What is strategic planning?
Strategic planning is the process by which high levels decisions are made, and is defined as: (1) deciding on the objectives of the organization and the need to modify existing objectives if appropriate; (2) allocating resources to attain these objectives; and (3) establishing policies that govern the acquisition, use, and disposition of these resources. Strategic planning is usually based on long-term projections and a global view that can have an impact on all levels of a laboratory’s operations.
How are strategic planning and tactical planning different?
Strategic planning is usually based on long-term projections and a global view that can have an impact on all levels of a laboratory’s operations. It is different from tactical planning, which consists of the detailed, day-to-day operations needed to meet the immediate needs of the laboratory and works toward meeting the long-term strategic goals that have been set.
What is SWOT analysis?
One way to evaluate the risks associated with new strategies is the Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis. Generally, environmental factors internal to the laboratory are classified as strengths and weaknesses, and external environmental factors are opportunities and threats. This process is a particularly useful tool for guiding a marketing strategy and can be used in developing such a program.
What are TQM and CQI?
Total quality management (TQM) and continuous quality improvement (CQI) have been standard approaches to quality leadership and management for over 30 years. TQM is a systems approach that focuses on teams, processes, statistics, and delivery of services/products that meet or exceed customer expectations. CQI is an element of TQM that strives to continually improve practices and not just meet established quality standards.
What are Six Sigma and Lean?
Six Sigma and Lean are often-used quality tools. Six Sigma is a process improvement program that is a hands-on process with the single mantra of “improvement”: improved performance, improved quality, improved bottom line, improved customer satisfaction, and improved employee satisfaction. Six Sigma is a structured process that is based on statistics and quantitative measurements. Through this process, the number of defects per million opportunities (DPMO) is measured. The Lean process, first implemented by Toyota, was ultimately designed to reduce waste (“nonvalued activities”). The intent of Lean is to reduce costs by identifying daily work activities that do not directly add to the delivery of laboratory services in the most efficient or cost-effective ways. A Lean laboratory utilizes fewer resources, reduces costs, enhances productivity, promotes staff morale, and improves the quality of patient care.
What is DPMO, as it relates to Six Sigma?
Six Sigma is a process improvement program that is a hands-on process with the single mantra of “improvement”. Six Sigma is a structured process that is based on statistics and quantitative measurements. Through this process, the number of defects per million opportunities (DPMO) is measured. A defect is anything that does not meet customer requirements, for example, a laboratory result error, a delay in reporting, or a quality control problem. So, if a laboratory sends out 1000 reports and finds that 10 are reported late, it has a 1% defect rate; this is equivalent to 10,000 DPMO. The goal of Six Sigma is to reduce the number of defects to near zero. The sigma (σ), or standard deviation, expresses how much variability exists in products or services. By reducing variability, one also reduces defects. Thus, one sigma represents 691,463 DPMO, or a yield (i.e., percentage of products without defects) of only 30.854%, whereas the goal of Six Sigma is to reach 3.4 DPMO, or a 99.9997% yield. Most organizations operate at or near four sigma (6210 DPMO).
What is ISO?
It is a more focused and stringent approach to quality system management. In a cooperative effort, the International Organization for Standardization (ISO) established guidelines that reflect the highest level of quality. The ISO 15189:2007 has been adopted by CAP in an effort to improve patient care through quality laboratory practices. A laboratory that meets or exceeds these guidelines can be CAP-certified, indicating a high level of confidence in the quality of services provided by that laboratory. In a similar fashion, the CLSI has created 12 Quality System Essentials based on ISO standards.
What are the 12 Quality System Essentials created by CLSI?
The Clinical and Laboratory Standards Institute has created 12 Quality System Essentials based on ISO standards. Each of these 12 areas serves as a starting point in establishing a quality system that covers pretesting, testing, and posttesting operations. The 12 elements are: organization, personnel, documents and records, facilities and safety, equipment, purchasing and inventory, information management, occurrence management, assessments - internal/external, process improvement, customer service, process control.
What is a “workcell?”
In the functional design of a laboratory, a single testing platform is a single analyzer, a workcell is two or more linked instruments, and total laboratory automation is a workcell with preanalytic and postanalytic processing.
As of 2011, how many states require laboratory personnel licensure?
13: CA, GA, LA, NV, ND, RI, FL, HI, MT, NY, PR, TN, WV.
What is CLIA ‘88?
The Clinical Laboratory Improvement Act of 1988 (amended 1990, 1992) established that all laboratories must be certified by the federal government with mandated quality assurance, personnel, and proficiency testing standards based on test complexity. Until this time, the federal government regulated only the few laboratories conducting interstate commerce or independent or hospital laboratories that wanted Medicare reimbursement. CLIA applies to all sites where testing is done, including physician’s offices and clinics.
CLIA ‘88 was amended in what year(s)?
1990 and 1992.
What is the Stark Law?
The physician self-referral ban established in 1989, which prevents physicians from referring Medicare patients to self-owned laboratories.
What is the “three-day rule” regulation initiated by CMS?
Established in 1990. Payment for any laboratory testing done 3 calendar days before admission as an inpatient is not reimbursed because testing is considered to be part of the hospital stay (Omnibus Reconciliation Act); directs HHS to develop an outpatient DRG system.
In what year was HIPAA was enacted?
- The Health Insurance Portability and Accountability Act directs how health care information is managed. This law protects patients from inappropriate dispersion (oral, written, or electronic) of personal information and is the basis for many of the privacy standards currently in place.
