COST BENEFIT ANALYSIS OF MEDICAL LABORATORY TESTS

Essay by sth February 2008

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Introduction:Management in clinical diagnostic fields are frequently involved in cost analysis of new procedures due to the constantly changing science and technology. Also due to the health care organization especially the diagnostic division being tightly regulated by accreditation and regulatory bodies bringing a new procedure in-house requires in depth analysis prior to an any decision being taken.

Cost Object:In a clinical laboratory in a small community hospital we currently refer specimens for free PSA (prostatic specific antigen) to a large commercial laboratory. A prominent physician on staff has requested that us to start doing the test in-house to improve turnaround time. To do this, we would need to offer a total PSA and a free PSA together. We currently perform the total PSA in-house. The physician states that if he can have timely results for the paired test, he estimates that it will eliminate the need to perform approximately 60 prostate biopsies a year.

Free PSA (cost activity / object) is available on equipment that we currently use under a reagent rental agreement (we pay only for reagents, as the cost of the equipment is rolled into the cost of the reagents). The vendor has quoted a price of $8.00 per test (not $8.00 per billable test) for free PSA reagents.

Issues to consider in evaluating the profitability of bringing the test ( Free PSA ) in house:1.Effect on direct cost.

2.Possible increase in indirect costs3.Re-evaluation of equipment costs(capital) may be needed4.Rate of re-imbursement from provincial gov. or Finance Dept.

5. Possible Intangibles to be factored into the decision6. Pricing the test7. Is it worth bringing in?Background:In the laboratory, managerial accounting includes activities such as micro-costing (the process of determining the actual cost of performing a billable procedure), performing analyses of services and equipment in order...