Bringing tests in-house is a major undertaking and factors related to benefits, costs, planning and execution must be considered during this process, but the results for patients and institutions alike can make the effort worthwhile. Health care is under great pressure to control costs and clinical laboratories as essential components of health care are no exception. As a means of controlling and reducing costs, laboratories have sought opportunities to bring send-out tests in-house. The decision to bring a test in-house is often based on the financial benefits and summarized by the following formula expressing the return on investment (ROI). Although the concept is simple, determining ROI is not necessarily straightforward as not all benefits (returns) can be reflected monetarily.
For instance, clinical labs perform tests for multiple reasons, such as clinical need, strategic direction, financial benefit or a combination of these factors. The ability to reduce costs and fulfil clinical needs, thereby offering patients the best possible tests with reduced turnaround time, is a strong motivation for bringing tests in-house. Performing testing in one’s own lab also increases the level of control over the sample handling process and decreases both transcription errors and sample losses. Reduced turnaround time, increased control over sample handling and reduced transcription errors can all improve patient care, but capturing these elements as a financial benefit to the institution is difficult.
As a result, return is estimated by comparing the total cost of sending tests outside versus the operating cost of performing the tests in-house. The send-out cost can be calculated based on the charge per test, the test volume and related personnel, shipping and handling expenses. The operating cost can be estimated based on the additional full-time equivalent staff required and other related operating expenses such as reagents, proficiency testing, quality control and service contracts for the specific test. In addition, performing testing in-house develops expertise within the lab, enabling it to become a local reference lab with the potential to bring new revenue streams to the institution.
The cost of investment term in the ROI equation can vary significantly depending on whether or not capital investment is required. If a test can be performed on an existing platform with in-house expertise, the cost will be minimal and mainly reflect the effort involved in developing and validating the test.
However, if new capital equipment is required to bring the test in-house, the initial investment calculation generally goes beyond the capital cost of the instrument itself. It should also include the cost for space renovation, personnel training, required information technology support and infrastructure requirements. Leasing equipment versus making an upfront capital investment can make a big difference on the final financial return and, with that option, capital investments might be considered as operating costs. These two choices should be considered carefully.
While ROI is a commonly used indicator, another way to assess the value of investment is the payback period – the time required to recover the investment after adjusting for inflation or discount rate. The payback period can vary between institutions, but two to three years is a realistic goal.
In summary, bringing tests in-house is a major undertaking. Several factors related to benefits and costs must be considered during this process. Careful planning and execution are required to overcome the challenges, but the benefits to patients and institutions alike make the effort worthwhile.
About the Authors
Yan Victoria Zhang, PhD, DABCC, is an Assistant Professor of pathology and laboratory medicine, Director of the clinical mass spectrometry and toxicology lab, and Associate Director of the hematology and chemistry lab at the University of Rochester Medical Center in Rochester, New York. Dr. Zhang completed her Clinical Chemistry Fellowship training at Boston Children’s Hospital, Harvard Medical School after she received her Ph.D. in Biochemistry and Bioinformatics from the University of Minnesota (Twin Cities) with a special focus on mass spectrometry-based omics technologies and biomarker research. Dr. Zhang is the Founding Chair of the Mass Spectrometry and Separation Sciences Division at the AACC and she is an MBA candidate at the Wharton Business School. Email: Victoria_Zhang@urmc.rochester.edu
Tom Jackson, Ph.D., is an Analytical Chemist and Research Associate in the Department of Pathology and Laboratory Medicine at the University of Rochester Medical Center. After receiving his Ph.D. from Purdue University, he spent time in industry refining his skills in mass spectrometry and chromatography. Dr. Jackson is now focusing his effort on the applications of mass spectrometry on clinical diagnostics.