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Financial management of the laboratory: how to improve present systems.

Financial management of the laboratory: How to improve present systems

When it comes to financial management, hospital laboratorians would like more detailed cost and revenue data, more computer assistance, more timely fiscal reports, and more input into budgeting and cost accounting.

These desired improvements head the list of responses by laboratory directors, managers, and supervisors to this MLO survey question: "What changes, if any, would you like to make in the system of financial management used in your institution?" (See Figure I.)

Let's examine the responses:

Improved information. Some members of MLO's Professional Advisory Panel would like financial information broken down by section of the laboratory--a feature already provided at 62 per cent of the hospital laboratories surveyed, as reported in the preceding article.

John Chavez, laboratory manager at 80-bed Heights General Hospital, Albuquerque, N.M., desires the use of similar budget formulas from year to year. "I'd like to see more consistent information based on utilization history," he said. "Most laboratories are working under some workload recording system. So any budget should be based on the cost of a workload unit.

"We can also consistently tie in our revenue with the same statistics. My efforts are to standardize the information year to year for my department. That way I can more readily measure the impact of prospective payment systems and all changes in reimbursement."

More computer assistance. As Part I of this special report noted, computers are used for laboratory cost analysis and budgeting in 71 per cent of all hospitals--78 per cent of those with 300 or more beds and 65 per cent of smaller hospitals. Not surprisingly, calls for improved or first-time computer assistance come somewhat more often from smaller institutions.

Theresa Keene, laboratory manager at 217-bed South Suburban Hospital in Hazel Crest, Ill., said her laboratory now prepares budgets manually by section but is in the process of computerizing. "The sections prepare their own forecasts, and I put it together into a laboratory projection for the hospital finance department. Section supervisors are accountable for actual costs in their area."

The hospital finance department uses a computer to prepare both an annual projected budget for the lab and a monthly cost report. Keene reviews the cost data and, with the help of supervisors, investigates variances from budget, making operational adjustments where necessary.

A blood bank supervisor described ample computer assistance in and outside the laboratory for cost analysis and budgeting at her mid-size Ohio hospital. She wants one more thing, however: "a reference lab computer module to allow the lab to handle outpatient and client billings separately from the hospital billing system."

More input from lab. Panelists at smaller hospitals, more often than those at larger hospitals, feel a need for increased input into financial management of their labs. John Fitzgibbon, laboratory manager at 67-bed Harbor Beach (Mich.) Hospital, wants more say on budget preparation. After the hospital cut 1.3 out of 5 full-time equivalent lab positions, Fitzgibbon said administration expected the lab to produce the same volume of tests faster. "I'm not totally dissatisfied with my situation, but they aren't looking at the humanitarian side, just at the bottom-line side of it. They tell me, 'You can't staff for every eventuality,' and that's what I tell the physicians when they don't get their results on time."

Cost accounting and initial budgeting for one small California hospital laboratory is performed outside the lab. The lab manager said she would like the hospital to accept more input from department managers. "I would like to have my CEO believe me. I've been in the field for 21 years and a manager for 13, but if there's a question, new plan, or change, consultants are hired. So far, none of them has presented anything different from the ideas my employees and I had put forth."

More timely financial reports. Many weeks can go by before financial data filter down to hospital laboratories. In Hazel Crest, Ill., Theresa Keene usually receives monthly reports from South Suburban Hospital's finance department after 90 days have elapsed. Earlier delivery would enable her to make better use of the financial information, she said.

Similarly, a laboratory manager in an Ohio hospital said, "We need faster feedback. The financial reports come three to four weeks after the end of the month, which only delays action on problems or lets them continue for another month before they are corrected."

More frequent updates of cost analysis data, on which test fees are often based, would also help in some laboratories. "By the time we get the one that's in progress done, it will have been three years between cost analyses," said Lucia Berte Bachert, technical director of the blood bank at 500-bed Elmhurst Memorial Hospital in Elmhurst, Ill. "Ideally, this would be done annually, but even every 18 to 24 months would be good.

"At this hospital, they base your budget on the old cost analysis with a fudge factor for inflation. But it's not necessarily accurate if there have been major changes in testing protocols."

Other financial management changes sought by panelists include a test fee structure that is more in line with costs or based on actual instead of billed revenue, and information about reimbursement and collection ratios.