What are the OIG Compliance Guidelines for clinical laboratories?
Guidelines established by the Office of Inspector General in 1997 that help laboratories develop programs that promote high ethical and lawful conduct, especially regarding billing practices and fraud and abuse.
Minimum national laboratory quality standards are enforced by ___.
Minimum national laboratory quality standards are enforced by the federal government or by their designees that have received “deemed status,” reflecting standards equivalent to or stricter than those put forth by CLIA ’88.
What is the Laboratory Compliance Program?
The Laboratory Compliance Program was mandated by Congress in 1998 in response to concerns from CMS about fraud and abuse of payments. This program requires that laboratories that receive payment for services from any federal agency must have policies addressing the medical necessity for tests ordered, ensuring accurate billing for testing, and promoting a standard of conduct to be adopted by laboratory employees.
What are the 3 main CLIA test categories and what types of tests are not categorized or not currently regulated by CLIA?
Test categories (based on analyst/operator and complexity to run test): waived (e.g., blood glucose, urine pregnancy), moderate complexity, and high complexity. Not categorized (because they do not produce a result): quality control materials, calibrators, collection kits (for HIV, drugs of abuse, etc.). Not currently regulated (by CLIA): noninvasive testing (e.g. bilirubin), breath tests (e.g., alcohol, H. pylori), drugs of abuse testing in the workplace, continuous monitoring/infusion devices (e.g., glucose/insulin).
List laboratory-related govenmental agencies.
CDC, CMS, DOT, EPA, EEOC, FDA, HHS, NARA, NRC, NIDA, NIOSH, NIH, NIST, OIG, OSHA, and state department of health.
CDC, FDA, NIOSH, NIH, and OIG are part of/overseen by the US department of ___.
CDC, FDA, NIOSH, NIH, and OIG are part of/overseen by the US department of Health and Human Services.
What is CMS?
The Centers for Medicare and Medicaid Services, formerly known as HCFA oversees the largest health care program in the United States, processing more than 1 billion claims per year. Medicare provides coverage to approximately 40 million Americans over the age of 65, some people with disabilities, and patients with end-stage renal disease, with a budget of $309 billion (2004). Medicaid provides coverage to approximately 50 million low-income individuals through a state–federal partnership that costs $277 billion (2004). CMS sets quality standards and reimbursement rates that apply to the laboratory and are often used by other third-party payers.
NIST (National Institute of Standards and Technology) is a branch of the ___ Department.
NIST (National Institute of Standards and Technology) is a branch of the Commerce Department, and has contributed to the development of many health care products. In addition, it has developed standards for calibration, weights and measures, and the International System of Units.
OSHA is part of the US Department of ___.
OSHA is part of the US Department of Labor.
What does the Office of the Inspector General do?
OIG is part of HHS and is responsible for auditing, inspecting, and identifying fraud and abuse in CMS programs such as laboratory testing. The focus of OIG is usually noncompliance with reimbursement regulations such as medical necessity.
List laboratory-related nongovernmental organizations.
AABB, ASCP, CAP, CLSI, COLA, TJC.
Which accrediting organizations have deemed status from the CMS to accredit laboratories?
COLA, CAP, JCHO, ASHI, AABB, AOA. Laboratories accredited by these organizations are deemed to meet all federal CLIA requirements. As a condition of their accreditation, laboratories accredited by these organizations are subject to a CMS validation survey, which is conducted by the state survey agency. The purpose of the validation survey is to verify that laboratories accredited by these organizations are meeting CLIA condition-level requirements and that the accrediting organization’s inspection process assures the laboratory’s continued compliance with CLIA. CMS began its validation survey process in 1995.
What is CLSI?
Clinical and Laboratory Standards Institute (formerly NCCLS) is a peer professional group that develops standardized criteria regarding laboratory practices; accrediting and licensing entities often adopt these as standards (e.g., procedure manual format).
What is COLA?
COLA (originally the Commission on Office Laboratory Accreditation) is a nonprofit organization sponsored by the American Academy of Family Physicians, the American College of Physicians, the American Medical Association, the American Osteopathic Association, and CAP. It has CLIA deemed status, and its accreditation is recognized by The Joint Commission. It was originally organized to provide assistance to physician office laboratories (POLs), but has recently expanded its product line to other services.
What is TJC?
The Joint Commission (formerly known as Joint Commission on Accreditation of Healthcare Organizations) is an independent, not-for-profit entity that accredits nearly 17,000 health care organizations and programs in the United States based on a comprehensive set of quality standards. It has CLIA deemed status and may substitute for federal Medicare and Medicaid surveys; it also fulfills licensure requirements in some states and general requirements of many insurers. TJC usually surveys the laboratory as part of an overall health care facility survey.
Quality management is defined as ___.
Quality management is defined as an ongoing effort that includes policies and procedures established and implemented for the purpose of providing accurate laboratory test results. Quality management of the analytic component encompasses a variety of quality assurance processes designed to ensure the performance of a test in the clinical laboratory. This assurance requires a system that includes both internal and external procedures that are described in national and international guidance and regulatory documents. Internal quality assurance processes include measures to maintain analytic accuracy, such as quality control and personnel competency. External quality assessment measures include examination of laboratory procedures by a third party accreditation process and participation in proficiency testing (PT) or external quality assessment (EQA) programs.
