J Clin Pathol: first published as 10.1136/jcp.36.9.1028 on 1 September 1983. Downloaded from http://jcp.bmj.com/ on May 31, 2021 by guest.

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J Clin Pathol 1983;36:1028-1035

Benefits of costing in the clinical laboratory*

PMG BROUGHTON, FP WOODFORD
From the Wolfson Research Laboratories, Queen Elizabeth Medical Centre, Birmingham and the Department
of Health and Social Security, Hannibal House, Elephant and Castle, London

SUMMARY This paper urges the benefits of applying more widely a method for pathology labora-
tory costing originally devised for a clinical chemistry department, and illustrates these with
examples drawn from costing studies in three clinical laboratories.
Heads of pathology departments, laboratory managers, administrators and clinicians require
different kinds of costing information, each of which can be obtained by the costing procedure
outlined. The method also yields valuable and sometimes surprising insights into the workings of
a pathology service. Cost comparisons between different laboratories can now become more
informative.
Flaws in the concept of the "cost per test" are discussed and the value of this concept is
questioned; for most purposes the cost per request has greater application.

In 1981 Broughton and Hogan published a method its application to three clinical chemistry
for costing a clinical chemistry department' which is laboratories, but there is every reason to believe that

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simpler, more logical and more comprehensible than it can be applied without change in other pathology
previously published methods.24 A novel feature of disciplines.
these authors' approach was to separate costs into
those involved in providing the basic facility-that Principles of the costing method of Broughton and
is, an appropriately staffed and equipped laboratory Hogan'
competent to fulfil the requests made to it-and the
actual direct costs of performing individual test pro- Throughout pathology the basic unit of work is the
cedures, and to apply these figures separately to request, representing a clinical question, which may
answer different types of management question. require one or more tests or test groups to be per-
So far, there has been no stampede to apply this formed. Before devising any costing procedure it is
method in other clinical laboratories, despite the most important to define exactly what is meant by
current financial restrictions and the concern about "cost per request" and "cost per test" and why each
the cost of "high technology" diagnostic tests.5 value is needed. Otherwise, management and plan-
Reluctance to embark on costing studies stems from ning will be bedevilled by uncertainty and confusion.
a mistaken belief that the amount of effort necessary A basic requirement for a satisfactory laboratory
for reliable costing is incommensurate with the poss- costing method is the attribution of all items of
ible benefits. expenditure to one or other aspect of the service
This paper outlines the principles of the Brough- provided. This allows a balance sheet in which the
ton and Hogan method and explains which elements sum of the cost of all individual items equals the
of the procedure can be used to answer costing ques- known expenditure. Isolated costing of one area of
tions asked by pathologists, administrators or clini- work or of single tests is usually unsatisfactory
cians. The usefulness of the method is illustrated by because the results cannot be cross-checked against
the total expenditure.
In order to apportion expenditure between differ-
*Based on research commissioned by the Department of Health ent types of work, direct costs must be identified-
and Social Security at the Wolfson Research Laboratories. The that is, those costs which are necessarily and exclu-
views expressed should not be taken as official Departmental policy
on laboratory costing. sively incurred in performing a specified test at a
Accepted for publication 5 April 1983
particular time.'3 These must be distinguished from
all other costs, which are termed indirect. A funda-
©) Crown copynght 1983. mental problem in accounting procedures is the
1028
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Benefits of costing in the clinical laboratory 1029
allocation of indirect costs. Broughton and Hogan's Table 1 Examples of indirect consumables
solution to this problem was not to allocate them to
General laboratory consumables (glassware, disposables, etc)
individual tests but to combine them, divide by the Maintenance of indirect equipment (computer, freezers, cen-
total number of requests, and call the resultant quo- trifuges, autoclaves, etc)
tient a "handling charge per request." This rep- Heating and lighting
Rates and taxes
resents the basic cost of having a properly staffed, Quality control materials (for multiple tests)
equipped and quality-controlled laboratory avail- Transport
Telephone and postage
able to meet the demands placed upon it. The total Printing, stationery and other paper
cost, in a given laboratory, of fulfilling a request for Journals and books
Job advertising
a particular investigation is then the sum ofthis basic
handling charge plus the direct costs of carrying out
the test(s) to which it gives rise. The advantages of Table 2 Examples of indirect labour
separately calculating the "indirect cost per request" Specimen collection and separation
and the "direct cost for each type of test" are real Laboratory housekeeping and quality control
and important. Safety arrangements and monitoring
Checking reports
The direct cost of any given test varies, even Record keeping and computing
within a single laboratory, depending on the total Administration
number of such tests performed, the frequency with Training, conferences
Teaching
which they are performed (individually or in Research and method development
batches), and whether they are done in or out of Commuittees and consultations
Secretarial and clerical work
normal working hours.' Nevertheless, the average Portering and cleaning
direct cost for each type of test should be similar in Coffee breaks and personal time
Holidays (about 10% of all staff time)
all laboratories, and if a major discrepancy is dis- Sickness
covered it will be worth seeking the reasons in the
hope that savings can be made-for example, by
changing the analytical methods or source of re- and general purpose equipment (to calculate indi-
rect costs). In each case the current replacement cost

