Laboratories play a pivotal role in the provision of quality health care, and so these institutions are often behind accurate diagnostics, disease prevention, and treatment monitoring. However, laboratory finance management and particularly cost management frequently take a back seat, as the focus is given to clinical excellence or new, cutting-edge technologies. Yet, as a business, it is an essential aspect that cannot and should not be disregarded. Effective laboratory finance management enables sustained growth and quality support for the health care they provide.
In this post, we'll explore the importance of laboratory finances, and its impact on healthcare organizations, and we'll shed some light on fundamental financial concepts as well as the significance of an accurate calculation of the true cost-per-test.
The importance of laboratories to other healthcare institutions is plain with the support they provide to physicians and other medical staff in making critical decisions regarding quality patient care. From blood tests and pathology to radiology and genetics, laboratories produce the information and analysis that forms the foundation of most medical diagnosis and treatment plans. However, purely delivering quality diagnostic services is no longer just about scientific accuracy. In the ever-growing drive to reduce operating costs for laboratories, it's now also about financial efficiency.
While it is undeniable that laboratories should maintain the highest standards of care, cost containment and active cost management must be a top priority, as well. When laboratory operations are financially efficient, having identified and reduced unnecessary expenditures and more optimally allocated resources, profits are increased which can, and should, then be reinvested in improving patient care, either by improving test turnaround time, investing in new analyzers, or by expanding services.
Being in a critical field, also means it is heavily regulated. Effective financial management can help laboratories adhere to specific regulations aimed at maintaining the integrity of diagnostic results, whilst mitigating any risks that might be associated with errors, fraud, or any other legal complications.
The following basic terms are needed to understand the foundation of all financial management for laboratories.
Laboratories generate revenue by performing diagnostic tests and other services they offer. On the other side, laboratories incur expenses, for staff salaries, equipment, supplies like reagents and consumables, as well as other operational overhead costs. The ability to produce a profit sits in the balancing of the revenue and the expenses and is therefore a fundamental aspect of financial management.
One of the most crucial abilities, to actively perform laboratory cost management, is to calculate a true cost-per-test accurately and reliably. This metric, as the name implies, calculates the cost incurred for each diagnostic test performed. The calculation involves factoring in all direct and indirect costs associated with the testing process. What makes the cost-per-test metric so elusive is the way that high-level overhead costs like rent and electricity are allocated to a test. Ultimately understanding the cost-per-test is crucial for pricing tests accurately negotiating contracts with suppliers, as well as making informed, strategic decisions about the test offering.
A priority component of all finance management is creating and managing the operational budget. Budgeting involves setting financial goals and allocating resources accordingly. For the laboratories, this can be especially tricky with the wide variety of testing methods available, which can affect the types and amounts of reagents and consumables used, as well as staff hours. Timeous and reliable cost information can improve budget accuracy significantly. Financial forecasting is also critical to anticipate and plan for future revenue and expenses, enabling laboratories to plan for growth and make the necessary adjustments to ensure fiscal sustainability.
Accurate and active financial management for laboratories is crucial for sustained operations. By managing financial resources effectively laboratories can ensure cost efficiency leading to higher profitability, as well as compliance with regulatory requirements. Understanding basic financial concepts, particularly the cost-per-test metric, is crucial for maintaining financial health and making informed long-term strategic decisions.
In the next post, we will have a look at laboratory expenses in more detail, where they can be found, and which has the higher cost drive.