Point-of care testing is also known as ___.
Point-of-care testing (POCT; also known as near-patient testing, alternative-site testing, or patient-focused testing) is used in a variety of settings such as the emergency department, operating suites, clinics, physician offices, nursing homes, community counseling centers, ambulances, pharmacies, and health fairs. POCT brings laboratory testing to the site of the patient encounter, rather than the traditional practice of obtaining a specimen and sending it to the laboratory.
According to CLIA, what is the definition of a laboratory?
Under CLIA, a laboratory is “A facility for the … examination of materials derived from the human body for the purpose of providing information for the diagnosis, prevention, or treatment of any disease or impairment of, or the assessment of the health of, human beings. These examinations also include procedures to determine, measure, or otherwise describe the presence or absence of various substances or organisms in the body.”
As of 2011, are in vivo and externally attached patient-dedicated monitoring devices (e.g., pulse oximetry, mixed venous oxygen saturation [SvO2] pulmonary artery catheters, capnographs) subject to CLIA?
No.
All laboratories must be certified under one of what five types of CLIA certificates?
Certificate of Waiver (Certificate issued to laboratory to perform only waived tests). Certificate for Provider-Performed Microscopy Procedures (PPMPs) (Certificate issued to a laboratory in which a physician, midlevel practitioner, or dentist performs no tests other than the microscopy procedures; permits the laboratory to also perform waived tests). Certificate of Registration (Certificate issued to a laboratory that enables the entity to conduct moderate or high complexity laboratory testing or both until the entity is determined by survey to be in compliance with CLIA regulations). Certificate of Compliance (Certificate issued to a laboratory after an inspection that finds the laboratory to be in compliance with all applicable CLIA requirements). Certificate of Accreditation (Certificate issued to a laboratory on the basis of the laboratory’s accreditation by an accreditation organization approved by the Health Care Finance Administration).
CLIA’s Certificate for Provider-performed Microscopy Procedures (PPMPs). Discuss.
This category consists of any test that involves a health care provider using a microscope and includes all of the following procedures: all urine sediment examinations; direct wet mount preparations for the presence or absence of bacteria, fungi, parasites, and human cellular elements; all potassium hydroxide preparations; pinworm examinations; fern tests; postcoital direct qualitative examinations of vaginal or cervical mucus; nasal smears for granulocytes; fecal leukocyte examinations; and qualitative semen analysis. Only certain professionals are permitted to perform the procedures under this PPMP category if an exemption from the moderate complexity designation is to be retained. These include licensed physicians, dentists, and midlevel practitioners such as nurse practitioners, nurse midwives, and physician assistants under the supervision of a physician, only if authorized by the state in which the practice is located. With PPMP, the specimen must be examined during the patient visit; the specimen must be obtained from the provider’s own patient or from a patient of a group medical practice of which the provider is a member or an employee. The primary instrument for performing the test under the PPMP certificate is the microscope, limited to bright-field or phase-contrast microscopy. The specimen is usually labile, or a delay in performing the test could compromise the accuracy of the test result. In general, control materials are not available to monitor the entire testing process, and limited specimen handling or processing is required.
Laboratories that perform under a Certificate of Waiver or with a certificate for PPMP can perform waived testing without the overhead of having personnel who meet established qualifications in training, experience, job performance, and competency. However, if any moderate complexity tests or measurements are performed, CLIA requires that __.
Laboratories that perform under a Certificate of Waiver or with a certificate for PPMP can perform waived testing without the overhead of having personnel who meet established qualifications in training, experience, job performance, and competency. However, if any moderate complexity tests or measurements are performed, CLIA requires that the laboratory be directed by a laboratory director and/or a laboratory consultant. This director is to be responsible for determining the qualifications of individuals performing and reporting test results, as well as ensuring compliance with all applicable regulations. The director is also responsible for the analytic performance of all assays, and must monitor ongoing proficiency, accuracy, and precision.
Laboratory results must undergo a two-step postanalytic review for ___ and ___.
Laboratory results must undergo a two-step postanalytic review for analytic correctness (using delta checks, linearity ranges, etc.) and for clinical significance for the patient (applying critical values, reference ranges, pretest and posttest probability, etc.).
Reference intervals are most commonly defined as ___.
Reference intervals are most commonly defined as the range of values into which 95% of nondiseased individuals will fall; this definition implies that 5% of nondiseased individuals can have laboratory results outside the reference range. In most settings, reference ranges are determined by the laboratory, with varying degrees of input from the clinical staff.
What is quality control in the clinical laboratory?
Quality control (QC, also called statistical process control) is a process to periodically examine a measurement procedure to verify that it is performing according to preestablished specifications. QC of an analytic measurement procedure uses QC sample materials intended to simulate clinical samples from patients. Such QC sample materials are called surrogate samples. The QC samples are measured periodically in the same manner as clinical samples and their results examined to ensure that the measurement procedure meets performance requirements appropriate for patient care.
What is calibration in the clinical laboratory?
Calibration of the analytic measurement procedure is a key component in achieving quality results. Calibration of a method establishes the relationship between the signal measured and the quantitative value of analyte in the calibrator materials. This relationship is used to convert the measurement signal from a patient sample into a reportable concentration for the analyte. Specific techniques for calibration are unique to individual methods. Calibration of methods is most often performed by the laboratory using calibrator materials provided by the method or instrument manufacturer. In some cases (such as POC devices), methods are calibrated during the manufacturing process, and the laboratory performs a verification of that calibration. In either situation, traceability of result accuracy to the highest-order reference system is provided by the method manufacturer. The method manufacturer’s calibrator material(s) and assigned target value(s) are designed to produce accurate results with clinical patient samples assayed using that particular manufacturer’s routine method.
