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The following questions and answers are from the Cardinal Health Lab Briefings webinar entitled: Laboratory Finance: 101 and Beyond held live on May 19, 2021. The views, opinions, and guidance expressed below are those of the webinar presenter and do not express the views, opinions or guidance of Cardinal Health or Whitehat Communications.

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How can I cost-justify bringing in certain new tests or implementing new services for patients?

Cost-justification can go beyond a profit and loss/return on investment calculation. Many procedures we perform in the laboratory do not generate a profit based upon reimbursement, rather they are used to stratify the patient’s risk, thereby avoiding other downstream healthcare costs. Two examples are MRSA and C. diff testing. Many literature examples are available. Example:
Practice forum Infection preventionists and laboratorians: Case studies on successful collaboration Article in American Journal of Infection Control, April 2016, DOI: 10.1016/j.ajic.2016.02.011

Why is labor listed under both fixed and variable cost?

In the laboratory, technical effort varies based on the procedures performed. Variable labor is also known as hands-on effort: the more procedures you do, the more time it takes you. Many manual laboratory procedures and pre-analytic processes (phlebotomy, data entry) are variable in their labor requirements.

Conversely, fixed labor does not vary greatly with volume fluctuations. An example of fixed labor is management personnel. An example of fixed labor that has a variable aspect is a technologist that is responsible for running a highly-automated analyzer. Their productivity is largely dependent upon the throughput of analyzer. Certainly, that employee is required to run the testing, but the labor cost is the same whether the instrument is running at capacity or not. Use caution when assigning a labor cost to a highly-automated procedure. 

How can I calculate contractual allowance?

A contractual allowance (or contractual adjustment) is the difference between what a healthcare provider bills for the service versus what it will paid based on the terms of its contracts with health plans (insurance) and/or government payors. Simply stated, it is the percentage of reduction from your charged amount. If your contractual allowance is 75%, you receive 25% of what you billed.
Example: $100 charged rate - minus $75 contractual allowance equals $25 collected revenue. 

How can I learn more about laboratory finance?

Professional associations provide many resources for their members. The Clinical Laboratory Management Association (CLMA) provides a Body of Knowledge that defines critical laboratory leadership competencies across 10 domains. The Financial Management Domain provides a support for developing sound financial management practices at all levels of experience. Topics include budgeting, financial and managerial accounting, using accounting information for decision making, and financial management, including assets management with an emphasis on cash flow analysis. Learn more at 

How can the laboratory learn to speak “CFO”?

In addition to the CLMA resource noted in the above question, the Healthcare Finance Management Association provides a broad range of resources for professionals across the spectrum of financial roles within healthcare. It is likely that your CFO and/or finance VPs are members of HFMA. 

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