SUPPLEMENT TO VETERINARY FORUM
■
NOVEMBER 2004
IN-CLINIC DIAGNOSTICS:
Guidelines for Medical,
Operational, and
Economic Decisions
Series Topics:
IN-CLINIC DIAGNOSTICS:
MEDICAL VALIDITY AND
OPERATIONAL FEASIBILITY
IN-CLINIC DIAGNOSTICS:
AN ECONOMIC MODEL
USING TOTAL COST ANALYSIS
IN-CLINIC DIAGNOSTICS:
REAL-WORLD EXAMPLES
OF TOTAL COST ANALYSIS
In article #1, we explored how to approach medical and
scientific validity, operational feasibility, and ultimately finding the
right balance of in-clinic and reference laboratory services for
your practice. Once a practice has fulfilled medical criteria #1 and
operational criteria #2, the next step is to perform a Total Cost
Analysis to determine whether the diagnostic procedure is
economically healthy or feasible. Article #2 of this series
introduced veterinary practices to an economic model of Total Cost
Analysis and then applied this analysis to establishing client fees.
The third and final article in this series profiles two real-world
examples of actual veterinary clinics considering the purchase of
in-clinic diagnostic systems. These examples will provide the details
of Total Cost Analysis. The detailed calculations on each line item
are also included in the article appendices. In addition, the
summary provides suggestions and advice for avoiding common
mistakes when purchasing capital equipment.
Part 3 of a 3-part series
This series is sponsored by an educational grant from ANTECH Diagnostics
IN-CLINIC DIAGNOSTICS
IN-CLINIC DIAGNOSTICS:
Real World Examples
of Total Cost Analysis
By: Joseph J. Leeth, DVM
V
eterinary hospitals commonly purchase enhanced
diagnostic equipment with the admirable objective
of advancing the quality of medicine in their practice. Unfortunately, practitioners often inadvertently
decrease the quality of their diagnostics because of incomplete analysis of the medical, operational, and economic feasibility of the kit, test, procedure, or equipment. Using the
15-Step model of Total Cost Analysis (discussed in Article
#2 of this series) can help clinics evaluate the economic feasibility of in-clinic testing in comparison to outsourcing to
the reference laboratory. Just as importantly, a detailed economic analysis based on the true cost of in-clinic diagnostics
can help practitioners and practice managers develop appropriate fees for the service. Veterinary practices almost universally undercharge for their diagnostic services because
they do not consider the “hidden” costs involved in providing these services.
REAL-WORLD EXAMPLE 1: IN-CLINIC HEMATOLOGY
TESTING
Our first example is from a 2.5 veterinarian companion
animal hospital with a 5.5-day workweek. Their goal is to
increase their in-clinic hematology testing and go to mandatory pre-operative testing for all clients. They have estimated performing 132 CBC’s per month (6 per day).
The total equipment cost of the analyzer is $17,500 from
the capital equipment vendor. Table 1 represents the Total
Cost Analysis for this in-clinic hematology analyzer.
The in-clinic cost to perform a CBC is $24.36 per billable test assuming a 3-year equipment lease for this hospital.
By comparison, the reference laboratory would charge
$10.50 for the same test.
Taking into consideration the shared costs between the inclinic and reference tests (sample drawing cost [Step 11] and
data handling labor, result entry and archiving staff cost [Step
14]), the cost for the reference laboratory CBC is still $15.20.
The Reference Lab Cost Summary is: Reference lab fee
for 132 CBC’s per month equals $1,386.00 ($10.50 per CBC).
2
TABLE 1: Total Cost Analysis
Summary for In-Clinic Hematology*
Based on 6 CBCs per Day
(*Detailed calculations are shown in Appendix A, see p. 9)
Line Item
Calculated Cost
per Billable Test:
1. Amortized Equipment Cost:
$4.06 (3-year) or
$2.59 (5-year)
2. Alternative Investment Loss:
$0.99
3. Reagent Cost (Direct and
Linked):
$4.10
4. Quality Control Material Cost:
$0.14
5. Quality Control Reagent Cost:
$1.49
6. Repeat Testing Reagent Cost:
$0.51
7. Calibration Material and
Reagent Cost:
$0.13
8. Confirmation Testing Cost:
$1.05
9. Technician Labor Cost:
$4.80
10. Sample Collection Materials Cost:
$0.39
11. Sample Collection Labor Cost:
$2.90
(This clinic’s technicians draw all blood
samples with the help of an assistant.)
12. Redraw and Retest Cost:
$0.76
13. Instrument Maintenance,
Service, and Repair Cost:
$0.76 (3-year) or
$1.01 (5-year)
14. Data Handling, Result Entry,
and Archiving Staff Cost:
$1.80
15. Facility Cost:
$0.48
Total In-Clinic Cost:
$24.36 per billable test (3-year) or
$23.14 per billable test (5-year)
Total In-Clinic Cost for 132 CBC’s per Month is:
$3,217.13 (3-year) or $3,056.51 (5-year)
Part 3 of a 3-part series
R E A L W O R L D E X A M P L E S O F T O T A L C O S T A N A LY S I S
The drawing, sampling, and data handling costs for the
reference laboratory testing are $620.40 per month ($2.90 +
$1.80 or $4.70 per CBC).
The total cost to outsource 132 CBC’s to the reference
lab equals $2,006.40 per month.
