While the mission of the laboratory will always be to provide the highest quality patient care, the environment within which the lab operates is undergoing rapid regulatory and technological change. These include changes to reimbursement, test utilization protocols based on patient outcomes, and new competition from non-traditional sources. All of these present new challenges to traditional budget planning.
Strategies for adjusting the laboratory operation to stay within your present and future budgets must not only include cutting costs, but maintaining quality. It is ironic that we sometimes equate maintaining or improving quality with increased operating costs, yet lack of quality performance actually results in net increased expenses. To achieve the goal of cutting expenses, yet maintaining quality you must first understand how your laboratory operates. Here is a summary of steps to analyze your laboratory operation and determine where you can reduce expenses 1:
1. Monitor all expenses: This includes accounting for every expense, such as salaries and benefits paid, supplies, equipment, overhead, services, personal costs, fees, fines.
2. Determine which laboratory’s costs are fixed, and which are variable (volume independent).
3. Determine the cost per procedure.
4. Determine the revenue or reimbursement per procedure.
5. Limit the number of revenue negative tests: careful consideration must be given as to whether to continue performing tests that cost more to perform than receive in reimbursement. Consult with the physicians who order these tests and decide if they can be sent out; or if alternative testing is available. This is part of the quality equation.
6. Discuss proper laboratory utilization with all staff and laboratory technicians. Ensure that everyone understands when certain tests and procedures are indicated, and that all criteria for specimen submission, handling, processing, and reporting of results are observed. This is part of maintaining the quality of the laboratory service. Educate if necessary.
7. Update all laboratory workers on any changes in standard operating procedures: Discuss these changes during morning reports, staff meetings, and annual trainings, and post these changes.. Ensuring adherence to all protocols will help reduce unnecessary costs. This is another place where quality can be maintained with proper education and follow up.
8. Batch tests whenever possible.
9. Order supplies in bulk to save money, if the supplies are unlikely to be outdated. For supplies that may expire or become obsolete, calculate the inventory turnover (cost of goods sold divided by inventory) and make sure the time to expiration/obsolescence is well below the period of time implied by the turnover. These are quality considerations as well.
10. Determine which tests to perform in-house and which to send out to a reference laboratory. Consider all costs associated with a specific test or procedure, including cost of quality control testing, cost of supplies, cost of proficiency testing and training, clerical time for record keeping, and mailing or transport costs to outside facilities. If a test requiring special technical skills or equipment is rarely requested, it may be cost-saving to have the test sent out rather than performed in-house. On the other hand, frequently performed tests, or those that require quick turn-around time, may be better performed in-house.
11. Monitor the effects of any cost-cutting strategies over time. An effective cost cutting strategy should lower the cost per procedure or the expense ratio of the laboratory, while maintaining the quality of testing performed. Cutting costs is never a welcome task, but it can be achieved in a quality-effective way by careful analysis, conferring with all stakeholders, including physicians, institutional management and related departments. Internal communication must be thorough.
Also read part 1 of our Cost Effective Laboratory Management Series: Staffing Strategies.
Part 3 of out Cost Effective Laboratory Management Series, In our next issue, we will explore how to right-size your instrumentation and test menus in a cost effective laboratory.