Should We Bring a Test In-House? | Diaceutics

Should We Bring a Test In-House?

February 22nd, 2016

Yan Victoria Zhang
Tom Jackson, PhD

Yan Victoria Zhang and Tom Jackson, University of Rochester Medical Center, New York, discuss whether laboratories should conduct tests in-house or send their tests out.

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.

equ

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.

Blogs

View all blogs

Webinars & Podcasts

August 9th, 2018
Podcast: Oncology Patient Research
Why do we need to talk biomarkers with patients? Senior Director of Market Research at Diaceutics, Marianne Fillion, recently spearheaded an effort to gather insights directly from oncology patients to get an understanding of what they know about ...
April 20th, 2018
Podcast: PM Readiness Report 2018
Peter Keeling discusses the landscape and challenges for precision medicine, companion diagnostics, CDx or biomarker and conduit diagnostics are discussed including global laboratory test data analysis and forecasts for budget impact and value.
View all

Expert Insights

April 19th, 2018
The CMS National Coverage Decision on NGS
I. Introduction On March 16, 2018, the Centers for Medicare and Medicaid Services (CMS) finalized a National Coverage Determination (NCD) that cove...
January 19th, 2018
What does the EU IVD Regulation mean for companion diagnostics and LDTs?
Dave Smart, PhD, Director at Diaceutics, discusses the introduction of the EU IVD Regulation. While it is considered a necessary step, the Regulati...
View all expert insights

Competitive Benchmarking Reports

March 16th, 2018
PM Readiness Report 2018 Summary
March 14th, 2017
Pharma Readiness for Diagnostic Integration 2017
View all reports

Case Studies

View all case studies

Publications

May 23rd, 2019
Diaceutics reviews the ongoing debate on diagnostics reform legislation
Thought leaders at Diaceutics recently authored a peer-reviewed article that covers the ongoing national debate over diagnostics reform legislation in the United States. The article is now available online ahead of print in the Journal of Molecula...
September 11th, 2018
BRAF mutation testing in melanoma – Poster presented at European Congress of Pathology 2018
BRAF mutation testing in melanoma: a study including Austria, Germany and UK, highlighting concordance for current technologies, and potential requirement of more sensitive technologies in future applications.
View all publications
Facebook
Twitter
YouTube
LinkedIn