The difference between in-clinic and reference lab
testing for this example is as follows:
Per Length
Per Month
Per Year
of Lease
3-Year Lease
5-Year Lease
$1,210.73
$1,050.11
$14,528.76
$12,601.32
$43,586.28
$63,006.60
Based on the Total Cost Analysis, the in-clinic hematology testing will cost the clinic $9.16 more than the reference laboratory per billable test or an increase of 62%
above the reference lab total costs including drawing,
sampling, and data handling costs.
Assuming this practice still wanted to provide total inclinic hematology, the next step is to calculate the fee to the
client of a CBC given this cost structure. The practice goal
has determined a 25% return to net. In addition, the cost of
veterinary interpretation of the data needed to be included.
Assuming an average of 6 minutes to accurately interpret a
CBC result, the professional fee to the client was $15.00 (6
minutes at $150.00 per hour). The fee to the client for an inclinic CBC is:
Fee to Client (In-Clinic CBC) =
$24.36
(Total cost per billable test based on 6 CBCs per day)
+ $15.00 (Professional veterinary fee for interpretation and
consultation with client)
+ 25%
(Percentage net return to achieve hospital profitability)
= $49.20
Using the same fee formula the client cost for a reference laboratory CBC is:
Fee to client (Reference Lab CBC) =
$15.20
(Reference Lab Fee for the Assay + Drawing labor cost +
data handling cost)
+ $15.00 (Professional veterinary fee for interpretation and
consultation with client)
+ 25%
(Percentage net return to achieve hospital profitability)
= $37.75
Real-World Hematology Conclusion: This practice was
convinced the fee to the client based on the total cost of inclinic hematology testing would not be supported by their
client base. However, the veterinarians were still committed
to providing hematology results for pre-surgical patients and
emergencies.
This clinic currently has only two clients per day on
average opting for the in-clinic pre-operative testing program. What is their Total Cost Analysis if the clinic only
performs two samples per day?
Guidelines for Medical, Operational, and Economic Decisions
TABLE 2: Total Cost Analysis
Summary for In-Clinic Hematology*
Based on 2 CBCs per Day
(*Detailed calculations are shown in Appendix A, see p. 9)
Line Item
Calculated Cost
per Billable Test:
1. Amortized Equipment Cost:
$12.19 (3-year)
2. Alternative Investment Loss:
$2.98
3. Reagent Cost (Direct and
Linked):
$4.10
4. Quality Control Material Cost:
$0.42
5. Quality Control Reagent Cost:
$4.47
6. Repeat Testing Reagent Cost:
$0.51
7. Calibration Material and
Reagent Cost:
$0.39
8. Confirmation Testing Cost:
$1.05
9. Technician Labor Cost:
$4.80
10. Sample Collection Materials Cost:
$0.39
11. Sample Collection Labor Cost:
$2.90
(This clinic’s technicians draw all blood
samples with the help of an assistant.)
12. Redraw and Retest Cost:
$1.09
13. Instrument Maintenance,
Service, and Repair Cost:
$2.27
14. Data Handling, Result Entry,
and Archiving Staff Cost:
$1.80
15. Facility Cost:
$1.44
Total In-Clinic Cost:
$40.80 per billable test (3-year)
Total Fee to Client ($40.80 + $15.00 + 25%)
$69.75 per billable test
A Total Cost Analysis summary for this clinic based on
only 2 CBCs per day is listed above in Table 2.
This example demonstrates how realistic testing volume affects the Total Cost Analysis. Decreasing the number of CBCs per day from six to two markedly increases
the cost by $16.44 per test (from $24.36 to $40.80). The
lower volume of testing being done markedly increases the
equipment and alternative investment costs.
On the other hand, a veterinary clinic can receive the
equipment for free and still not have a favorable Total Cost
Analysis in comparison to the reference laboratory. In this
example, even free capital equipment only decreases the cost
per billable test by $3.59 over the 5-year life span. The
remaining in-clinic costs are still greater than the reference
laboratory. The economic point is to find a realistic number
of billable tests the practice client base can maintain at a
3
IN-CLINIC DIAGNOSTICS
price the clients can afford. In this clinical scenario, the
reduction to two tests per day makes the test economically
infeasible for the respective clinic demographics. The final
decision was to stay with the microhematocrit centrifuge and
a peripheral blood smear for their pre-operative hematology
screens.
■ 8 comprehensive profiles (12-test profiles) or 96 tests per
month
■ 6 individual chemistries per month
The total volume is 258 individual tests per month with a
billable testing volume of 40 per month (profiles or individual tests) or an average of 1.77 per day. This volume would
account for 70% of the pre-surgical panels and 25% of the
REAL-WORLD EXAMPLE 2: IN-CLINIC
wellness and illness panels drawn at this facility.