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agents.
The "indirect cost per request" must be expected is divided by the expected equipment lifespan in
to differ between laboratories since the indirect years to give the notional capital cost per annum.
costs are largely made up of the salaries of senior In the pathology service of the UK National
and supervisory staff. The indirect cost per request is Health Service, indirect labour costs constitute a
therefore higher in laboratories which offer a wider very large proportion not only of the labour costs
range of tests and which have more extensive train- (80-85%, calculable from Table 3), but of the total
ing, research and consultative functions. It would be
difficult to identify laboratories which are directly Table 3 Annual revenue expenditure and capital costs of
comparable in all these respects, and this is why the clinical chemistry laboratories A (1 980181) and B
indirect costs should not be muddled in with direct (1979180) at 1981/82 prices*
costs in a vain attempt to arrive at a total "cost per
test" for comparison between laboratories. It is A B
because indirect costs cannot be allocated to indi- (43216 requests) (49447 requests)
(£) (£)
vidual tests in any logically satisfying way that
Broughton and Hogan elected to divorce them com- Direct consumables 21 662 32 956
Indirect consumables 25 568 42 918
pletely from the "cost per test" with which other Direct labour 19 418 47 311
costing procedures2-4 had sought to associate them. Indirect labour 105 9978Ll R54
The practicalities of the Broughton and Hogan Total revenue 172 645 312039
expendituret
method are as follows (for details see reference 1). Direct capital costs 19 624 19 008
The direct costs of labour and consumables which Indirect capital costs 3 895 5 701
Total indirect costs 135 460 237 473
can be attributed to particular tests or test groups Total indirect cost 3-13 4-80
are totalled. This is subtracted from the total annual per request
revenue expenditure of the laboratory, to give the *The costing studies described in this paper were made at various
indirect costs of labour and consumables (Tables 1 times over two years. All figures have been corrected to the
and 2). No attempt is made to measure the separate equivalents for the financial year 1981/82 by multiplying by 1-384
for measurements made in 1979/80, or 1-081 for measurements
items of indirect cost: the total is obtained by sub- made in 1980/81 (Hospital and Community Health Service
traction. For calculation of the capital costs, Revenue Revaluation Factors-Pay and Prices, DHSS 1981).
tThe term "revenue expenditure", etymologically a contradiction
laboratory equipment is divided into that dedicated in terms, is used in the UK to mean non-capital (ie recurrent)
to particular tests (for calculation of direct costs) expenditure.
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1030 Broughton, Woodford
Table 4 Examples of direct and indirect costs in laboratory B (1979-80) at 1981/82 prices
Direct cost (f) per test
Revenue
Capital Total
n Consumables (1) Labour (2) (1+2) (3) (1+2+3)
Ammonia 15 0 12-01 12-01 0 12-01
Alcohol 53 7-02 4-26 11-28 0 11-28
Digoxin 113 8-11 1-74 9-85 0-39 10-24
Blood gases 965 2-17 1-04 3-21 1-66 4-87
Thyroxine-binding 3748 1-13 0-26 1-39 0-39 1-78
globulin (TBG)
Amylase 443 0 0-62 0-62 0 0-62
Na+K (emergency) 14896 0-18 0-22 0-40 0-03 0-43
Occult blood 684 0-08 0-22 0-30 0 030
Indirect cost per request
0.87 3-82 4-69 0.11 4-80
n = number of tests performed during the year.

