There is a fundamental, inherent flaw in the current methodology for benchmarking clinical laboratories—we only measure half of the value equation. Why do we only measure costs and not revenue? It is because most hospitals still view lab as a cost center rather than profit center.
The reality is that hospital laboratory businesses are growing in size. In our 13th Comprehensive National Laboratory Outreach Survey, the average and median outreach programs were $19 million and $11 million, respectively, with an average contribution margin of 28 percent. Businesses of this size and profitability deserve some respect! At minimum, the revenue should appear in the value equation. It is nonsensical to measure only costs. It goes against the rules; it’s like:
- Peanut butter without jelly.
- Biscuits minus gravy.
- Adam without Eve.
- Milk without cookies.
One of our clients called me in a panic because she was told she had to reduce 20 FTEs in the hospital laboratory. The basis for the decision was a ranking in the 30th percentile for unit cost (where the 100th percentile is the best performer). The analysis was performed by a general consulting firm that did not understand the complexities of the laboratory. We used the exact same data submission and changed only the peer group, comparing this laboratory to other laboratories with comparable outreach volume (greater than 50 percent). Laboratory performance improved by 43 percentiles! The results are shown in the table below:
I’ll always remember my first consulting project. A senior VP of a community hospital in the mid-Atlantic region asked us to validate a report by the state hospital association that his lab was overstaffed by 33 percent. During my first visit, I knew the report was at least directionally correct without having looked at any data. The lab was not busy. Techs were mulling around. There were the surreptitious glances from the staff and the occasional magazine on the bench. Lab management insisted that they were appropriately staffed.
You know this story does not end well; we confirmed the hospital association report despite fervent claims to the contrary. What was surprising to me was that these folks were not being disingenuous. They truly believed that they were busy, that they were working hard! How could there be such a gap in perception? Continue reading
Benchmarking is a valuable tool for internal comparison within systems, internal comparison within one lab over time, or external comparison to other labs of similar size and complexity. It is not a precision tool—it provides directional guidance, but it is not an absolute.
After all, there are dozens of factors that come into play: the comparison criteria, the composition of the peer group, the services you offer, the extent of automation, whether phlebotomy is performed by the lab or nursing, whether you have an outreach program, the size of your business. The list can go on for pages because labs are complex. They are anything but homogeneous. Continue reading