1. Cost/Benefit Analysis
Eileen M. Ricker
Director, Transfusion Service Operations
and Laboratory Client Services
Vanderbilt University Medical Center

2. Cost/Benefit Analysis
Comparing expense (cost) with associated reimbursement (benefit)
Also called “Make vs. Buy” Analysis
Used to determine:
Impact on Budget
Should I perform the test in-house?
How will you price the test?
Has the cost per test changed?

3. Determining Cost Also called “Cost per Test”
All expenses associated with performing the test
Direct Expense – costs directly related to performing a test
Reagents
Consumables
Labor
Indirect Expense – costs associated with doing business
Facility Costs (Overhead)
Administrative salaries

4. Test Expense Categories
Pre-Analytical expense- before testing
Specimen Collection
Processing
Analytical expense –testing
Reagents
Equipment
Post-Analytical expense – after testing
Reporting

5. Direct Cost – Pre-Analytical
Specimen Collection – consumables
Alcohol swab $0.10
Needle
Vacutainer tube
Adapter
Gauze pad
Band-Aid
Total Cost $0.91
If the sample is shared, the cost can be spread among several tests.

6. Direct Cost - Analytical
Reagents
Volume of reagent used per test - 5ml
Cost of reagent - $135 per 50ml
$135/50ml = $2.70ml
Reagent Cost per Test
$2.70 x 5ml = $13.50 per test

7. Direct Cost - Analytical
Labor
Minutes required to perform test = 35 min
Average hourly rate of Technologist = $25.00
Benefit rate = 25%
Average hourly rate plus benefits = $31.25
Labor Cost per Test =
$31.25/60 min = $0.52 min
$0.52 x 35 min = $18.23

8. Direct Cost – Post-Analytical
Reporting - Calling results to Physician
Labor Expense
Minutes required to call result = 5 min
Average hourly rate of clerical staff = $20.00
Labor Cost per Result =
$20.00/60 min = $0.33 min
$0.33 x 5 min = $1.67

9. Indirect Cost Line-by-line analysis
Time consuming
Multiply the direct cost by a factor
Most commonly done
Determined by institution
Reasonable assumption of the total indirect cost

10. Depreciation of Equipment
Allocation of the cost of an asset over its useful life
Equipment has been bought
Total Cost = $75,000
Useful Life = 5 years
Depreciation per year = $75,000/5 = $15,000
Volume per year = 50,000 tests
Depreciation per test =
$15,000/50,000 = $0.30

11. How Will You Price the Test?
Vitamin D test
Volume = 50,000/year
Equipment cost = 30,000
Equipment useful life = 5 years
Reagent Cost = $50 per 100 ml
Reagents used per test = 5 ml
Cost of collecting sample = $0.91
Avg. hourly rate of Technologist = $25.00
Benefit rate = 25% of hourly rate
Time to perform test = 2 hours
Indirect cost factor = 1.3
Supply cost per 100 = 35.00
Supplies used per test = 1

12. Should I Perform the Test In-House?
Price of test = $150.56
Cost to send out test = $300.00
Savings = $ per test
Annual Savings = $7,472,000
Yes!

13. Evaluating Reimbursement
Reimbursement – amount received for a test or service
Chargemaster – list of billable test/services and the price charged to patient or insurance
Revenue – amount charged for a test or service

14. What Effects Reimbursement
Diagnostic-Related Groups (DRG) –groupings of services provided for inpatients with a single payment
Agreements with Commercial Insurance Carriers
Government and State ran Programs (Medicare and Medicaid)
Indigent Care
Determined by CPT code

15. In Summary Cost/Benefit Analysis
Comparing expense (cost) with associated reimbursement (benefit)
Used to determine:
Impact on Budget
Should I perform the test in-house?
How will you price the test?
Has the cost per test changed?