cost (55%). This reflects not only the need for the Uses of costing data in laboratory management
laboratory to have sufficient staff to cope effectively
with peaks of busy days and urgent work, but also Three questions of cost are regularly faced by
high expenditure on supervision, quality control, laboratory managers: what would be the financial
training, research and development, as well as the consequences of (a) changes in analytical method,
scientific and medical advisory functions of senior reagents or equipment; (b) changes in workload; (c)
laboratory staff. These activities are all characteris- changes in laboratory organisation and practice?
tic of "good" laboratories, but are open-ended-
that is, there is no norm. To curtail them would

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CHANGES IN ANALYTICAL METHOD
reduce costs, but would result in a poorer service. In many cases the financial consequences of changes
Table 4 shows examples of direct costs of some in reagents are clear and simple, but the effects of
tests in one laboratory, as well as the indirect cost changes in analytical method or equipment are more
per request in that laboratory, analysed into con- complex. As an example, consider the effect on
sumable, labour and capital components. The cost of revenue expenditure of replacing an existing flame
each test type may be expressed either as the aver- photometer (for the measurement of serum and
age direct cost per test performed, which is conven- urine Na+ and K+) by a new ion-selective electrode
tional, or as the total annual direct expenditure on (ISE) analyser, without change in workload. Given
each type of test, which is of greater use to the that the number of staff employed cannot be
laboratory manager. changed in the short term, the total labour costs will
In addition to the average direct cost per test the be unchanged. Only expenditure on direct consum-
direct costs of the same tests performed at different ables need therefore be considered. This is made up
times, for example as part of a batch or as an of fixed costs that are independent of workload, and
emergency (Table 5), within and out of normal variable or workload-dependent costs (Table 6).
working hours, can be obtained. With a flame photometer, the variable costs are
directly related to the running time of the instru-
ment, but for the ISE analyser they depend on the
workload, batch size and time between batches.
Table 5 Direct costs of serum Na + K assay under Furthermore, the ISE analyser incurs direct costs
different circumstances (1979180 converted to 1981/82 even when no specimens are analysed. Conse-
prices) quently the relation between costs and workload is
not a simple one. The calculations in Table 6, which
n Direct revenue cost (f) are given for illustrative purposes only, are based on
per test
the actual workload of an emergency laboratory
Consumables Labour analysing serum and urine specimens by day and
Profiles (Lab C) 51,119 0-03 0-07 night. They show that use of the ISE analyser to deal
Emergencies (Lab B) 14,896 0-18 0-22* with this workload distribution would increase the
n = number of test pairs performed during the year. annual expenditure on consumables by £3116.
* If out of normal hours, the labour cost will be much higher'. Expressing the data in this form also allows calcula-
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Benefits of costing in the clinical laboratory 1031
Table 6 Costs (adjusted to 1981/82 prices) of analysing detailed costing figures. Note that the most appro-
15481 sera and 3889 urines per annum for Na + K with an priate figure for the laboratory to use in deciding
ISE analyser and a flame photometer (Na + K is considered between alternative analytical methods or equip-
as a single test) ment is the total annual expenditure on this type of
ISE Flame test.
photometer By contrast, the figure needed by the clinician
Fixed direct consumables Costs per annum (f) who wishes to know the costs generated by a particu-
Servicing 518 263 lar type of request is the total cost per request: in this
Electrodes 173
Calibration in standby mode 201 example, £5 23 for flame photometry and £5*32
Electrode conditioning 81 with the ISE analyser. The small proportional dif-
Workload-dependent direct ference is a simple consequence of the fact that
consumables
Calibration 403 overhead or indirect costs comprise the major part
Sample diluent 2681 of most laboratory costs, so that it would be grossly
Urine diluent 2624
Other - 3302 misleading to ignore them in any consideration of
Total 6681 3565 the cost of a determination.
Average direct consumable 0-34 0-18
cost per test EFFECT OF WORKLOAD ON COSTS
Direct labour cost per test 0-15 0-22 When predicting the additional expenditure needed
Capital cost per test 0-03* 0-03*
Total direct cost per test 0-52 0-43 to meet increases in workload, many managers intui-
Indirect cost per request 4-80 4-80 tively assume an approximately linear relationship.
Total cost per request 5-32 5-23
At the same time, efficiency is widely believed to
*
The prices of the two instruments were very similar. improve as equipment and staff are used more fully,
since this reduces the cost per test. Unfortunately,
however, demand may be stimulated by this appar-
tions to be made for different workloads. ent reduced cost and the total expenditure thereby
If such an ISE analyser were installed in a clinical further increased. It is therefore important to under-
area to do some of the work previously done by the