CHEMISTRY TESTING
The clinic has narrowed its interest to two instruments
Our second example is also from a 2.5 veterinarian companand wants an objective economic assessment comparing two
ion animal practice with a 5.5-day workweek. This clinic is
different chemistry analyzers with their current reference
considering internalizing at least part (approximately 50%)
laboratory cost. The summary Total Cost Analysis for these
of the chemistry testing. The following clinical chemistry
two different analyzers is provided in Table 3.
profiles and tests are the anticipated volumes:
For comparison, the in-clinic costs for either analyzer
■ 26 pre-surgical profiles (6-test profiles) or 156 tests per
need
to be judged against the reference laboratory costs
month
associated with 258 individual tests per
month or 40 billable profiles and chemTABLE 3: Total Cost Analysis Summary for In-Clinic Chemistry**
istry assays. The reference lab fees for
Based on 40 Billable Profiles/Tests per Month
these assays are as follows:
(**Detailed calculations are shown in Appendix B, see p. 10)
Line Item Calculated
Cost per Billable Profile/Test:
1. Amortized Equipment Cost:
Analyzer A
Analyzer B
$7.46 (3-year)
or $11.68 (5-year)
$4.89 (3-year)
or $7.66 (5-year)
■ 8 comprehensive profiles @ $27.25 =
$218.00
2. Alternative Investment Loss:
$2.85
$1.88
3. Reagent Cost (Direct and
Linked):
$15.22
$13.59
■ 6 individual chemistries @ $10.50 =
$63.00
Total direct laboratory costs =
$820.50
4. Quality Control Material Cost:
$0.75
$0.75
5. Quality Control Reagent Cost:
$3.04
$2.72
6. Repeat Testing Reagent Cost:
$1.90
$1.70
7. Calibration Material and
Reagent Cost:
$0.00
$0.00
8. Confirmation Testing Cost:
$2.73
$2.73
9. Technician Labor Cost:
The shared costs between the in-clinic
and reference tests should also be taken
into account (sample drawing labor cost
[Step 11] and data handling, result entry,
and archiving staff costs [Step 14]).
$9.60
$3.30
10. Sample Collection Materials Cost:
$0.29
$0.29
11. Sample Collection Labor Cost:
$2.80
$2.80
■ 40 sample collections @ 2.80 =
$112.00
■ 40 data entry records @ 1.44 =
$57.60
(This clinic’s technicians draw all blood
samples with the help of an assistant.)
12. Redraw and Retest Cost:
$2.32
$1.21
13. Instrument Maintenance,
Service, and Repair Cost:
$3.50 (3-year)
or $3.83 (5-year)
$0.42 (3-year)
or $0.75 (5-year)
14. Data Handling, Result Entry,
and Archiving Staff Cost:
$1.44
$1.44
15. Facility Cost:
$1.51
$0.47
$59.63 (3-year)
or $55.74 (5-year)
$40.97 (3-year)
or $38.52 (5-year)
Total In-Clinic Cost
(per billable profile per test):
Total In-clinic Cost (per month):
4
Reference Laboratory Costs:
■ 26 pre-surgical profiles @ $20.75 =
$539.50
$2,388.78 (3-year)
$1,641.02
or $2,233.09 (5-year)
$1,543.52
(for 40 Billable Profiles/Tests)
Total shared costs = $169.60
The total reference lab testing, sampling, and record handling costs per
month = $990.10 or an average of
$24.75 per billable profile.
The difference between the reference
lab costs and the in-clinic testing alternatives for a 3-year lease or equipment
purchase are 141% for Analyzer A and
66% for Analyzer B.
Part 3 of a 3-part series
R E A L W O R L D E X A M P L E S O F T O T A L C O S T A N A LY S I S
The difference between in-clinic and reference lab
testing for this example are as follows:
Analyzer A
3-Year Lease
5-Year Lease
Per Month
$1,398.68
$1,242.99
Per Year
$16,784.16
$14,915.88
Per Length
of Lease
$50,352.48
$74,579.40
Analyzer B
3-Year Lease
5-Year Lease
Per Month
$650.92
$553.42
Per Year
$7,811.04
$6,641.04
Per Length
of Lease
$23,433.12
$33,205.20
The next goal for this facility was to determine an appropriate fee to clients and determine if this would be affordable for their client base. The clinic goal is to have a net
return of 25% on their services. The professional time for
interpretation of data, client communication, and reporting
needs to be included in the calculation also. Based on an
average of 12 minutes to accurately interpret the chemistry
result and explain the results to the client, the professional
fee to the client was $30.00 (based on professional compensation of $150 per hour).
Fee To Client
(Based on Total Average Price)
be determined based on the complexity and amount of consulting time necessary. It is important to remember, however, the average price of the three levels of testing must be
higher than the average price based on Total Cost Analysis
to maintain profitability in the hospital.
In this example, the comprehensive wellness and screening panels (12 tests) need to be charged at a higher rate than
pre-surgical profiles (8 tests) or the individual tests. In addition to the increased tests in each of the profiles, the interpretation and consulting times would also need to be adjusted for the complexity of the profiles (i.e., a comprehensive
profile is 15 minutes, a pre-surgical is 12 minutes, and an
individual chemistry is 10 minutes).
Reference Laboratory
Costs + Projected ROI
Profile/Test
(Costs = Assay fee + (drawing labor
and data handling cost) + professional
fee based on $150.00 per hour)
Pre-surgical Profile
$20.75 + $4.40 +
$30.00 + 25%
Comprehensive Profile $27.25 + $4.40 +
$37.50 + 25%
Fee to
Client
$68.94
(100% of
Fee Goal)
$86.44
(126% of
Fee Goal)
Individual Chemistry
$10.50 + $4.40 +
$25.00 + 25%
$49.88
(73% of
Fee Goal)
Reference Lab = $24.75 (Reference lab assay fee + drawing labor
cost + data handling cost)
+ $30.00 (Professional veterinarian fee for
interpretation and consult with client)
+ 25% (Percentage net return to achieve hospital
profitability)
= $68.44
Analyzer B
If the total average price to the client is used as the fee
goal and the reference laboratory as a benchmark, the inclinic client fees for the specific profiles and analyzers can
be determined by breaking the price down into similar
percentages.
