of this The purpose of this report is to provide
laboratory
expenditures per scan
environmental capitaprovide
over fivea years information regarding how laboratory
Hospital
(1996/1997 laboratories
to 2001/2002) across Canada
in Ontario (8%),Theare globally
testingfunded byand
is funded provincial and
tracked across
comprehensive review of the topic.
territorial
results of governments,
Manitoba (8%),
this
Alberta (14%),
report are based
based on
on aa budgeting
limited process.
Canada. The following questions will be
Saskatchewan (15%), and British Columbia addressed:
literature
1 search and on personal
(34%). A 44% increase over four years
communications
(1997/1998 to 2001/2002)with Canadian
was shownhealth
in care How are tests paid for in public and
officials.
outpatient This reporttesting
laboratory is based on
expenditures private laboratories in Canada?
in British Columbia,
information gatheredexceeding
as of growth
Februaryin 2011. Is there a global budget or ceiling on
government budgets for the same period. 1
payments, or are they paid for on a
Hospital laboratories across Canada are per-test basis?
 Department of Pathology and Laboratory Medicine

Hematology &
Biochemistry
Anatomical
Transfusion Genetics Microbiology
Medicine Pathology

Analysis of blood
Analysis of blood, cells in blood and Analysis of body
urine, & fluid fluids and fluids and tissues
components, coagulation Genetic analysis Analysis of Bacteria
for the presence of
including chemicals, machinery using blood and & Viruses in blood,
atypical findings
enzymes, toxins ! tissues fluids and tissues.
and cancer
drugs and proteins TM – Blood typing detection
and blood product
supply
Example of laboratory staffing

Divisions & Other

Procedures per year Lab Staff Medical/Scientific
Areas
Administration 8 1

Biochemistry 5,582,284 68 5

Hematopathology 1,014,281 46
6
Transfusion Med 540,437 44

Pathology 1,919,498 90 25

Microbiology 1,883,621 52 4

Tissue Typing 68,834 6 1

Total 11,801,429 314 42

Phlebotomy and Specimen Receiving 116

Laboratory testing: patient to result
Laboratory costing
Total cost breakdown
 average, 12.5 specimens are centrifuged each time. The deconstructed workload is

Determining labour component

then calculated as follows:

Workload unit per batch = workload unit per specimen

Number of specimens per batch

0.5 = 0.04 workload units per specimen

12.5

When using deconstructed values, it is important to re-evaluate the proportions used

on a regular basis or when the service changes significantly.

4. Daily workload assignment:

Daily workload assignment can be used for some activities in the pre/post analysis
section. For example, assume that an audit of “Centrifugation, per batch” (code
12030) is undertaken, and an organization determines that 150 centrifugations are
performed on a daily basis of which 20% of the specimens are from inpatients, 30%
are from client hospital, 40% are from client community and 10% are from client
home care.

The daily workload can then be collected as follows:

Total daily workload for code 12030: 150 x 0.5 = 75

Daily workload by category of service recipient:
Inpatients (20%) 15
Client hospital (30%) 22.5
Client community (40%) 30
Client home care (10%) 7.5

When using daily values, it is important to re-evaluate the percentages used on a

regular basis or when the service changes significantly.

Code Laboratory Unit Value

Specimen Procurement
10000 Specimen procurement – basic 1.2
Includes: order review, preparation of materials, greeting,
identifying and instructing the service recipient, specimen
labelling, post procurement service recipient care (includes
instructions related to glucose tolerance testing).
Includes: all types of biological material (e.g. blood, urine, stool,

MIS Standards—2013 5
© 2012 Canadian Institute for Health Information
Non-compensation costs
Cost confusion • Direct Material Costs
Collection needles
Collection tube/bottles
• Direct Labour Costs Aliquot tubes
Pipettes
Laboratory Staff Reagents (juice)
Phlebotomists testing cuvettes
clerks Quality control material
technicians Calibrator material
registered technologists !
Medical/Scientific staff Resulting costs
! Paper
! Ink
!
Envelopes
• Indirect Labour Costs Mailing costs
! !
Administrative staff
Management staff • Indirect Material Costs
! Service contracts
Laboratory Staff Analyzer cost
Supervisory technical staff Facilities cost
Medical/Scientific Staff External Quality Assessment
Instrument amortization
Gloves
Other consumables
 J Clin Pathol 1990;43:92-97

