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

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?

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

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

Direct Cost – Pre-Analytical Specimen Collection – consumables Alcohol swab $0.10 Needle 0.25 Vacutainer tube 0.37 Adapter 0.12 Gauze pad 0.02 Band-Aid 0.05 Total Cost $0.91 If the sample is shared, the cost can be spread among several tests.

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

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

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

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

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

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

Should I Perform the Test In-House? Price of test = $150.56 Cost to send out test = $300.00 Savings = $149.44 per test Annual Savings = $7,472,000 Yes!

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

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

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?