Analyzer B
= $40.97 (Total cost per billable test based on 258
individual tests per month)
+ $30.00 (Professional veterinarian fee for
interpretation and consult with client)
+ 25% (Percentage net return to achieve hospital
Pre-surgical Profile
$88.71 × 100%
$88.71
= $88.71
Comprehensive Profile
$88.71 × 126%
$111.77
= $59.63 (Total cost per billable test based on 258
Individual Chemistry
$88.71 × 73%
$64.76
profitability)
Analyzer A
Profile/Test
Total Average Price to
the Client Multiplied by Fee to
Percentage of the Fee Goal Client
individual tests per month)
Analyzer A
+ $30.00 (Professional veterinarian fee for
interpretation and consult with client)
+ 25% (Percentage net return to achieve hospital
profitability)
= $112.04
Once we have established the average fee to the clients
based on Total Cost Analysis, the actual fee for each level of
testing (comprehensive, pre-surgical, or individual) needs to
Guidelines for Medical, Operational, and Economic Decisions
Profile/Test
Total Average Price to
the Client Multiplied by Fee to
Percentage of the Fee Goal Client
Pre-surgical Profile
$112.04 × 100%
$112.04
Comprehensive Profile
$112.04 × 126%
$141.17
Individual Chemistry
$112.04 × 73%
$81.79
5
IN-CLINIC DIAGNOSTICS
REAL-WORLD CLINICAL
CHEMISTRY CONCLUSION
This real-world case example
demonstrates the massive discrepancy when comparing the cost analysis
of an equipment vendor with an
actual model of Total Cost Analysis.
The vendor quotes for “in-clinic
expenses” were $22.50 for Analyzer
A and $19.50 for Analyzer B for this
clinic. Without thorough evaluation
of all the hidden costs, this practice
could have easily purchased
Analyzer A and subsequently lost
$14,000 to $16,000 per year in comparison to their current reference laboratory costs. This loss over the lifetime of the instrument ($50,000 to
$74,000) markedly exceeds the
equipment value of the new instrument, let alone the dismal 10%
retained value at the end of the lease
period. The ultimate decision by this clinic was influenced
partially by their desire to “have a new toy,” similar to our
desires to have a bigger, more luxurious and faster car every
3 years. The hospital management decided to purchase
Analyzer B and perform only the pre-surgical profile on
same day pre-operative and emergency cases. To maintain
the current cost analysis, the clinic is confident they can promote and increase their in-clinic pre-surgical testing volume
to 40 profiles per month without decreasing their already
profitable reference laboratory services. The cost to the client
for in-clinic testing will be $88.00 for the pre-surgical chemistry panel. All comprehensive panels will be sent to the reference laboratory along with approximately 25% of the presurgical profiles. Individual tests will be run with the reference laboratory or as a pre-surgical profile at the hospital.
When evaluating the cost analysis of clinical chemistry,
the entire process becomes confusing due to the different
complexities of panels, number of tests, variable reagent
prices per test, etc. Vendors commonly provide practices
with an average reagent cost per test; however, this is not
easily calculated to a cost per billable test or profile. By lim-
6
Photo to come
iting the in-clinic capabilities to only a pre-surgical or a 4to 6-test panel, the Total Cost Analysis is more simple and
manageable. In this clinic example, the simplification of the
cost analysis to only a 6-test pre-surgical profile will
decrease our reagent cost by approximately $1.00 per billable test. In this situation, the clinic must resist the temptation to purchase assays or reagents they do not perform,
which will deteriorate the profitability of the pre-surgical
program and likely the accuracy and integrity of the data.
Our business approach and model for this clinic has now
changed with respect to in-clinic diagnostics. The initial idea
was to replace a portion of our reference laboratory services.
After we have examined the Total Cost Analysis, our focus will
be to maintain and expand our reference laboratory work and
promote a new and expanded service for same day pre-operative panels and emergency services. This model uses the inclinic capability to increase our total diagnostic capability and
augment our reference laboratory services and profitability. The
focus of hospital management should be to expand new profitable diagnostic tests and procedures and not to replace existing cost- effective and revenue-generating services.
Part 3 of a 3-part series
AVOIDING COMMON MISTAKES
IN-CLINIC DIAGNOSTICS:
Avoiding Common
Mistakes
By: Joseph J. Leeth, DVM
M
uch of the information on diagnostic equipment
and testing is provided through sales and marketing materials from manufacturers. While this
information can be helpful, it can also be biased propaganda
and only focus on the benefits of a particular piece of
equipment in the eyes of the seller and not the buyer.
Subsequently, it is important to analyze your decisions
regarding in-clinic diagnostics using the three criteria outlined in the earlier articles in the In-Clinic Diagnostics
series:
1) Guidelines for Medical, Operational and
Economic Decisions
2) An Economic Model Using Total Cost Analysis
All managers and practice owners should evaluate all
information and proposals carefully before making a final
decision. If a proposal for capital equipment appears unbelievably generous, it probably is too good to be true.
Following are a few of the “tricks of the trade” and common
“fishing lures” used to market in-clinic testing to veterinary
practices.