Laboratory costing system based on number and

type of test: its association with the Welcan
workload measurement system
Repeat testing
I F Tarbit Trouble shooting
Quality control
Phoning critical results
96 Abstract generated from a comprehensive laboratory
Tarbi't
A laboratory costing system which costing system.
Tablerecovers
2 Example all cost
costs against
profiles tests, rather
highlighting direct and indirect cost elements
than using both test and request charges,
was developed. Methods of recovering Methods Labour costs (L,)
costs of routine and emergency services, THE COSTING SYSTEM
of capital investment in equipment, of (XJ)Direct materials costs Direct
Materials COStS
instrument maintenance costs and of As described Total materials
previously' reagent costs per Total direct Total labour Total
Test Procedure Direct Indirect cost (L)
general hospital overheads were con- sample were determined for each analysis type Analytical Other Indirect labour ( ) cost (19) cost (19
sidered. The Welcan unit system of work- by assessing expenditure on each reagent over
Electrolyte profile (AU5000)was applied0 495 0 997
0-502 an extended 0 188 0 865 1 402 1 053 2 455 3 452
Boneload
measurement
profile (AU5000) to a range
0-235 0-335 0-570 time period 0 101and dividing
0-577 this0 934 0-677 1 612 2 182
of test procedures. Both the Welcan
Liverprofile(AU5000) 0267 unit 0418 figure0685 by the number0142 of patient0721 samples1 168 0863 2031 2716
value profile
Electrolyte and unit
(Synchron adjusted for
value CX3) 0 541calibra-
0 502 analysed 1 043in the same period.
0 353Thus reagent
0 865 costs1 402 1 218 2 620 3-663
CK tion and quality control (Welcan 0-284 based0-084 of calibration,
0 368 quality 0 control,
193 0 144repeat0 234
and 0 337 0 571 0 939
Glucose
weighting) correlated only moderately 0 213 0-084 analyses 0-297 164 cost per
are built into a00 true 0 144patient0-234 0 308 0 542 0-839
Cholesterol 0 174 0-084 0 258 152 0 144 0 234 0 296 0 530 0 788
gaseslocally derived analytical
Bloodwith 0493time per
0-251 sample. 0-744 0617 0-433 0 701 1-050 1-751 2 495
TSHtest and correlated poorly with 1-498 direct
0084 Other
1 582consumables 0such 216 as pipette
0 144 tips,0-234 0-360 0 594 2 176
T4 analytical cost per test. The correlation0 712 0 of
084 sample0 796cups, calibration0and 304 control 0sera
144 were0 234 0 448 0 682 1 478
Urinedirect analytical cost per test0 with
catecholamines 827 total0 251 assigned 1-078a unit cost from 1-232 invoice0 433
records.0 701 1 665 2 366 3 444
cost per test was much stronger than that Multiplying unit cost by the unit volume used
of analytical time per test with direct per test gave the specific consumable cost for
analytical cost per test. that test.
The data suggest thatassays neither Welcan
"on-demand", an increasing
Inhouse maintenance number of major
costs of in- PREPARATION
unit values, Welcan based weightings,have nor strumentation were assessed over an extended SAMPLE
locally derived analytical assays
timemay per test totime be costed
period and in both batch and Welcan
allocated uniformly over all unit values assigned to particular in-
"stat" modes.
can truly reflect total resource consump- samples analysed on that instrument struments in the do not always reflect individual
tion for the provision of aThis rangepaperof testproposes a number of ways of assay conditions. For the Cobas Bio, the first
same period.
procedures. This factorrecovering
should be borne investment in laboratory equip- assay on a specimen carries a value of 3-0
in mind when applying operational or
performance indicatorsment. based on Approach
Welcan (2) might
Direct laboursuggest
costs
that expen- whereas subsequent assays on the same
 assay wheras T3 assays are run in duplicate. T3 all o
analytical time per sample is therefore corres- mac
pondingly higher. The Welcan system of unit nati
values makes no allowance for replicate sam
Forgotten costs - analyzer
analyses andreplacement
the increased analytical time I
incurred. Ame
anal
assa
Table 3 Example test amortisation changes based on optional methods of capital anal
investment recovery stim
assa
Method (2) are
Charge targeted at tests using particular
analyser per
Method (1) (b) Weighted to Wel
Universal test (a) Universal reflect workload the
Test (analyser) charge (A;) charge (A) on instrument (/,) imm
Plasma sodium (AU5000) 0-098 0-071 0-075 pro
Plasma calcium (AU5000)
Plasma cholesterol (Cobas Mira)
0-098
0 098
0-071
0-323
0-062
0-439
anal
Plasma urate (Cobas Mira) 0 098 0 323 0-227 cha
Serum CK (Cobas Bio)
Plasma glucose (Cobas Bio)
0-098
0 098
0-318
0 318
0-410
0 304
F
bas
Total cost pitfalls
$600,000.00
Direct Costs

Indirect Costs

True Total Costs

$500,000.00 False Total Costs

$400,000.00

$300,000.00

$200,000.00

$100,000.00

$-
50,000 45000 55000 25000
Test Volume
Laboratory type
• The type of laboratory can influence the cost of testing
• High-volume low complexity testing
• greater “testing efficiency”
• lower cost per test
• STAT analysis usually not required
• limited medical/scientific staff
• e.g. private laboratories
!
• Low-volume mixed complexity testing
• lower “testing efficiency”
• mid cost per test
• STAT testing required
• limited medical/scientific staff
• e.g. community hospitals
!
• High-volume high-complexity testing
• mid “testing efficiency”
• mid cost per test, but can be high for some tests
• STAT testing required
• esoteric testing performed
• greater numbers of medical/scientific staff
• e.g. academic health science centres
Laboratory cost model

• What is the best model?

• Cost buckets

• Individual test costs

• Separate direct and indirect costs

• Separate labour from testing costs