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Financial management of the laboratory: who does it and how?

Financial management of the laboratory: Who does it and how?

Managing hospital laboratory finances has become a more critical activity in the current era of prospective payment and intensified health care competition. Most of the responsibility for this activity falls to laboratory management rather than financial or accounting experts in other departments.

Specifically, it is the laboratory manager who plays the biggest role in budget preparation and cost accounting. Section supervisors contribute support in both areas, and laboratory medical directors often get involved in the budget process.

These findings come from a nationwide survey of more than 130 hospital laboratory management members of MLO's Professional Advisory Panel. A large majority of hospital panelists, 73 per cent, have studied financial management since college through courses, seminars, or workshops. This trend is strongest at larger hospitals (300 or more beds), where 80 per cent of the panelists have continued their financial education, versus 67 per cent of those at smaller hospitals.

As Figure I shows, 65 per cent of the hospital laboratories initially prepare their own budgets without any outside assistance, 24 per cent put together their budget with the hospital administrator in charge of the lab or an outside budget analyst, and 11 per cent are simply presented with a budget that was prepared elsewhere in the hospital.

A breakdown of these findings by hospital size indicates that larger hospital laboratories enjoy more autonomy in budget preparation. At hospitals with 300 or more beds, 73 per cent of the labs initially prepare their own budgets (versus 58 per cent at smaller hospitals), 18 per cent perform the task with an administrator or outside analyst (29 per cent at smaller hospitals), and 9 per cent receive budgets drawn up by an outside department (13 per cent at smaller hospitals).

At 95 per cent of the hospital laboratories with input into the budget, the lab manager takes part in the process; at 58 per cent, section supervisors participate; and at 55 per cent, the lab medical director takes part. Supervisors in larger hospitals get involved more often then those in smaller hospitals --83 per cent versus 38 per cent. The same holds true for medical directors--70 per cent versus 44 per cent.

Cost accounting, or the systematic analysis of lab costs, is primarily performed in the lab at 61 per cent of the hospitals and by outside departments at 39 per cent (Figure II). Sixty-nine per cent of the labs in larger hospitals conduct their own cost accounting, compared with 57 per cent in smaller hospitals. As noted earlier, the laboratory manager with the assistance of section supervisors usually performs the cost accounting or provides input for it when other departments handle the function.

Supply cost and salary data head the list of information gathered for cost accounting, compiled by 97 and 93 per cent of the laboratories, respectively. Nearly 90 per cent also gather instrument cost data, including depreciation, leasing costs, and maintenance; and more than 80 per cent gather test cost and workload recording data. Use of workload recording data in cost accounting is more prevalent in larger hospitals (89 per cent) than smaller hospitals (76 per cent).

Seventy-three per cent of the labs compile staff hours; 67 per cent, revenue data; and 63 per cent, allocated or indirect costs.

In 62 per cent of the labs, accounting information is provided for individual sections besides the department as a whole. Three-quarters of these labs use a coding system to identify expenses by section.

Patrick Maul, laboratory manager of 213-bed Marietta (Ohio) Memorial Hospital, persuaded his administrators to switch to section accounting in 1982. He said it is a lot easier to keep track of expenses and revenues now. "It also becomes easier to figure out where you're off target with regard to the lab budget. Instead of reporting that you're $2,000 over for lab supplies, you can see right away that you're over by $2,000 in chemistry."

Computers are used for laboratory cost analysis and budgeting in 71 per cent of all hospitals, less often in smaller hospitals (65 per cent) and more often in larger hospitals (78 per cent).

Barbara Caldwell, administrative director for laboratory services at 437-bed University Hospital of Jacksonville, Fla., said her lab uses microcomputers, the laboratory information system, and the hospital information system to manage its finances. "We get billables by patient by day from the hospital information system. The cost per test we get off our microcomputers in the laboratory. If I know that I'm collecting $3 on a CBC and it only costs $1.50, I'm making a little money. But if I'm getting $3 and it costs $2.50, then I'll look for a way to cut costs on that test." The lab's cost per test analysis is updated on the microcomputers when a procedure is changed or added; otherwise, this information gets updated annually.

