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 13^th 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.

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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 30^th percentile for unit cost (where the 100^th 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:

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