When should calibrations be performed in the clinical laboratory?
In principle, a measurement procedure should be calibrated only when evidence indicates that the current calibration is no longer valid. A recalibration event may introduce a small change in the relationship between analytic system response and sample concentration that contributes to overall long-term variability in method performance. Evidence that a recalibration is needed could come from QC sample results that demonstrate a shift or trend in bias over a time period. However, QC results are expected to have random variability that may make identification of a trend in bias difficult to detect. Consequently, it is common practice to recalibrate methods on a time schedule that is established based on experience with the sources of drift that are important for a given technology. CLIA regulations require calibration or calibration verification at least every 6 months, or more frequently if recommended by the method manufacturer. When no change in method performance parameters has occurred, it is acceptable to verify that the current calibration has not changed (calibration verification), rather than perform a recalibration.
Define the following single-rule QC Westgard rules: 13s, 12s, 22s, R4s , 41s , 10x.
Define the following single-rule QC Westgard rules: 13s, 12s, 22s, R4s , 41s , 10x.
13s refers to a control rule that is commonly used with a Levey-Jennings chart when the control limits are set as the mean plus 3s and the mean minus 3s. A run is rejected when a single control measurement exceeds the mean plus 3s or the mean minus 3s control limit. 12srefers to the control rule that is commonly used with a Levey-Jennings chart when the control limits are set as the mean plus/minus 2s. In the original Westgard multirule QC procedure, this rule is used as a warning rule to trigger careful inspection of the control data by the following rejection rules. 22s - reject when 2 consecutive control measurements exceed the same mean plus 2s or the same mean minus 2s control limit. R4s - reject when 1 control measurement in a group exceeds the mean plus 2s and another exceeds the mean minus 2s.
41s - reject when 4 consecutive control measurements exceed the same mean plus 1s or the same mean minus 1s control limit. 10x - reject when 10 consecutive control measurements fall on one side of the mean. In addition, you will sometimes see some modifications of this last rule to make it fit more easily with Ns of 4: the 8x and 12x rules.
Why are the Westgard rules 12S and 10x not recommended for use?
The 12S rule has a good probability of detecting errors (e.g. almost 90% probability of detecting a 2.5 SD bias) but has a high false alert rate. Because of this high false alert rate, it is not recommended to use a 12S rule. The 10x (or 10m) rules are also not recommended because of an excessive false alert rate. Many contemporary analyzers are very stable and may produce QC results with a small standard deviation interval (SDI) on one side of the target value for extended periods of time. Consequently, a 10x rule generally is not recommended, as this condition does not infer a problem with clinical interpretation of patient results when the magnitude of the difference is small. In contrast, the 13S rule has a low false alert rate, but a lower probability to detect an error (e.g., a 55% probability to detect a 2.5 SD bias). It is recommended to improve the efficiency of QC interpretive rules by combining two or more rules and applying them simultaneously as multi-rule criteria.
What are some points to be aware of when changing reagent lots and changing method calibrator lots and their effect on QC?
Because the matrix-related interaction between a QC material and a reagent can change with a different reagent lot, QC results may not be a reliable indicator of a method’s performance for patient samples following a reagent lot change. For this reason, it is necessary to use clinical patient samples to verify the consistency of results between old and new lots of reagents. When a new lot of calibrator is used, with no change in reagents, there is no change in matrix interaction between the QC material and the reagents. In this situation, QC results provide a reliable indication of calibration status with the new lot of calibrator. If the QC results indicate a bias following use of a new lot of calibrator, the calibration has changed and needs to be corrected to ensure consistent results for patient samples.
Some types of laboratory errors can be identified by comparing a patient’s current test result against a previous result for the same analyte. This comparison is called a “delta check.” Delta checks can detect analytic errors; however, their main purpose is to ___.
Some types of laboratory errors can be identified by comparing a patient’s current test result against a previous result for the same analyte. This comparison is called a “delta check.” The previous result is taken from a specified time interval in the past during which the result is not likely to have changed physiologically. This limitation restricts the analytes that can be effectively monitored with a delta check. Delta checks can detect analytic errors; however, their main purpose is to detect mislabeled samples and samples altered by dilution with IV fluid. Consequently, an effective delta check process can be established using a limited number of analytes.
What are “average of normals” or “moving average” techniques used in statistical QC?
Automated approaches to determine the mean (or median) for groups of sequential patient results used as a continuous process control parameter have been described. These methods are called “average of normals” (AON) or “moving average” techniques and are suitable for use in higher volume assays in chemistry and hematology. In general, these approaches evaluate sequential patient results over time intervals such as several hours to 1 or more days. For some analytes, patients may need to be partitioned to obtain subgroups whose results are expected to be homogeneous. Consideration of influences for partitioning includes age, gender, ethnicity, and disease conditions.
What is proficiency testing?
Proficiency testing (or external quality assessment) consists of evaluation of method performance by comparison of results versus those of other laboratories for the same set of samples. PT providers circulate a set of samples among a group of laboratories. Each laboratory includes the PT samples along with patient samples in the usual assay process. Results for the PT samples are reported to the PT provider for evaluation. PT allows a laboratory to verify that its results are consistent with those of other laboratories using the same or similar methods for an analyte, and to verify that it is using a method in conformance with the manufacturer’s specifications.