The chemistry supervisor of a mid-size Texas hospital laboratory, noting that the lan won't get its finances fully onto a computer system until August, said manual budgeting and cost analysis have been "very difficult." But her laboratory manager does receive hospital computer printouts of reagent, maintenance, and other costs by section, and uses this information to synthesize new budgets and cost accounting data for the lab.

Among other survey highlights:

Financial reports. Monthly financial reports are issued in 87 per cent of the hospital laboratories, quarterly reports in 8 per cent (Figure III). While 89 per cent of the hospital labs receive lab revenue figures, only 16 per cent get financial reports that distinguish between the amount billed and actual revenue received.

Contractual payments (Medicare, Medicaid, and indigent care programs) account for 48 per cent of hospital laboratory charges and 51 per cent of hospital billings. Twenty-one per cent of the hospitals allocate revenue to their labs for each inpatient's DRG.

Brian Baldridge, technical operations manager for Strategic Ventures, a subsidiary of 934-bed Charleston Area Medical Center in Charleston, W. Va., said 60 to 70 per cent of his hospital's total billings are accounted for by contractual arrangements with Medicare, Medicaid, and indigent care programs. "The basic problem with this is that the state regulatory agency looks at the amount billed rather than actual revenues generated," Baldridge said. The state sets an allowable income lavel for nonprofit hospitals, and beyond a certain level, hospitals are required to "donate" money to the state. "Because they base that level on money we don't see, we're worse off," he said.

Purchasing. Seventy-one per cent of the laboratories order their supplies through the hospital purchasing department (Figure IV), rather than directly from vendors. This is done more often at hospitals with 300 or more beds (81 per cent) than at smaller institutions (62 per cent).

Whether they operate under centralized or decentralized purchasing, panelists cite benefits and drawbacks from their systems. Those who order through the hospital purchasing department say it saves the laboratory time and labor and reduces paperwork. The downside of centralized purchasing is that supplies may take longer to get to the lab and Stat orders are often difficult to fill quickly.

On the other hand, panelists who do their own purchsing under a decentralized system say they like having greater control and the freedom to select vendors and brands. But they concede that lab ordering from vendors is time-consuming, requires paperwork, and doesn't always land the best prices.

Test fees. Nearly three out of five laboratories base their test fees on test cost analysis. Labs that base test fees on other factors are usually influenced by competitive pricing in a region, historical charge patterns, or revenue requirements. See Figure V.

Robert Maiden, laboratory manager at 423-bed Alachua General Hospital in Gainesville, Fla., works out prices with his hospital's outpatient services department. While the outpatient division is under pressure to get as much revenue as possible from tests, Maiden battles to keep prices down so the lab can stay competitive locally.

Staff hours. Total paid hours are the leading measure of labor time, tabulated by 93 per cent of hospital labs (98 per cent of the laboratories at hospitals with 300 or more beds, 89 per cent of the smaller laboratories). Eighty-two per cent of laboratories also tabulate worked hours; 79 per cent, overtime; 78 per cent, vacation time; 76 per cent, sick time; and 71 per cent, holidays. Personal days, employee time spent on teaching and training, and on-call time are tabulated by about 5 per cent of labs.

Productivity goals. About half the panelists report that their laboratory and hospital administration together set lab productivity goals. Another 23 per cent say the lab sets its own productivity goals, 9 per cent say hospital administration sets the goals for the lab, and 16 per cent say goals are not set at all.

Part II of this special report follows with comments from panelists about changes they would like to see in their laboratories' present financial management systems, actions labs take to correct budget overruns, and how labs handle the need for major unplanned expenditures.

Table: Figure I Who prepares the lab budget initially?

Lab personnel involved in budgeting

Table: Figure II Where lab cost accounting is primarily performed

If in the lab, who performs it?

Are cost accounting data provided for lab sections?

Table: Figure III Frequency of lab financial reports

Does lab receive revenue figures?

Do reports distinguish between amount billed and actual revenue?

Table: Figure IV How purchasing is handled

Table: Figure V Are test fees primarily based on cost analysis?

If no, on what are they based?
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Title Annotation:Special report - part 1
Author:Gore, Mary Jane
Publication:Medical Laboratory Observer
Date:Mar 1, 1988
Previous Article:Congress to open hearings on laboratory testing quality.
Next Article:Financial management of the laboratory: how to improve present systems.

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