MARKETING MATERIAL IS THE ONLY SOURCE OF
INFORMATION
Always begin your evaluation with Criteria #1: Is the assay
medically and scientifically valid and also correlated to
a reference standard? If the only articles and brochures
provided on the test are from the manufacturer or vendor,
you should be skeptical of any claims. Claims may be inaccurate or totally misleading. Peer review and outside corroboration are essential to satisfy Criteria #1. Seek further
information from independent sources such as universities,
reference laboratories, or industry experts. Sales representatives can provide good information about their equipment
or service, but many are not trained at a scientific level a
veterinarian needs to be able to make an informed decision
about such an important capital investment.
Guidelines for Medical, Operational and Economic Decisions
DETERMINE IF THE HOSPITAL CAN TECHNICALLY
ASSIMILATE AND PERFORM THE PROCEDURE…
“Doctor, anybody can do this test!”
This is related to Criteria #2: Can the test(s) be assimilated in the technical operations of the laboratory or hospital? Will the appropriate levels of quality control, calibration, etc. be provided? Performing in-clinic diagnostics
accurately and efficiently depends upon the experience of
the hospital technical staff. If you and your technical staff
do not feel proficient performing the test, then outsourcing
is most likely a better decision. In addition, is the vendor
going to provide you with a source for independent quality
control? If the company tells you that QC is not necessary,
Criteria #2 has not been met.
READ BETWEEN THE LINES AND
ALL OF THE FINE PRINT…
There are as many “deals” on diagnostic equipment as
there are instruments on the market. While most promise
economic rewards for the clinic, performing a Total Cost
Analysis can reveal the real cost of the instrument. To avoid
making a decision, which may not be economically sound
for the practice or affordable to your clients, thoroughly
evaluate all proposals before signing on the bottom line. A
few of the more common economic tricks used to persuade
clinics to make a purchase are as follows:
“The instrument is free. Pay only for reagents.”
On average, only 8–15% of the cost of testing is
attributable to the cost of the instrument itself. Therefore,
a “free” instrument with a 20% increase in reagent cost
is actually a loss for the hospital. In addition, these types
of offers almost always carry a reagent commitment in
both volume and time. Before signing a contract, make sure
you understand exactly what you are purchasing. Clinics
commit to reagent rentals without knowing they are
contractually obligated to buy a certain volume over the
next 5 years.
7
IN CLINIC DIAGNOSTICS:
Use the 15-Step model of Total Cost Analysis to determine the true cost per billable test with and without the cost
of the equipment or lease. Vendors generally make more
money from the sale of reagents than from the equipment
itself. You always pay for the instrument, but you might not
be seeing the true cost per billable test or profile unless you
focus on the Total Cost Analysis.
“You’ll own the latest piece of equipment
in just 3 to 5 years.”
Like computers, laboratory equipment depreciates faster
than you can lease it. Virtually all in-clinic equipment is
worth only 10% of the initial value after just 3 years. Do not
look at the instrument as an asset, but rather as a mechanism
to provide the hospital with important medical data (e.g., the
same way you look at a reference laboratory). If the equipment is less reliable than a reference laboratory or it increases hospital costs and offers no real service advantage to your
clients, then it will not be an enhancement to the practice.
“Buy the equipment and we will take the
lease payment off your bill for our other products.”
Some manufacturers offer to deduct the amount of the
equipment lease payment from bills for their other products.
Once again, the equipment accounts for only 8–15% of the
cost of testing. To offer this deal and still generate profit, the
vendor or manufacturer may be charging more for another
product or for the reagent systems tagging along with the
rebated analyzer. Your payment to the vendor may actually
increase over time without you even realizing it. Focus on
the cost per billable test rather than diverted cost to another
expense.
“You will make more money doing the test
in-house versus sending it out to a reference lab.”
Take the time to thoroughly review the situation based
on the 15-Step model of Total Cost Analysis before determining if in-clinic or outsourcing is more economically beneficial to the hospital. Almost always, the cost per billable
test is less with the reference laboratory because of the
economies of scale. Proposals often show equipment and
reagent costs for the total number of tests, which can come
close to the reference lab price. However, when the cost per
billable test is used, the in-clinic cost is almost universally
greater. Managers and owners need to determine if their
client base will actually pay for the in-clinic client price. If
your demographics cannot support the calculated cost, then
the assay fails Criteria #3.
CONCLUSION:
In summary, Total Cost Analysis is the key to determining
true economic feasibility when approaching the financial
analysis of in-clinic diagnostics. As demonstrated by the
real-world examples, practices doing 3 to 4 diagnostic billable tests per day will find it economically cost prohibitive
to do in-clinic testing. The costs usually exceed what the
client is willing to pay or the veterinarian is willing to
charge. Unfortunately, numerous veterinarians still perform in-clinic testing at an economic loss. This loss then
consumes profits from another part of the practice and prohibits both professional and economic growth since the
practice is unable to afford implementation of new procedures, services, and enhanced patient care. The lack of
detailed Total Cost Analysis (not only in diagnostic testing
but also in other procedures) may partially explain why
veterinarians are lagging behind similar professions with
respect to professional staff compensation. A large number
of practices are simply performing diagnostics at a loss
and drawing on professional income to offset or balance a
poorly designed economic model.
The first two articles in the In-Clinic Diagnostic
series focused on medical validity, operational feasibility
8
and an economic model to determine the implementation
of in-clinic diagnostics. These three fundamental principles must all be fulfilled prior to successfully expanding
the in-clinic testing and diagnostic capabilities. This article provided real-world examples utilizing total cost
analysis as a financial tool in actual veterinary practices.