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stand the relation between costs, expenditure and
emergency laboratory, labour costs in both locations workload.
would be affected, but these would be impossible to Data given elsewhere' and in Tables 5 and 7 indi-
predict without detailed timing studies. cate that the direct cost per test, of both labour and
The data in the lower part of Table 6 show that consumables, decreases as workload increases in a
the direct cost per test, which appears small for manner which depends on the type of test. Expendi-
either method, does not so much as hint at the large ture on consumables can often be confidently pre-
total annual expenditure on the test. Tests which are dicted by listing them in detail as in Table 6, but for
done in large numbers, even though they may be some tests this is more difficult. With assay kits, for
individually inexpensive, account for a major part of example, the amount of reagent prepared should
the direct annual expenditure of most clinical ideally match the daily workload. This means that
laboratories. It is also clear from the Table that the analysis of the 21st specimen, when the reagent
expenditure on major equipment, which on cursory vial is only sufficient for 20, will produce a stepwise
inspection appears to be an expensive feature of increase in expenditure and cost per test. On the
modern laboratories, accounts for a surprisingly other hand, assay of only 10 specimens will result in
small part of test costs. wastage and also increase the cost per test. In prac-
The conclusion is that the revenue consequences tice, the daily workload varies and the average must
of purchasing the ISE analyser would be consider- be calculated over a representative period.
able, and much more important economically than So long as a test remains in the laboratory reper-
the capital outlay (less than £600 per annum, assum- toire, reagents must be purchased and staff be avail-
ing a 1 0-year lifespan). This is largely due to the cost able to do it. A supposedly effective method of
of reagents which can only be obtained from the achieving savings is to delete unwanted or uninfor-
instrument manufacturer. Furthermore, because of mative tests from the repertoire altogether, but
the high cost of the urine diluent (£0-67 per test in unless the number of staff is reduced, there will be
this example), the extent of the revenue consequ- no net saving in labour costs because the direct
ences will depend to a large extent on the demand labour saved will either be added to the reservoir of
for urinary as opposed to serum assays. These draw- indirect labour or deployed on a different test. As a
backs to the ISE analyser, which may well be attrac- result, costs will be redistributed but expenditure
tive otherwise because of its speed of operation, will not change. Savings in expenditure would then
become apparent only after consideration of the be less than anticipated from a simplistic prediction
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1032 Broughton, Woodford
Table 7 Directcosts (£) pertestin laboratoriesA (1980/81), B (cf Table 4) and C (1979180) expressed at 1981182 prices
Test n Direct cost per test n Direct cost per test
Con Lab Cap Total Con Lab Cap Total
Laboratory A Laboratory B
Blood alcohol 182 0 2-18 0 2-18 53 7-02 4-26 0 11-28
Faecal fat 104 0-98 2-14 0-91 4-03 59 0-57 2-93 2-03 5-53
Acid phosphatase 924 0-06 0-57 0 0-63 389 0 1-60 0 1-60
Magnesium 78 0-84 1-08 0 1-92 421 0 0-43 4-40 4-83
Amylase 468 0-32 1-13 0 1-45 443 0 0-62 0 0-62
Calcium (urgent) 52 0-02 2-02 0-80 2-84 1156 0 1-08 0 1-08
Lithium 768 0 0-46 0 0-46 1600 0 1-09 0-07 1-16
Phosphate 52 0-02 1-08 0-81 1 91 4435 0 0-76 0-36 1-12
Laboratory A Laboratory C
Lactate dehydrogenase 2002 0-14 0-40 0-28 0-82 854 0-43 0-58 0-28 1-29
Creatine kinase 104 1-27 0-86 0-28 2-41 1294 1-44 0-79 0-28 2-51
Cholesterol 1618 0-60 0-39 0-28 1-27 4800 0-26 0-26 0-09 0-61
Triglycerides 1618 0-39 0-38 0-29 1-06 5324 0-58 0-44 0-28 1 30
Profile (10 channel 28990 0-56 0-18 0-41 1 15
1o
r 11 channel 51119 0-58 0-28 0-30 1-16
n = total number of tests or test groups performed in the year.