What is quality management?
Quality management (QM) refers to the overall process used to ensure that laboratory results meet the requirements for health care services to patients. Laboratories are required to develop procedures to monitor and ensure quality in all aspects of laboratory services. A QM program defines data-based metrics or indicators that are monitored at regular recurring intervals to provide information on the adequacy of all influences on laboratory quality. A QM program is an accreditation requirement, and good documentation of the metrics, the review process, and the improvements made is necessary.
Define the following terms applicable to pathology informatics: computer, hardware, software, file, folder, bit, operating system.
A computer is a device that follows instructions to work with electronic data based on user input. Hardware refers to the physical components of an information system. Software refers to programs (which are essentially sets of instructions) that allow computers or other devices to perform tasks. hardware, software, file, folder, bit, operating system. A file is a collection of data identified by a specific name and grouped in relation to a specific purpose. The two main types are applications (also referred to as “executable” files) and data files (e.g., image, text/document, sound). A folder (or directory) simply refers to a collection of files. A bit (derived from “binary digit”) is the basic unit of digital information, and a byte, the most common unit of measurement used, almost always refers to 8 bits. ASCII (American Standard Code for Information Interchange) is the standard dictionary for combinations of bits that represent the common letters, numbers, and symbols by which characters are represented on a computer screen or paper printout. The operating system of a device, whether a computer or an analyzer, refers to a set of programs responsible for the management and coordination of activities and the sharing of resources. In the case of a computer, the operating system acts as a host for application programs.
Define the following terms applicable to pathology informatics: network, client, server, internet, World Wide Web, HTML.
A network is an interconnected group of computers that share information and resources, and as it pertains to the laboratory, the term refers to the ability to obtain orders from and send results to other information systems. Most computers need a card or adapter to connect to the network, and Ethernet is the most common type of networking standard. Networking often involves a client and a server environment. The client is the workstation with which the end user interacts and the server runs applications and maintains databases. The different client types are “thin” and “thick” or “fat”; the difference between the two is that in the former, all application logic executes on the client server, whereas in the latter, the client performs the bulk of any data processing operations itself. The Internet refers to a worldwide, publicly accessible series of interconnected computer networks. Data are transmitted by packet switching using the standard Internet protocol (IP). The World Wide Web (WWW) refers to a hypertext-based data system that uses the Internet as its transportation (hypertext = text on a computer that will lead the user to other related information on demand). The language used is most commonly hypertext markup language (HTML), which specifies the appearance of a web page when interpreted by a web browser.
How can costs be described?
Costs can be described in different ways, depending on how they relate to laboratory operations (direct/indirect), change with test volume (variable/fixed), pertain to staffing (salary/nonsalary), or are associated with the useful life of supplies or equipment (operating/capital). Cost per reportable result is a key indicator.
Why is inpatient laboratory testing considered to be a “cost center,” while outpatient laboratory testing is considered to be a “revenue center?”
Inpatient laboratory testing charges are usually not reimbursed directly; they are considered part of a per diem rate (i.e., general hospital daily room reimbursement rate) or a case rate, such as diagnosis-related group rate (i.e., set rate for the entire hospital stay, regardless of actual length of stay). Thus, inpatient laboratory testing is usually considered a “cost center.” In contrast, outpatient laboratory charges are reimbursed directly; therefore, outpatient testing is usually considered a “revenue center.”
What does it mean for an entity/hospital to be “not-for-profit?”
Most U.S. hospitals are tax exempt, not-for-profit entities. Though “not-for-profit” suggests that no profit is made, it actually means that profits are not distributed to owners or shareholders; instead, profits are reinvested in the organization. Historically, not-for-profit status led hospital administrators to be less profit conscious than counterparts in other businesses. However, today’s hospitals are having a difficult time just covering operating costs, given dwindling reimbursement and increasing supply and labor costs. With scarce money left for capital reinvestment in equipment, buildings, facilities, and technology, hospitals are aggressively seeking new ways to produce a profit to invest for the future.
What are direct costs and indirect costs?
Direct costs are expenses that can easily be traced directly to an end product. In the laboratory setting, the end product is a billable test. Examples are reagents, consumables, and testing staff/hands-on technologist time. In contrast, indirect costs are not directly related to a billable test, but are necessary for its production. Indirect costs are often referred to as overhead. Examples are proficiency testing, analyzers, analyzer service, management staff, rent, and utility expenses.
What are variable costs and fixed costs?
Variable costs change proportionately with the volume of tests. As test volume grows, so do reagent costs. If the reagent cost per test is $1.00, when 1000 tests are performed, the reagent cost is $1000; when 20,000 tests are performed, the reagent cost is $20,000. Fixed costs do not change with the volume of tests performed. Fixed costs include PT, analyzers, analyzer services, testing staff, management staff, and rent. If a laboratory pays $5000 per month to rent its space, this expense remains the same if the laboratory produces 1000 or 20,000 tests per month. Because fixed costs do not vary with activity, the goal is to produce as much as possible from fixed costs to achieve economies of scale.
What is the fixed cost per activity?
