Over the next three posts, we will delve into the cost-per-test metric, a crucial calculation for laboratory cost and financial management. This metric involves determining the cost associated with conducting a single diagnostic test. In this post, we aim to address two fundamental questions about cost-per-test: "What is it?" and "Why use it?" The equally important question of "How to calculate?" will be addressed in the following post.
What is Cost-per-Test?
So, what exactly is cost-per-test? Basically, it calculates the cost incurred to perform a single test. While the concept seems straightforward, obtaining accurate results can be challenging. Research on calculating the cost-per-test reveals that it is a financial metric used to quantify expenses related to specific laboratory tests, encompassing direct and indirect costs.
In this post, we challenged the conventional classification of costs as either direct or indirect, especially for laboratory expenses, where indirect costs often overshadow direct costs in terms of both number and value. We proposed to use material, equipment, or overhead costs as high-level classifications for costs. The basic calculation for cost-per-test involves dividing the total cost associated with a particular test by the total number of tests conducted. It is crucial to include all costs in this calculation. The following post will delve into various methods of calculating the cost associated with a test, a topic that is big and, rightly so, contested.
Why Calculate Cost-per-Test?
Understanding the makeup of the cost-per-test metric is relatively simple, but its value becomes evident when questioning why you need it. Running a diagnostic facility is, fundamentally, a business. Two vital functions, finance, and cost management will ensure business success and sustainability.
Laboratory Finance Management Overview
At its core, laboratory finance management revolves around allocating and optimizing financial resources. Balancing the provision of quality diagnostic services with the economic well-being of the business is achieved by activities like budgeting, revenue cycle management, and more. Laboratory finance management is typically overseen by a lab director, manager, or financial controller, with administrative staff handling operational aspects like billing and accounts receivable.
Laboratory Cost Management Overview
Managing costs, on the other hand, entails identifying, controlling, and optimizing expenses associated with daily operations. As a more operational function, it is typically performed by laboratory or operations managers, often in collaboration with finance, procurement, and quality assurance managers. Effective cost management requires a strategic approach, often involving creative solutions to enhance efficiency and allocate resources effectively.
Where Does Cost-per-Test Fit In?
Both finance and cost management can only be effective with support from data. A concise, predictably repeatable, and easily interrogated cost-per-test calculation plays a crucial role. How a calculated cost-per-test supports finance and cost management becomes apparent when looking at the specific activities of finance and cost management.
Finance Management Functions:
Cost Management Functions:
Conclusion
In an era of increasing regulatory pressure for lower-cost tests, effectual financial and cost management, supported by proper cost control, becomes more crucial. The improvements discussed above, improving the efficiency and effectiveness of financial management, underscore the significance of cost-per-test calculations.