from the total cost of the test deleted. delays, particularly if the patient is kept in hospital
Rarely performed tests necessarily account for a to await the result at a current cost of about £80 per
small proportion of the annual expenditure, even if day.
they are "expensive" on a cost per test basis (Table Similar considerations apply in assessing the extra
4). For example, deletion of blood ammonia assay cost of tests performed out of hours. With the pres-
(with a direct cost per test of £12.01) from the ent system of payment used in the UK for out-of-
repertoire of laboratory B would result in negligible hours work, these costs, which are mainly for labour,
are directly related to workload, and immediate cash

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savings because the cost of consumables is virtually
zero. On the other hand, deletion of thyroxine- savings could be made by reducing the number of
binding globulin assay (with a direct cost of only out-of-hours tests-but only if this had no adverse
£1-78 per test), relatively frequently performed in cost consequences in the clinical sphere.
laboratory B, would immediately save 3748 x £1-13 Investigation of patients before admission to hos-
= £4235 per annum in consumables. Thus, immedi- pital, and the rapid provision of assays such as serum
ate savings can be achieved most effectively through drug levels for outpatients, can often be made at
those tests which entail a high annual expenditure little or no extra expense for the laboratory, but may
on consumables, and it is these tests on which atten- save clinical costs. The complexity of these non-
tion should be focused in attempts either to reduce laboratory costs, and the difficulty of measuring
demand or to find a source of cheaper reagents. them, constitute an unmet challenge in making a
complete assessment of the overall cost consequ-
EFFECT OF LABORATORY ORGANISATION ON ences of performing a test at once or after a delay.
COSTS Similar considerations arise in assessing the cost/
Changes in laboratory organisation and practice benefit of performing a fixed battery of tests
have a profound effect on costs which, from the whenever any one of them is requested. The cost of
laboratory's standpoint, can often be assessed by a biochemical profile is remarkably small when per-
simple arithmetic and taking into account all appar- formed on a modern multichannel automated ana-
ent consequences of the change. However, cost lyser (Table 7), and indirect costs are reduced
analysis of laboratory tests without consideration of because of the simplification of specimen separation,
their clinical use and the speed with which they are work organisation and reporting. However, the
reported will give a distorted picture of overall costs present popularity of profiling amongst laboratory
to the hospital or the health service as a whole.6 workers overlooks two important factors.
Most tests are done in batches, and the unit cost is First, although the use of multichannel analysers
smaller for large batches than for single analyses. As reduces the apparent cost of each test, this is of no
a result, some laboratories tend to accumulate value if the test results are irrelevant or even mis-
specimens for non-urgent tests and run them in a leading for individual patients. There is at present
single batch at say weekly intervals, or send them no evidence that the faster turnround of tests
away to a larger centre. Although this will save achieved by profiling produces any significant clini-
money for the laboratory, it may incur costly clinical cal savings. Moreover, any additional investigation
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Benefits of costing in the clinical laboratory 1033
induced by unrequested, unexpected results will Table 8 Annual expenditure (f) on consumables for LD
entail additional expenditure, often without clinical and CK assays in laboratories A (1980181) and
benefit. On the other hand, to do such tests only C (1979180), expressed at 1981/82 prices
when requested may result in delays, and will Laboratory Laboratory
increase the indirect costs of specimen separation, A C
sorting, etc. Consequently the full cost implications Lactate dehydrogenase
of including or excluding an analyte in a profile are 854 tests pa at £0-43 each - 367
far from straightforward. Equipment for automated 2002 tests pa at £0-14 each
Creatine kinase
280 -