This three-part program of medical, operational, and
economic analysis gives all practices a model to objectively evaluate the utility of in-clinic procedures.
Remember, good intentions do not always breed good
decisions.
As with all important decisions affecting the quality of
medicine practiced within the hospital, developing the
right balance between in-house testing and outsourcing
should not be made with a whimsical or capricious evaluation. Taking the time to gather independent opinions and
scientific data, compare options, and perform a 15-Step
Total Cost Analysis will lead to a smart decision for both
veterinary hospitals and the patients they serve.
If you are interested in more information on in-clinic
diagnostics, please email your questions or comments to:
inclinicdiagnostics@email.com.
Part 3 of a 3-part series
In-Clinic Diagnostics
APPENDIX A: Detailed Calculations on Hematology Total Cost Analysis
Based on 6 CBCs per day or 132 CBCs per month
Cost per Month:
Cost per
Billable Test:
$536.36 (3-year) or
$342.41 (5-year)
$4.06 (3-year) or
$2.59 (5-year)
2. Alternative Investment Loss:
$131.25
$0.99
3. Reagent Costs (Direct):
$541.20
$4.10
$18.60
$0.14
5. Quality Control Reagent Cost:
$196.80
$1.49
6. Repeat Testing Reagent Cost:
$67.65
$0.51
7. Calibration Material and Reagent Cost:
$17.00
$0.13
$138.60
$1.05
$633.60
$4.80
$51.84
$0.39
$382.80
$2.90
$100.65
$0.76
$100.00 (3-year) or
$133.33 (5-year)
$0.76 (3-year) or
$1.01 (5-year)
$237.60
$1.80
$63.18
$0.48
1. Amortized Equipment Cost:
Total equipment cost is $17,500 at 6.5% interest or lease fee. (use a mortgage calculator)
Assuming a 9% return on the $17,500 expenditure. ($17,500 × .09 × 1/12)
Calculated from manufacturer’s price for reagents and number of tests per packet for analyzer.
4. Quality Control Material Cost:
Daily QC materials are needed for 48 tests per month or 24 low and 24 high controls. 48 tests will require 3
high and 3 low QC vials at $3.10 per vial per manufacturer’s quote. (6 × $3.10)
Based on 48 tests per month at $4.10 each (Step 3). (48 × $4.10)
Based on repeat testing incidence of one in eight. ((132/8) × $4.10)
Calibration for this analyzer is run once per quarter and requires 10 assays to be performed. Manufacturer cost
for calibration material and reagents is $5.10 per assay. ((10 × $5.10)/3)
8. Confirmation Test Cost:
One out of ten tests is sent for confirmation at the reference laboratory. The reference laboratory provides free
shipping and the tests do not require any additional sample to be drawn. The cost for each confirmation test
is $10.50. ((132/10) × $10.50)
9. Technician Labor Cost:
The clinic has two technicians capable of running the equipment and performing manual differentials needed
to provide morphology grading and to detect bands, leukocyte toxicity, nucleated RBCs, neoplastic cells, and
hemoparasites. The instrument cycle time is one sample per 12 minutes. The technician time required to
prepare the slide, stain the smear, cycle the instrument, perform start-up, maintenance, and perform differential
is estimated at 16 minutes per CBC. The compensation rate is $18.00 per hour. (($18.00/60) × 16 × 132)
10. Sample Collection Materials Cost:
Collection materials are two-way needles and EDTA tubes which are currently $0.12 per test. The reagent
costs for stain, immersion oil, and slides are not included in the sales representative’s quote. (Note: This is an
honest clinic and does not use the laboratory-provided EDTA tubes and needles for in-clinic testing.) The
additional collection and alternative reagent required for this volume are 0.5 diff-quick stain kits per month
and 150 slides at $36.00 per month. ((132 × $0.12) + $36.00)
11. Sample Collection Labor Cost:
This clinic’s technicians draw all blood samples with the help of an assistant. Assistant compensation is
$11.00 per hour and technician compensation is $18.00 per hour. The average sample collection time is six
minutes. (($11.00 + $18.00)/60 × 6 × 132)
12. Redraw and Retest Cost:
The redraw incidence is 4% due to clotted sample, hemolyzed samples, or erroneous test results. A redraw
includes the reagent cost, technician labor cost, and sample collection costs (Steps 3, 9, 10, and 11). In
addition, the technician labor costs (Step 9) for the retesting cost on the same sample were not included in
Step 6. Redraw: ((132 × .04) x ($4.10 + $4.80 + $0.39 + $2.90)) Retest Labor: (16.5 × $4.80)
13. Instrument Maintenance, Service, and Repair Cost:
The instrument comes with a 1-year manufacturer’s warranty. After the first year, the maintenance and
repair costs depend upon the equipment failure rate. The maintenance agreement is $2,200 per year or the
clinic can gamble on the instrument repair costs being less than this per year. In general, repair costs
accelerate with the age. An industry rule of thumb is as follows:
Months 12-24 = 8% of instrument cost
Months 37-48 = 20% of instrument cost
Months 25-36 = 14% of instrument cost
Months 49-60 = 26% of instrument cost
The clinic is budgeting $1,400 for months 12-24 and will purchase maintenance agreement at month 25.
