The Chemistry Laboratory: Development of Average, Fixed, and Variable Costs for Incorporation into a Management Control System

• Published in: Medical care Vol. 25; no. 4; pp. 286 - 299
• Main Authors: Trisolini, Michael G., McNeil, Barbara J., Komaroff, Anthony L.
• Format: Journal Article
• Language: English
• Published: United States J. B. Lippincott Co 01-04-1987; Lippincott-Raven Publishers
• Subjects: Autoanalysis - economics; Boston; Clinical Laboratory Information Systems; Cost estimates; Cost savings; Costs and Cost Analysis; Financial budgets; Fixed costs; Information Systems; Labor costs; Laboratories, Hospital - economics; Management Information Systems; Microcomputers; Pilot Projects; Statistical variance; Time and Motion Studies; Total costs; Urine; Variable budgets; Variable costs; Boston
• ISSN: 0025-7079; 1537-1948
• DOI: 10.1097/00005650-198704000-00003

In order to estimate real cost savings achievable from reductions in laboratory test volume and in order to provide a management tool to help achieve such savings, we developed a management system for our chemistry laboratory. The system estimates the fixed costs (i.e., equipment, direct overhead, and indirect overhead costs), the variable costs (i.e., labor and supplies), and the total costs for each of the 81 tests performed in our hospital's chemistry laboratory. A monthly management report compares predicted changes in total variable costs (based on test volume) to actual variable cost changes. One useful insight from the system is that substantial savings may be realized from reducing low-volume, high-variable cost tests that are not normally the target of test-reducing strategies. The savings per test not ordered was estimated to be $5.24 for the low-volume, high-variable cost tests but only $0.45 for the high-volume, low-variable cost tests, nearly a 12-fold difference. A 10% volume reduction of the former (a reduction of only 6,400 tests annually) would achieve 63% of the savings from a 10% volume reduction of the latter (a reduction of 120,000 tests annually). An effective management reporting system, which tracks actual cost savings, is probably necessary to achieve these savings.