Notably, 14 per cent of the respondents said they are satisfied with their present systems and want no changes. Among the satisified is Mary Gourley, laboratory manager at 255-bed South Side Hospital in Pittsburgh. Four years ago, the finance department turned over budgeting responsibilities to individual hospital departments, and Gourley has come in under budget two years in a row, by 1 per cent and 3 per cent.

She occasionally has to confer with the finance department: "If they feel the amount we require is extravagant, we sit down with them and there's give and take. We usually get what we need."

Variances from budgeted expense and revenue figures are delineated in 94 per cent of the hospital lab financial reports (see Figure II). Is follow-up action ever taken on negative budget variances during the year? Yes, said 85 per cent of the panelists. The most frequently cited examples were a decrease in staff hours, other cost reductions, a review of what caused the negative variance, and explanation of the variance to hospital administration.

Brian Baldridge, technical operations manager of Strategic Ventures, a subsidiary of 934-bed Charleston Area Medical Center in West Virginia, said, "Supply costs are the only thing directly under our control. For instance, we had enough volume to work out a special vendor's contract for phlebotomy supplies. Direct negotiations for lower prices from vendors is about the only way we can go when trying to eliminate a negative budget variance."

Barbara Caldwell, administrative director for laboratory services at 437-bed University Hospital of Jacksonville (Fla.), told MLO, "We have supplies delivered twice a week, because of a big contract we have. So if we have a two-week supply of an item, we'll cut back to a two- or three-day supply. That way we don't have to pay a lot of cash up front."

Caldwell, who works in a busy teaching hospital, also tries to cut waste wherever possible. "Technologists identify inappropriate use. We do a lot of one-on-one work with residents, who usually are the ones responsible for overutilization.

"We also check for waste among technologists. We expect to get results from 90 per cent of most kits. If we get only 50 results for every 100 kits used, that is not efficient. For example, we found that on one of the shifts, technologists at times got busy and didn't complete rapid pregnancy tests that they had set up. So they would throw the tests away and set up new tests."

MLO also asked whether unplanned major expenditures are ever added to the hospital lab budget during the course of the year. Seventy per cent of the panelists said they were. While this may suggest a fair degree of budget flexibility, examples indicated that instrument emergencies, requiring either repair or replacement, were the main reason for unplanned expenditures. Seventy-seven per cent of the panelists mentioned such outlays, compared with 5 per cent who mentioned spending for additional personnel.

Here are a few of the items above budget that laboratories across the country have added: extra kit outlays because of a new HIV blood testing program, additional personnel to handle an unexpected rise in number of tests ordered, new refrigerators and centrifuges, specialized instruments to support liver transplants, a lithium analyzer for one hospital's new psychiatric unit, and a large supply of rubber gloves, because of a hospital's new infection control policy requiring phlebotomists to wear gloves.

When laboratories go over budget, they must sometimes submit responsibility reports or other formal statements explaining why. A Midwest laboratory manager said, "We have to submit justifications for spending over the budgeted amount, but the hospital administration is receptive to our needs. If something unexpected happens, it really doesn't create a problem. The money is found somewhere."

This report concludes with comments from a laboratorian who has been thinking about the big picture. He believes that laboratories nationwide can and should adopt a standard method of cost accounting and budgeting. At the Heights General Hospital laboratory in Albuquerque, John Chavez is coordinating a difficult change in accounting and budgeting procedures brought about by a management transition. His hospital was run by a national chain but is now operated by a local hospital system under a management contract. The laboratory is in the process of completely changing its methods of reporting finances.

"The laboratory is an integral department of any hospital operation, so I think whatever principles are standardized for hospital accounting should be well known throughout the entire laboratory industry," Chavez said. "Whatever financial principles apply to all departments in hospitals should probably be consistently maintained from one laboratory to another between hospitals.

"Of course, this would be complicated by different organizational structures. For example, you have joint ventures between hospitals and reference labs, as well as laboratories providing services to hospitals under contract. Probably the most difficult aspect of standardizing a budget or cost accounting approach to laboratories would be that their organizations are so varied."

Table: Figure I How can financial management of your lab be improved?

Table: Figure II Do financial reports show variances from budget?

If yes, is follow-up action ever taken on negative variances?

Are unplanned major expenditures ever added to the budget?
COPYRIGHT 1988 Nelson Publishing
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Copyright 1988 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Special report - part 2
Author:Gore, Mary Jane
Publication:Medical Laboratory Observer
Date:Mar 1, 1988
Previous Article:Financial management of the laboratory: who does it and how?
Next Article:Financial management is more than monitoring a budget!

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