Fixed costs do not change with the volume of tests performed (rent is an example). Because fixed costs do not vary with activity, the goal is to produce as much as possible from fixed costs to achieve economies of scale. The more that is produced, the lower is the fixed cost per activity. If a laboratory produced 1000 tests, the fixed cost per test is $5.00; with 20,000 tests, the fixed cost per test falls to $0.25. Note that even some fixed costs have a variable component. For example, if an instrument’s capacity is 20,000 tests per month and the volume increases beyond that, another instrument will have to be purchased, increasing the fixed costs per test. Fixed costs that change with increments of volume are called step costs.
What are salary costs?
Salary costs need to be looked at differently from nonsalary costs because salary costs have fringe benefits associated with them (Social Security, health insurance, tuition reimbursement, pension plans, and life insurance). Salary expenses account for approximately 60%–80% of the laboratory budget. Because salary expenses are generally fixed, it is important to strive for economies of scale. The hourly pay or salaried wage of an employee is not the entire cost of employment. Fringe benefits can represent an additional 16%–28% expense above the base salary. Costs are also associated with the recruitment, interview, and selection process. Once an employee is hired, orientation, training, and ongoing growth and development costs are incurred.
What are operating costs and how do they relate to capital items?
Operating costs are the expenses incurred to produce a product or service. Many items have only a one-time use, and once used the item has no further value. Examples of one-time operating costs include reagents, electricity, disposable pipets, and the salary expense in the production of a test. Other items, such as analytic equipment, computers, and the physical plant, have a useful life greater than one production cycle. These items are capital items. To qualify as a capital item, the item must meet three criteria: Time, price, and purpose. To meet the time criterion, the item must have a useful life of longer than 1 year. The institution must designate a minimum dollar amount, usually $1000–$5000, that qualifies an item as capital. The purpose of acquiring capital items is usually to replace older equipment with safer and more efficient models, or to add new equipment to support new products or services. With time, capital equipment loses its value. The annual loss of a capital item’s value is called depreciation and is an annual expense that is deducted from the revenue of a business.
What are some ways that the cost of producing a test can be derived?
Microcosting determines the total direct labor and supply costs of producing a test. When microcosting a test, it is important to consider how a test is performed because labor and supply costs vary according to workflow and laboratory policy for quality control and repeats. The cost per reportable result (CPRR) distributes the total direct costs of a run over the patient “reportable” results for that run. Testing efficiency is defined as the total reportable patient results/total test results. Thus, the more repeats and controls are performed, the lower is the efficiency, and the higher is the CPRR. The incremental cost is the cost of producing one additional test that, typically, does not require additional salary or capital. Incremental costing is especially useful when one is trying to determine whether additional outreach work is profitable or not. The fully loaded cost for a test is the sum of direct and indirect costs. Make versus buy decisions should be based on the fully loaded cost to produce the test compared with the price offered by a commercial or reference laboratory (but TAT, methods, and reliability of the potential alternative supplier also need to be considered). The contribution margin is the balance remaining after the fully loaded costs are deducted from the price charged for a test.
What is the total cost of ownership for a laboratory?
TCO is the life cycle cost of its capital assets. It focuses attention on the sum of all costs of owning and maintaining all assets for a specific service or product, as opposed to the initial capital or operating costs. In the laboratory, TCO includes acquisition, setup (construction, training), support (ordering supplies, dealing with back orders), ongoing maintenance (scheduled and unscheduled downtime), service, and operating expenses (reagents, controls, repeat testing, inventory control, proficiency testing, testing personnel, supervisory personnel) of a specific workbench and its associated testing instrumentation. TCO is useful in considering make versus buy decisions, but determining an accurate TCO can be very difficult.
What are: gross patient revenue, net patient revenue, deductions from revenue, and contractural adjustments?
Gross patient revenue consists of the total charges at a facility’s full-established rates (list price) for provision of inpatient and outpatient care before deductions from revenue are applied. Net patient revenue is the gross inpatient and outpatient revenue minus all related deductions. Deductions from revenue include contractual adjustments, provision for bad debts, charity care, and other adjustments and allowances that reduce gross patient revenue. Contractual adjustments account for the difference between billings at full-established rates and amounts received or receivable from third-party payers under formal contract agreements. For example, if the list price of a test is $10 but the contracted payment from the insurance company is $6, the adjustment is $4. If all deductions and contractual allowances are correct, net patient revenue should equal cash collected, or $6 in the above example.
What are the 2 main categories that private health insurance falls into?
Indemnity and managed care. Indemnity plans, also known as fee-for-service, are traditional insurance plans that give patients absolute freedom to choose their physicians and medical facilities. Insurance companies usually require the beneficiaries to fulfill a yearly deductible, usually between $300 and $500 per person per year. After the deductible is fulfilled, the insurance company pays a certain coinsurance rate of the usual and customary charge (UCC). The UCC (or fee schedule) is set by the payer and is usually less than the actual billed charge, in which case the patient may be responsible for the balance. managed care was introduced in 1973 with the passage of the Health Maintenance Organization Act. This Act encouraged and funded the development of health maintenance organizations (HMOs) as a strategy to contain the rising cost of health care. HMOs utilized managed care features that coupled health care reimbursement with delivery of service and allowed payers significant economic control over how, where, and what services were delivered.
What are capitation agreements?
