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Lab Management
Effective Budgeting
| Question | Answer |
|---|---|
| Budget | A business tool used for effective resource management |
| Resource Management | Justification of resources for expected results Cost-accounting Identifies, defines, measures, reports, and analyzes the elements of costs associated with providing a unit of output (test) Assigns allocated costs to that test Constant justification |
| Operating Budget (A tool for lab managers throughout the year) | Overall plan for coordination of resources A plan for identification of resources and expenditures A plan for projections |
| Operating Budget | A Communication tool to be used with internal and external customers |
| Types of Operating Budgets | Fixed; Flexible; Program; Appropriation; Rolling Zero-based |
| Fixed Budget | Assumes a single level of activity and the entire budget is built around that level; not a tool to monitor and control resources during change. |
| Flexible Budget | Reflects expected lab revenue and expenses and it anticipates changes Expenses: fixed and variable |
| Program Budget | Based on a specific program matrix Includes related activities, services, staffing, and equipment related to the program Used for short term planning |
| Appropriation Budget | Outside agency reviews the budget in detail & authorizes specific dollars; Common in government; Dependent on outside source of funds |
| Rolling Budget | A continuous budget that is updated periodically in preparation for the next budget cycle; A rolling budget for a 12-month period is reviewed & revised quarterly; used for cash projections |
| Zero-based Budget | Reviewed annually Re-evaluates all activities to decide whether to eliminate or fund Project approval based on funding levels and availability as determined by priorities |
| Lease vs. Purchase | Lump sum capital not available Monthly payments spread over time Based on purchase price plus interest, taxes, insurance, maintenance No money down 100% financing @ fixed rate |
| Reagent Rental Agreement | Cost of instrument included in the reagent cost charged by vendor No capital costs |
| Successful Budgets | Clear goals and objectives that guide resource allocation Detailed statistical data, economic trends, accurate information about clients |
| Successful Budgets | Define budget period and procedures for development of the budget Reports to identify actual financial and statistical information for comparison with the budget and for variance analysis |
| Three Segments for the Complete Budget | Income forecasting Expense budget Cash flow projections |
| Common Budgeting Problems | Losing sight of objectives; Overbudgeting Not enough revenue; Other variances indicating something is wrong with the budget |
| Solutions | Focus decisions toward clear objectives; Think of the Budget as a standard and focus performance against it; Analyze monthly variances; Identify ways to reduce expenses or increase income |
| Historical-based Budgeting | Budgeting above 100% of the previous year Total monies spent in previous year is divided by 12 Add a percentage for inflation for upcoming year |
| Variance Explanation | Go back to the original assumption Identify real problems, offer solutions Use the Budget as a guideline and process that monitors Don’t lay blame on previous years Don’t ask for a budget increase for this year based on last year’s failure |
| Budget Justification | Compare the budget to the actual expenses Determine the accuracy of the forecast Use Budgeting Standards |
| Budgeting Standards | Review and prepare justifications monthly; Present recommendations for corrective action; Make sure that the actual results are not manipulated; Make all staff aware of budgetary limits and goals |
| Percent Variance | (YTD-Forecast)/Forecast |
| Variance | YTD- Forecast |
| Four phases in budget preparation | Development of Goals; Budget Assumptions; Forecast of Expenses; Monitoring |
| Phase I: Development of Goals | important that the goals developed by the laboratory are in line with the organizations mission statement and strategic objectives. |
| Phase II: Budget Assumptions | The organization projects a budget based on past earnings, cash flow, and changes in state or federal laws affecting reimbursement; lab formulates budget assumptions on annual test volume and revenue generated |
| Phase III: Forecast of Expenses | Capital Expense vs. Operational Expense; Justification categories and priority of need Prior to any capital purchase, it is wise to do a 5-yr cost analysis comparing the cost of your current system to the cost of newer technology. |
| Capital Expenditures | calculated for a 3-yr cycle and are considered investments; Justification categories and priority of need are required when evaluating capital expenditures |
| Justification Categories | Replacement; New Equipment;Cost Reduction |
| Priority of Need | Essential; Necessary; Desirable; Other |
| Cash Purchase | advantageous for equipment expected to keep for > 5 yrs. |
| Equipment Lease | often used with an open system – you pay a monthly fee for the use of the equipment but are free to shop for the most economical reagent system |
| Reagent Rental | require the purchase of a fixed volume of a specific manufacturer’s reagents. The cost for the use of the equipment is calculated into the reagent cost |
| Prior to any capital purchase, it is wise to do a 5-yr cost analysis comparing the cost of your current system to the cost of newer technology. | Equipment cost; Cost of service contract; Reagent cost; Technologist time; Cost to the client/patient; Medicare reimbursement |
| Operational Expenses | encompass a 12-month cycle and is just what the name implies – the expenses required to operate a lab. |
| chart of accounts | Expenditures are grouped into categories: Salaries including cost of benefits Reference lab fees Education and travel Departmental fees Transfusion service operating cost & blood supply cost Purchased service and maintenance Other direct expenses |
| Phase IV: Monitoring | expense reports are reviewed monthly for budget variances. |
| Budget variances | Increased volume; Vendor price increase; Changes in policy and procedure |
| Cost per Test/Cost per Unit of Service important because: | Evaluating different methodologies To formulate managed health agreements whereby the hospital offers service at a discount Calculating the amount of free community service |
| Instrumentation Impact on Lab Costs | Capital acquisition; Consumables; Cost per reportable; Direct costs; DRGs; Fixed costs; Lease; Marginal cost analysis; Operational efficiency; Price protection; Service Contract; Variable costs; Workstation consolidation |
| Capital Acquisition | The purchase or lease/rental of clinical laboratory instrumentation |
| Consumables | Disposable supplies used to produce test results |
| Cost per Reportable | All direct costs directly related to producing a patient test result |
| Direct Costs | Only those costs incurred as a direct result of producing a test result. Indirect costs, such as administrative costs, would not be included in this calculation. |
| DRGs (Diagnosis-Related Groups) | A prospective payment system used by Medicare to classify all hospitalized patients into one of approx. 500 diagnosis-related groups. The hospital receives a fixed payment per DRG to cover operating costs. |
| Fixed Costs | Costs that do not vary as test volume increases. Examples are rental payment, interest on debt, depreciation of equipment, and wages of a skeleton staff that would be employed as long as the hospital stayed in business even if it produced nothing. |
| Lease | A contract that allows for the renting of instrumentation for a specified time under specified terms. |
| Marginal Cost Analysis | The additional cost incurred as output expands. It is cost associated with producing an additional patient test result. |
| Operational Efficiency | Making the fullest utilization of available inputs. Alternatively, minimizing the use of inputs to produce the desired level of test results. |
| Price Protection | An agreement whereby the vendor agrees to limit price increases by an agreed-upon amount during the term of the agreement. |
| Service Contract | Contracts whereby the vendor agrees to supply maintenance and repair of instrumentation. A contract could cover response time and hours and days (i.e. including weekends) during which the services will be provided. |
| Variable Costs | Costs that change as output (i.e. test volume) fluctuates. |
| Workstation Consolidation | Reducing the number of laboratory instruments needed to meet testing demands. |
| Determining the Cost of a Test | All direct costs to produce a reportable patient result; Cost per test vs Cost per reportable; Determine total number of tests to be performed per month; reagent costs; monthly costs for supplies; cost per month for the capital and service of the analyzer |
| Technology helps minimize operating costs through | Barcode readers for patient id and reagents Enhanced data management capabilities Broad test menus On-board quality control Fully automated counting analyzers Interfacing with host computer |
Created by:
kashe220
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