3-year lease = (($0.00 + $1,400 + $2,200)/36)
5-year lease = (($0.00 + $1,400 + $2,200 + $2,200 + $2,200)/60)
14. Data Handling, Result Entry and Archiving Staff Cost:
The clinic is computer literate so they will scan their in-clinic report into the hospital information system.
Labor cost to scan the reports is approximately ten minutes per report and billable test. Staff compensation
is $11.00 per hour. (($11.00/60) × 10 × 132)
15. Facility Cost:
Total clinic square footage = 4,100 sq. ft. Hematology area square footage (including instrument, staining
area, and microscope reading site) = 32 sq. ft. Facility costs per month (including lease, utilities, cleaning,
etc.) = $81.00 per month. Therefore, the hematology area = 78% of facility costs. ($81.00 × 0.78)
Total In-Clinic Cost:
Guidelines for Medical, Operational and Economic Decisions
$3,217.13 (3-year) or $24.36 (3-year) or
$3,056.51 (5-year)
$23.14 (5-year)
9
In-Clinic Diagnostics
APPENDIX B: Detailed Calculations on Chemistry Total Cost Analysis
Based on 40 billable profiles/tests per month
The Total Cost Analysis provided in the compared
clinical chemistry example is more complex than
the hematology analysis, however, the 15 Steps
still apply.
1. Amortized Equipment Cost:
Total equipment cost for Analyzer A is $15,250 and for
Analyzer B is $10,000 at 6.5% interest or lease fee.
(use a mortgage calculator)
2. Alternative Investment Loss:
Analyzer A
Cost per
Cost per
Billable
Month:
Profile:
Analyzer B
Cost per
Cost per
Billable
Month:
Profile:
$467.40 (3-year)
or
$298.38 (5-year)
$11.68 (3-year)
or
$7.46 (5-year)
$306.49 (3-year)
or
$195.66 (5-year)
$7.66 (3-year)
or
$4.89 (5-year)
$114.38
$2.85
$75.00
$1.88
$608.60
$15.22
$543.60
$13.59
$30.00
$0.75
$30.00
$0.75
$121.76
$3.04
$108.72
$2.72
Assuming a 9% return on the equipment expenditure.
(A = $15,250 × .09 × 1/12 B = $10,000 × .09 × 1/12)
3. Reagent Costs (Direct and Linked):
Unlike the hematology example, reagent costs are separated into
the different profile configurations and Analyzer A has individual
tests and additional reagents costs for the electrolyte module.
Costs are from manufacturers purchasing quotes.
Pre-Surgical (6 tests)
Comprehensive (12 tests)
Individual (1 test)
Electrolyte (8 tests)
Analyzer A
$13.50
$20.50
$3.10
$75.00*
Cost Per Profile
Analyzer B Qty/mth
$12.75
26
$16.95
8
$12.75
6
$0.00
1
*Analyzer A has an electrolyte reagent packet costing $105.00,
which is calculated to last 42 days based on this sample volume
and stability of reagent. ((30/42) × $105.00)
(A = ($13.50 × 26) + ($20.50 × 8) + ($3.10 × 6) + $75.00
B = ($12.75 × 26) + ($16.95 × 8) + ($12.75 × 6))
4. Quality Control Material Cost:
There is discrepant information from the instrument manufacturers
regarding quality control. Analyzer B states no QC monitoring or
testing is needed. Analyzer A states QC is run with a change in lot
number for every month. In our reference lab and university lab
a high and low chemistry control serum is run at 35–100 sample
intervals or twice daily whichever is greater. Therefore, the use
of 2 vials of high and 2 vials of low control per month no matter
the analyzer is recommended. QC sample vials are $7.50 each.
(A and B = $7.50 × 4)
5. Quality Control Reagent Cost:
Again, manufacturers information does not correlate to
advice from the veterinary school lab, reference lab, and
lectures. In addition, Analyzer B states QC is all internal,
however, no data to show us the control assay results are
available. The internal QC for Analyzer B is in actuality a
start-up protocol simply checking the integrity of the optics
and NOT a true QC program. Ideally, two levels of controls
would be used every day Monday through Friday or 40
panels per month each at the cost per billable profile
found in Step 3. We are confident this clinic will not
spend this amount of money, time, or effort in QC.
We are hoping the clinic will at least run a high and
low control once per week or every Monday.
(A = $15.22 × 4 × 2 B = $13.59 × 4 × 2)
10
(continues on next page)
Part 3 of a 3-part series
APPENDIX B (continued)
Analyzer A
Cost per
Cost per
Billable
Month:
Profile:
6. Repeat Testing Reagent Cost:
Analyzer B
Cost per
Cost per
Billable
Month:
Profile:
$76.10
$1.90
$67.95
$1.70
$0.00
$0.00
$0.00
$0.00
$109.00
$2.73
$109.00
$2.73
$384.00
$9.60
$132.00
$3.30
$11.60
$0.29
$11.60
$0.29
$115.20
$2.80
$115.20
$2.80
$92.66
$2.32
$48.47
$1.21
Based on repeat testing incidence of one in eight.
(A = $15.22 × (40/8) B = $13.59 × (40/8))
7. Calibration Material and Reagent Cost:
Both manufacturers provide a computer card with pre-set
calibration data and parameters at no additional cost to
the clinic.
8. Confirmation Test Cost:
One out of ten profiles/tests are sent for confirmation at the
reference laboratory. The reference laboratory provides free
shipping and the tests do not require any additional sample
to be drawn. The reference laboratory price for a
comprehensive chemistry profile is $27.25.