discretionary testing is now becoming available, and 1294 tests at £1-44 each - 1863
it will be important to assess how this will affect 104 tests at £1-27 each 132 -

laboratory and clinical costs. Total expenditure per annum 412 2230
A second consequence of the use of multichannel
analysers is that, although each test or profile is laboratories A and C in the cost and workload of
inexpensive, profiles are done in large numbers, so serum lactate dehydrogenase (LD) and creatine
that the annual expenditure on them is large. This kinase (CK) assays (Table 8). The annual expendi-
perhaps provides justification for the widely held ture on consumables for the two enzymes together is
belief that automatic analysers are expensive considerably greater in laboratory C, although the
whereas, on a cost per test basis, they are not. The total number of enzyme assays (2106, 2148) is simi-
availability of such equipment, able to do large lar. This is largely due to the greater demand for CK
numbers of cheap tests, stimulates demand, so that (with a higher direct cost per test) in laboratory C.
the total expenditure on them rises until it consumes Since these two tests are mainly used in the diag-
a major part of the laboratory's budget. nosis of myocardial infarction, it would be interest-
In assessing the cost-effectiveness of laboratories, ing to know the reasons for this difference in clinical
and the effect of changes in practice and organisa- request pattern, and whether it was reflected in
tion, it may be useful to compare data from different clinical benefit. If the clinical staff using laboratory
laboratories (Table 3). To the administrator, using C were to adopt the request pattern used in laborat-
the only data available to him, the comparison figure

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ory A-that is, LD in preference to CK-the annual
would be the total revenue expenditure divided by expenditure on consumables in laboratory C would
the number of requests-that is, the average revenue be considerably reduced.
cost per request: £3*99 for laboratory A and £6.31
for laboratory B. The 60% difference is explainable Laboratory costs and the clinician
on the grounds that laboratory B is an independent
clinical chemistry department, with medical staff, in Few clinicians know the cost of the tests they request
a teaching hospital, whereas laboratory A is located for their patients. The main reason for this is that
in a multidisciplinary department in a District Gen- laboratory directors themselves do not have this
eral Hospital and has no medical staff. However, information, and when expenditure rises tend to
this explanation takes no account of differences in blame the clinician for imposing additional demands
actual investigations performed in the two without realising their cost implications. Often
laboratories, and a more detailed analysis is more laboratories contribute to this polarisation by a sim-
revealing. plistic cost analysis which makes tests appear
The average direct cost per request (a measure not cheaper than they are.
available without detailed cost analysis) in the two What answer should the head of a laboratory give
laboratories again differs, though in lesser degree to the clinician or medical student who asks "What
(43%): £1*40 for A and £2-01 for B. However, is the cost of Test X?" The question is deceptively
greater differences emerge when the costs of indi- simple, but several equally valid answers are poss-
vidual tests are compared (Table 7). For many ana- ible. In the first place, it will be clear from the fore-
lytes (blood alcohol, faecal fat, acid phosphatase, going that the answer will be different for each
calcium), the cost per test is, predictably, lower in laboratory, and that a guess which ignores the less
the laboratory where it is done in larger numbers, obvious indirect costs will be misleading.
but there are additional marked differences between The simplest general answer is to state, for that
A and B which are probably method-related. laboratory, the average total cost per request for that
Although a few generalisations about the cost per test, ie the direct costs of consumables, labour and
test can be made from these data, the figures could capital, plus the "handling charge" for indirect costs.
by no stretch of the imagination be used as a basis Thus for laboratory B (Table 4) the average cost of a
for a joint, let alone a national, price list. request for serum digoxin assay is £10*24 (total
There are interesting differences between direct) plus £4*80 (indirect), making a total of
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1034 Broughton, Woodford
£14*04. Although the figure will be higher for an the bench will naturally be conscious only of the cost
out-of-hours request, the average figure serves as a of what he is doing, and will be oblivious to most
general guide in answering the clinician's question. indirect costs, which account for most of the expen-
It represents the without-profit "marketplace" cost, diture. The laboratory manager is concerned with
which should not be too dissimilar from the price budget. Costing data can help in showing how
charged by commercial laboratories. The element of money is spent, in assessing alternative methods and
profit built into the commercial price is approxi- work patterns, and pinpointing where savings might
mately matched by the cost of the research, advisory be made. The hospital or district administrator is
and consultative functions provided by the hospital concerned with the total cost of providing a pathol-
laboratory. ogy service and with balancing this against the needs
The main reason for higher laboratory costs over of other departments. Often the only person who
the past few years is the increased number of perceives all these costs, and can estimate their rela-
requests made by clinicians.578 Attempts to modify tive importance, is the laboratory director, who is
clinicians' requesting patterns have not met with usually untrained in economics or accountancy.
great success9-" and whether clinicians would be In assessing how useful costing data can be, it is
greatly influenced by knowing the cost of a test-for essential to define questions which have sizeable
example, if this were printed on the laboratory financial implications. For example, marginal costs
report-is at the least dubious.' - '3 Tests which (except for out-of-hours work) are usually small and
appear relatively cheap on a unit basis may easily the information they yield is rarely helpful, particu-
lead to additional demands, and if these demands larly when the clinical savings which might result
are readily met with high-throughput automated from doing one extra test are left out of account.
equipment, total expenditure will increase. For this The costing method of Broughton and Hogan
reason the total cost for a particular request is the yields several different costing quotients and totals.
most appropriate figure to give to the interested Each of these has its uses. The total cost per request
clinician, not the "direct cost per test" which is often represents the marketplace cost of completely
demanded by planners and quoted by manufacturers fulfilling that request. It is the most appropriate
of equipment and reagents.