Capitation agreements pay the service provider (e.g., physician) a fixed dollar amount per member per month (PMPM). From this amount, the provider agrees to cover all care for plan members. For example, if a laboratory signs a capitation agreement to accept $1.50 PMPM for the outpatient testing needs of 2000 HMO members, the laboratory receives $3000 per month, and $36,000 per year. If it costs the laboratory more than $36,000/year to provide the services, it realizes a financial loss; if it costs less than $36,000, it realizes a profit. In a capitation testing agreement, a laboratory assumes the risk of spending more than it is paid. One key to managing this risk is gaining access to test utilization of plan members and accurately assessing laboratory costs.
What is Medicare?
Medicare is federal health insurance for individuals age 65 and older, individuals who are permanently disabled, and those with end-stage renal disease who have met the specified waiting period. Medicare was established in 1965 by Title XVIII of the Social Security Act. It is administered by CMS, a division of HHS. Coverage is provided under Parts A, B, C, and D. For a clinical laboratory to qualify for Medicare/Medicaid reimbursement, the laboratory must maintain Clinical Laboratory Improvement Act of 1988 certification.
What is Medicare Part A, Part B, Part C, and Part D?
Medicare Part A covers inpatient hospitalization, hospice care, skilled nursing care, and home health care. Coverage is automatic for those who are eligible. Medicare Part B covers outpatient laboratory tests, physician professional services, and other medical services and devices. Coverage is not automatic. Eligible beneficiaries must enroll for Part B coverage and pay premiums. Beneficiaries must pay an annual deductible and a 20% copayment for all Part B services, except for clinical laboratory testing, which is covered in full, provided certain conditions are met. The Part B fee schedule plays an important role in reimbursement because it is a baseline that nongovernment payers use to establish their own rates. For example, a private insurance company may set its fee schedule at 110% of the Part B fee schedule. Medicare Part C (also known as Medicare Advantage) is an alternative to the traditional Part B fee-for-service program. It is designed to reduce patient “out of pocket” costs by providing services through health maintenance organizations and other managed care service models. Medicare Part D provides prescription drug coverage.
What is Medicaid?
Medicaid is a Federal program that offers health care coverage for select low-income families. It was authorized in 1965 as a Federal/State-sponsored program designed to pay medical costs for certain families with low income or inadequate resources. Eligibility extends to people who are aged, blind, or disabled, and those in families with dependent children. Although Medicaid is a Federal program, it is under the jurisdiction of each individual state. This means that each state determines who is eligible, the range of health services offered, and how they are reimbursed. It is a common misconception that Medicaid covers health care costs for all low-income persons. Medicaid does not provide paid medical assistance to every single poor person. To receive medical assistance, a person must meet eligibility requirements.
What are the Healthcare Common Procedure Coding System and International Classification of Diseases 9th Revision with Clinical Modification used for?
To be paid, a medical claim must document the patient’s medical condition (or diagnosis) and must list the services (or tests) provided. This information is conveyed via a standardized coding system, recognized by all government and private payers: HCPCS codes describe the test or service and ICD-9-CM codes describe the patient’s condition or diagnosis. These coding standards allow data to be accurately communicated among physicians, patients, and third-party payers.
What are the 2 levels of Healthcare Common Procedure Coding System codes?
HCPCS was developed in 1983 and consists of two levels of codes. Level I is the Current Procedural Terminology coding system and is used to identify nearly all clinical laboratory tests and most medical services. CPT codes are assigned by the American Medical Association and are reviewed and updated annually to keep current with changes in technology and medical practice. Each CPT code consists of five digits and a description of the test or service. Level II HCPCS codes are assigned by CMS. CPT does not contain all the codes needed to report services or to describe special circumstances that may apply to Medicare. CMS developed this second level of codes to fill the gap. HCPCS Level II codes begin with a single letter (A through V) followed by four digits. These codes are updated annually by CMS. These codes allow CMS to assign different criteria for reimbursement, based on why a test is ordered.
The ICD-9 was originally developed by ___ as a classification system for ___.
The ICD-9 was originally developed by the World Health Organization (WHO) as a classification system for reporting of mortality and morbidity statistics by physicians throughout the world. The ICD-9-CM is a U.S. clinically modified revision of the WHO’s ICD-9. This modification is maintained and updated by the National Center for Health Statistics. These modifications assist health care providers to index patient records, retrieve case data for clinical studies, and submit claims for health care services.
Certain lab tests that are performed together (i.e., as a panel) must be coded correctly. Ten panels have been approved by the AMA. What are these 10?
The 10 AMA organ or disease-oriented panels (CPT, 2009) are: basic metabolic panel (calcium, ionized), basic metabolic panel (calcium, total), general health panel, electrolyte panel, comprehensive metabolic panel, obstetric panel, lipid panel, renal function panel, acute hepatitis panel, and hepatic function panel. When these panels are performed, they must be coded with the unique panel code and not by each individual test’s CPT code. Reimbursement is much lower for a panel than it is for the sum total reimbursement of each test. Coding for each individual test component as opposed to one panel code is considered “unbundling,” which is a fraudulent billing practice.
What are diagnosis-related-groups?
