Dissecting Cost Per Test

In our previous post, we explored the redefinition of the cost-per-test metric while focusing on the potential to unlock new insights with advanced analytics and an improved role in laboratory management. Building upon that, we continue looking at the intricacies of the cost per test, understanding its calculations, and acknowledging its inherent and perceived limitations.

Understanding the calculations

While the initial impression might suggest a straightforward equation, looking deeper will reveal a complex interplay of factors that can significantly influence the final calculation and results. So, which costs should be considered? The short answer is all of them! More specifically, let’s look at the specific cost classifications.

First and foremost are all direct costs. These are the tangible expenses incurred directly during the execution of a particular test. Typically, these will be reagents and consumables but can include specific staff costs if the test is particularly specialized.

Secondly, and of equal importance, are the indirect costs. A significant proportion of these indirect costs will be overhead expenses, including rent, facility maintenance, depreciation, or administrative staff salaries. These might be less apparent in their applicability or link to any specific test, but it does not excuse the cost’s inclusion in the calculation.

The difficulty, and the source of most contention when considering the cost-per-test calculation, lies with the allocation method. What do we mean by that? The allocation method speaks to the criteria used to decide how much of any cost is allocated to any test. The key is that the approach should be structured, systematic, and well-documented, ensuring a fair, reasonable, and transparent calculation.

Acknowledging Limitations

Acknowledging the inherent and perceived limitations of using cost per test is likewise important to ensure that the calculation remains transparent, and all costs are considered. This highlights one of the most voiced criticisms, the perceived limitation of the scope of a cost-per-test calculation. As mentioned in the section, a structured and systematic approach will ensure that all costs are included.

Cost allocations can be further complicated by the complex and diverse nature of performing the tests themselves. Add to that the varying resource requirements and that can obscure the true cost-effectiveness of the different tests. This becomes truly tricky to manage overhead costs, with no clear analytical contribution.

Another hurdle can be found in the varying nature of laboratory costs, with, for instance, fluctuations in the price of reagents, technology advances, or shifts in testing volumes. This dynamic can complicate efforts to establish clear baselines for future comparative analysis.

Conclusion

Understanding the calculations, whilst considering the inherent complexities and possible limitations, of the cost per test is vital to the successful implementation and correct use of the metric. Only through a systematic and structured approach, documenting the allocation methods, assumptions made, and the criteria used, can the true power of this metric be used to unlock new financial insights, leading to the identification of further improvement opportunities.

Look out for our next post where we will explore some complementary metrics and innovative approaches to holistic laboratory performance evaluation.