Measuring Productivity

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Measuring Productivity

The final step in the cost analysis study is to create a number of indices from the data collected that will allow for regular monitoring of the productivity of the laboratory and the dissection of the various cost factors. A revenue study alongside the cost study is helpful for the institutional finance officer to assess the laboratory's productivity as it relates to profit.
Table 5 describes several productivity indices generated from the clinical chemistry cost analysis and revenue analysis study at Sunshine Medical Center. A quarterly study is beneficial as it allows the decision-makers to see downturns and upturns in productivity and profit margins seasonally. A lowering of the productivity indices indicates an increase in productivity. In contrast, one would expect that when the cost indices go down, the revenue indices will go up unless there is a change in reimbursement for tests performed. Revenue determination for the cost/revenue center being evaluated is determined in conjunction with the institution's finance department. In the hospital setting, for laboratory services paid through DRGs and Capitation, a fee must be established within the institution on the amount they credit for each test performed for the return on investment ratios.
Table 5. Productivity Indices.
Clinical Chemistry Laboratory Sunshine Medical Center Quarterly Report
Reportable Tests20,000
Direct Cost 130,000Resource Utilization Direct Cost/Reportable Test6.50
Indirect Cost10,000Indirect Cost/Reportable Test0.50
Total Cost140,000Total Cost/Reportable Test 7.00
Supply Cost30,000Total Supply Cost/Reportable Test1.50
Equipment Cost25,000Equipment Cost/Reportable Test1.25
Labor Cost85,000 Productivity of Work ForceLabor/ Reportable Test4.25
Technical Labor75,000Technical Labor/Reportable Test3.75
Non-technical Labor 10,000 Non-technical Labor/Reportable test 0.50
Revenue200,000 Return on Investment RatioRevenue/Reportable Test10.00
Profit Margin60,000Profit Margin/Reportable Test3.00
Patients Seen in Facility5,000Revenue/Patients Seen in Facility 40.00
The quarterly or monthly monitoring of the resource utilization indices is useful for assessing laboratory productivity over time. The total productivity index is the total laboratory costs per patient reportable test (PRT). Although this presents the big picture, it does not give much information on the underlying issues if it shows a change in productivity, either upward or downward, from the previous period. The other utilization indices listed in Table 5 are more specific than the overall productivity indices and can be quite helpful in identifying specific problem areas. For example, suppose the Indirect utilization index has increased. In that case, it could be due to the laboratory adding an administrative secretary or increasing the indirect expenses allocated to the laboratory by the institution. If the Direct cost index goes up, it may be due to the rise in supply costs such as reagents and/or disposables. Suppose supply and or reagent costs are elevated. In that case, one may need to investigate if there was a significant increase in vendor supply costs and determine if the laboratory needs to ask for competitive bids from other vendors.
Productivity of the workforce indices is effective to measure as it can be used to evaluate staffing needs, the effective management of the workforce, and workflow efficiency. If there is a significant increase in the technical labor productivity index during a certain quarter, there may be a need to reduce staff or adjust the workflow. In many health care regions, test utilization is seasonal, with some quarters having greater test utilization. In quarters with low test utilization, technical labor reductions may be warranted; conversely, increased technical labor may be needed in high test utilization quarters to avoid excessive overtime. In cases where small test volumes are a consistent issue, it may require an adjustment in the workflow, such as running the tests every other day instead of daily.
The return on investment ratios is the indices the finance department is most interested in as they reflect the financial health of the laboratory. The higher these indices, the more profitable the laboratory.
A productivity calculator is provided in the resource section.