(A and B = (40/10) × $27.25)
9. Technician Labor Cost:
The clinic only allows RVT’s to do clinical pathology testing
and the compensation rate is $18.00 per hour. The time to run
a profile on these analyzers varies with the number of tests
being run. Based on in-clinic evaluation and input from other
installation sites (NOT the estimates from the salesman),
the average testing and technician time for Analyzer A is 32
minutes and for Analyzer B is 11 minutes per billable profile.
The technician time includes sample preparation, analyzer data
entry, pipetting the actual sample, loading the analyzer, and
monitoring reagent supplies and quality control procedures.
(A = ($18.00/60) × 32 × 40 B = ($18.00/60) × 11 × 40)
10. Sample Collection Materials Cost:
Collection materials for chemistry tests include:
1) One two-way needle or one-way needle with syringe
2) One serum separator tube (SST)
3) One plastic or plain glass serum tube (RT)
(Note: This is an honest clinic and does not use the laboratoryprovided supplies for in-clinic testing.) Based on current
supplier information this would average $0.29 per billable test.
(A and B = 40 × $0.29)
11. Sample Collection Labor Cost:
This clinic’s technicians draw all blood samples with the help
of an assistant. Assistant compensation is $11.00 per hour and
technician compensation is $18.00 per hour. The average
sample collection time is six minutes.
(A and B = ($11.00 + $18.00)/60 × 6 x 40)
12. Redraw and Retest Cost:
The redraw incidence is 4% due to excessive hemolysis, severe
lipemia, or erroneous test results. A redraw includes the reagent
cost, technician labor cost, and sample collection costs (Steps 3,
9, 10, and 11). The costs are different for each analyzer. In
addition, the technician labor costs (Step 9) for the retesting
cost on the same sample were not included in Step 6.
Redraw: (A = (40 × .04) × ($15.22 + $9.60 + $0.29 + $2.80)
B = (40 × .04) × ($13.59 + $3.30 + $0.29 + $2.80))
Retest Labor: (A = 5 × $9.60 B = 5 × $3.30)
Guidelines for Medical, Operational and Economic Decisions
(continues on next page)
11
APPENDIX B (continued)
Analyzer A
Cost per
Cost per
Billable
Month:
Profile:
13. Instrument Maintenance, Service, and Repair Cost:
The maintenance costs for either analyzer are not readily
apparent. Both analyzers have a 2-year warranty. Analyzer A
has an electrolyte module and the 4 electrodes in this module
(NA, K, CL, and reference) need to be replaced every 6 months
which is not covered under the warranty. The average electrode
cost is $185.00 each. Both manufacturers have a user ship-in
program for instrument failure at approximately $600.00 per
year after year 2. The alternative is for the clinic to gamble
on how many times the instrument will need repair. It is
anticipated the machine will need at least one repair per
year for the life of the equipment and in general, repair costs
accelerate with age. For model purposes, this clinic is going
to utilize the maintenance program for years 3, 4 and 5.
Analyzer B
Cost per
Cost per
Billable
Month:
Profile:
$140.00 (3-year)
or
$153.33 (5-year)
$3.50 (3-year)
or
$3.83 (5-year)
$16.67 (3-year)
or
$30.00 (5-year)
$0.42 (3-year)
or
$0.75 (5-year)
$57.60
$1.44
$57.60
$1.44
$60.48
$1.51
$18.72
$0.47
$2,388.78 (3-year)
or
$2,233.09 (5-year)
$59.63 (3-year)
or
$55.74 (5-year)
$1,641.02 (3-year)
or
$1,543.52 (5-year)
$40.97 (3-year)
or
$38.52 (5-year)
(A (3-year) = (($0 + $0 + $600)/36) + (4 × $185)/6) (5-year) =
(($0 + $0 + $600 + $600 + $600)/60) + (4 × $185)/6)
B (3-year) = (($0 + $0 + $600)/36) (5-year) = (($0 + $0 +
$600 + $600 + $600)/60))
14. Data Handling, Result Entry, and Archiving Staff Cost:
The clinic is computer literate so they will scan their in-clinic
report into the hospital information system. The labor cost to
scan the reports is approximately eight minutes per report and
billable profile. Staff compensation is $11.00 per hour.
(A and B = ($11.00/60) × 8 x 40)
15. Facility Cost:
Total clinic square footage = 3,800 sq. ft. Chemistry area square
footage (including instrument, staining area, and microscope
reading site) for Analyzer A = 32 sq. ft. and for Analyzer B =
10 sq. ft. Facility costs per month (including lease, utilities,
cleaning, etc.) = $7,200 per month.
(A = (32/3,800) × $7,200 B = (10/3,800) × $7,200)
Total In-Clinic Cost:
ABOUT THE AUTHOR
Dr. Leeth has provided routine and experimental clinical pathology services to veterinary practices, academia,
and pharmaceutical companies for more than 15 years. He has also been a consultant for pharmaceutical and
development companies, equipment manufacturers, reagent manufacturers, and veterinary clinics. His consulting focus has included veterinary clinical pathology protocols, diagnostic kits, testing, study design, result interpretation, and equipment implementation. His interests are aimed at developing new diagnostic strategies,
diagnostic tests, and interpretive guidelines for veterinary practices.
12
Part 3 of a 3-part series