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Reequipping the lab: how to win approval for acquisitions.

More than anything else, detailed financial justification and the promise of improved service help laboratories gain administration approval for proposed instrument acquisitions.

Seventy-five per cent of the laboratory management participants in our instrumentation survey cited presentation of c st data as a leading factor in the administration approval, while 72 per cent mentioned service improvements (see Figure 1). Presentation of revenue impact, often accompanying cost data, ranked third with 56 per cent.

Laboratories also support their case for a proposed acquisition by showing that instrument replacement is scheduled (cited by 44 per cent of the respondents) or overdue (41 per cent). Another factor, related to service improvements and mentioned by 33 per cent of the respondents, is physician demand for new tests or better laboratory performance on existing tests.

"Before prospective payment came along, you could justify purchase of an instrument on the basis of its technology alone," the hematology supervisor at a large New Jersey hospital says. "Now a good cost-benefit ratio has to be there as well. The paperwork is much more extensive than it used to be. The background a manager requires to handle this kind of justification is far greater than the minimal business background needed before."

When David L. TerHark, chief medical technologist at 400-bed Southeast Alabama Medical Center in Dothan, recites some of the things that go into his laboratory's instrument proposals, it sounds like the summary of a course he must have taken while working for his master's in business administration: "use of cash flow analysis, sensitivity analysis, computations of net present value, break-even volume, internal rate of return, reduction in variable production costs. . ."

These tools are applied to alternative products and alternative ways of acquiring them (purchase, reagent rental, lease), to determine the true acquisition cost over the lifetime of each instrument under study.

"I haven't been turned down for a single proposal I've submitted in all the eight years I've been here," TerHark says. Of course, if his analyses do not favor an acquisition, he will not submit a proposal.

"The number crunching doesn't take much time at all," he says, "because most of us who do these kinds of analysis have spreadsheets and other software applications on microcomputers. What does take time is gathering the numbers from equipment vendors and making sure you have a good handle on costs and volumes in your own laboratory."

Jim Breck, a medical technologist with a master's in management, is laboratory manager at 283-bed Yuma (Ariz.) Regional Medical Center. He says a lengthy justification is usually required for instrument acquisitions at his institution. This includes a study of different means of acquisition, with net present value calculations, and analyses of expected revenue and the long-term expense of operating the proposed new instrument.

Labor savings from proposed instruments, in terms of College of American Pathologists workload units, are part of the justification, as are maintenance log data to document increased downtime and more frequent repairs on aging current instruments. "It's very hard to quantify, but we at least indicate that downtime has a cost in terms of our not being able to provide a service over an extended period of time," Breck comments.

"We usually try to make an economic justification rather than a technical justification," he adds. The hospital's biomedical engineering staff contributes its own analysis of proposed instruments from the standpoint of the technology involved and maintenance and utilities requirements.

Thomas J. Strukl, another M.B.A. and laboratory manager at the 356-bed Humana Hospital in Hoffman Estates, 111. , notes that instrument purchases, which represent a one-time outlay, are easier to justify than the ongoing expense of additions to staff at his for-profit institution. "We can justify capital equipment by demonstrating that it's going to cost less per test, it's going to be more efficient, it will take less technologists to operate, and it will provide better service to physicians."

We asked whether laboratories have generally been able to obtain administration approval for requested major instrument acquisitions in the last three years. The batting averages are shown in Figure 11: 72 per cent of the labs generally got what they wanted in 1987, 79 per cent in 1988, and 63 per cent this year. The 1989 decline isn't as bad as it looks-21 per cent of the labs didn't make a major instrument request this year, compared with only 10 per cent last year.

Forty-four per cent of the laboratories surveyed reported difficulty winning approval for their instrument requests in recent years, mainly because of their institutions' financial condition. Conversely, the majority (56 per cent) had no difficulty.

Here are comments from other survey respondents on different aspects of justifying instrument acquisition proposals:

*Faster turnaround time, 24hour availability, and no required increase in staff are three primary justifications."

*If an instrument can improve productivity, reduce Labor costs, and introduce new tests or otherwise improve service, then it will be a go."

*Administration has required a reduction in the number of fulltime equivalents with each instrument acquisition."

*Priority is given to laborsaving instrument purchases."

*Our administration is open to improving service and keeping up with the latest advances in technology. "

*Our hospital's board of directors is very receptive to keeping the laboratory up to date with current technology."

*Approval at this 35-bed rural hospital simply means discussing lab needs with the primary M.D. and getting his 'Yes.' "

*We have met with somewhat less resistance in the last year or so, thanks to a change in administration. There was extreme resistance in 1985-86 for irrational geopolitical reasons."

*The instrument we replaced was 13 years old; downtime was getting to be a real problem."

*The old Na/K analyzer fell apart. It was 20 years old, and we could not obtain replacement parts."

*The lab is allotted a specific amount of equipment money per fiscal year. If one instrument uses all of that money, we only get one instrument. "

*We are in competition with other ancillary departments for funds."

*It's a question of whether other hospital capital expenditures, such as for a lithotripter, are more or less important than the laboratory's request." n
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Copyright 1989 Gale, Cengage Learning. All rights reserved.

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Title Annotation:part 2
Author:Benezra, Nat
Publication:Medical Laboratory Observer
Date:Aug 1, 1989
Words:1018
Previous Article:Management practices with a foreign flavor.
Next Article:Reequipping the lab: a brisk pace of renewal.
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