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figure to present to clinicians and administrators and
Estimates of the potential savings which would for use in billing. The average total revenue cost per
result from discontinuing unnecessary investiga- request is the simplest of all figures to calculate and
tions'4 '5 are often equated with the average cost per for many large-scale administrative purposes-for
request (which is the only figure available). This is example, specialty costing-may be perfectly ade-
highly misleading since in most cases the only real quate. The direct revenue cost per test is of limited
saving in the short term in discontinuing a test is in value; more useful is the annual direct revenue
direct consumable costs, which are usually a small expenditure for each type of test, which reflects the
proportion of total costs: that is, marginal costs are laboratory resources devoted annually to that type
equal to marginal savings. of test. This is important in assessing the revenue
On the other hand, the cost of setting up a new consequences of changing workloads, analytical
assay which is not in the laboratory's repertoire is methods or equipment. The direct consumable cost
much greater, since additional equipment may be per test is relevant in assessing marginal costs, but
needed or extra staff employed. the annual direct consumables expenditure on each
Knowledge of the costs of alternative diagnostic type of test is what is needed in deciding where
strategies is of direct interest and importance to the immediate savings can be sought.
clinician. For example, one hospital may use lactate Although the method' outlined here has so far
dehydrogenase assays, which are relatively cheap, as been applied only to clinical chemistry laboratories,
the main enzyme test in the diagnosis of myocardial it should be applicable to other laboratory disci-
infarction, whereas another may use creatine kinase, plines and hospital service departments. Many of
which is more expensive. Although the difference in these have the same categories of direct and indirect
the cost per individual test appears small, the differ- expenditure, and face similar questions of cost as
ence in laboratory expenditure becomes highly those described here. Clearly, there would be major
significant when large numbers of tests are done advantages if all agreed to use the same approach
annually. and terminology.
Conclusions
The authors thank the many friends and colleagues
At present, the concept of laboratory costs has dif- who have contributed with ideas or data on costs
ferent meanings to different people. The worker at and costing.
 J Clin Pathol: first published as 10.1136/jcp.36.9.1028 on 1 September 1983. Downloaded from http://jcp.bmj.com/ on May 31, 2021 by guest. Protected by
Benefits of costing in the clinical laboratory 1035
Financial support of the Wolfson Research Fleming PR, Zilva JF. Workloads in chemical pathology: too
Laboratories by the Department of Health and many tests? Health Trends 1981:;13:46-9.
Eisenberg JM, Williams SV. Cost containment and changing
Social Security is gratefully acknowledged. physicians' practice behavior. JAMA 1981;246:2195-2201.
'°Martin AR, Wolf MA, Thibodeau LA, Dzau V, Braunwald E. A
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