DRGs make up a patient classification system that is used to reimburse inpatient (Part A) hospital costs for Medicare patients. Although the costs associated with inpatient clinical laboratory tests are included in the DRG, it does not cover physician services (Part B). After a Medicare patient has been discharged from the hospital, the patient’s medical record is reviewed by health information management coders and is assigned appropriate ICD-9-CM and HCPCS codes for one or more diagnoses and procedures for the inpatient stay. These codes along with the patient’s demographic information are grouped by decision trees (this process is computerized) into a specific DRG. Currently, more than 500 DRGs are used. CMS assigns a weight to each DRG based on the severity of the diagnoses, the types of procedures performed, the number of laboratory tests, the volume and type of drugs administered, and the presence of complications or comorbidity conditions. CMS assigns each hospital a specific rate that is calculated on the basis of the type of facility (community hospital vs. teaching hospital), the setting (urban vs. rural), and the location (West Coast vs. Midwest). The CMS-assigned rate for the DRG is multiplied by the hospital’s assigned rate to determine reimbursement for the hospital stay. This amount is payment-in-full for the inpatient hospitalization. If it costs the hospital more than the reimbursed amount to treat the patient, the hospital must absorb the cost. The patient cannot be billed for any nonreimbursed Part A services.
What is an advanced beneficiary notice?
Under certain conditions, Medicare does not pay for laboratory tests. If a laboratory expects Medicare to deny payment because a test does not meet medical necessity requirements, it must inform the patient before the service is provided. An advanced beneficiary notice (ABN) is used to document that the beneficiary was told the test might not be covered by Medicare, the reason(s) for the possible denial, and the decision by the patient to pay for the test if Medicare does not reimburse or to refuse the test entirely.
What is the CMS 72-hour rule?
An important consideration for hospitals that have laboratories that perform outpatient testing on Medicare patients is the 72-hour rule. This rule states that a hospital cannot bill an outpatient (Part B) claim for laboratory tests performed within 72 hours of an inpatient admission. Outpatient testing that is performed 72 hours before the admission must be included with the inpatient claim and is reimbursed according to the assigned DRG for that stay. Hospital laboratories must identify outpatient Medicare services that are affected by this rule and must make sure they are not billed separately. A nonhospital independent laboratory is not subject to the 72-hour rule. Thus preadmission tests performed 3 days before hospitalization are not reimbursed if performed in the admitting hospital’s laboratory but are reimbursed if done in an independent laboratory.
Financial accounting is a system used to report business information to external entities such as the Internal Revenue Service or its stockholders. Generally accepted accounting principles are used to standardize this information. Balance sheet, income statement, and statement of cash flows are the financial statements most commonly used to assess an organization’s financial position. What are the balance sheet, income statement, and statement of cash flows?
The balance sheet is the statement of an organization’s financial position at a specific point in time, usually generated at the end of an organization’s fiscal year or at the end of the calendar year. It records the organization’s assets (what it owns), its liabilities (what it owes), and its equity or net worth (what is left after subtracting what it owes from what it owns). The income statement, also known as the statement of profit and loss, summarizes the organization’s revenues and expenses over an accounting period, usually quarterly or annually. The income statement records all of a laboratory’s gross patient revenue, less allowances for a given period, and deducts the expenses for that same period to arrive at net income before taxes. The statement of cash flows shows the amount of cash generated by an organization over a period of time. Cash outflows (cash paid out) are subtracted from cash inflows (cash received) to calculate the net change in cash for the period.
In evaluating a capital project, payback period, breakeven point, and return on investment are often considered. Define.
The payback period is the length of time required for an investment’s net revenue to cover the cost of the initial investment. Many institutions want to see a payback in 3 years or less. Once the initial investment is recovered, net revenue (Revenue − Expense) from this investment represents a profit to the organization. The breakeven point of a capital project is reached when the volume of sales is such that total revenue equals total costs (fixed and variable), and therefore profit is zero. Before the breakeven point is reached, the project is operating at a loss; after it is reached, the project is realizing a profit. The rate of return on an investment (ROI) for a capital project is the ratio of net income it generates to the total investment of the project. ROI is a standard for evaluating how wisely management uses its capital dollars.
The payback period and return on investment calculations do not consider the time value of money (they assume that the value of future cash flows remains constant). To address this shortcoming, the net present value and internal rate of return are used. Define.
The NPV calculation is used to determine whether a project’s cash flows (i.e., cash it generates in the future) are sufficient to repay the original investment, taking into account that money loses value over time. Thus, cash received in the future has to be discounted (i.e., the value has to be reduced) to determine how much it is worth in today’s dollars. The discount rate is usually the inflation rate (if no money was borrowed to finance the project) or the interest rate on a loan used to fund the project. When the NPV is a positive number, the project will generate enough cash to pay for the original investment. When the NPV is a negative number, the project cost is not recouped and/or the future cash flows are not sufficient to cover the interest costs for borrowing the money. The internal rate of return (IRR) also discounts cash flow into today’s value. It determines the actual rate of return that the investment earns. The IRR is the discount rate at which the present value of a capital project’s expected cash inflows equals the present value of its costs, or in other words, when the NPV equals zero. Identifying a project’s IRR is necessary to ensure that its rate is higher than the cost of the capital borrowed for the project. The higher the IRR, the faster the project pays for itself.
Under CLIA, a laboratory director can direct a maximum of __ laboratories.
Under CLIA, a laboratory director can direct a maximum of 5 laboratories.
Under CLIA, a laboratory director can direct a maximum of 5 laboratories. Do laboratories performing only waived tests apply towards this total?
No. The maximum limit of directing 5 labs (labs in this case means the number of certificates) is only applicable for labs performing nonwaived tests. However, the CLIA requirements have 3 exceptions for each certificate type that will allow one individual to direct multiple locations under one certificate (labs not at a fixed location, not-for-profit or federal/state/local government labs engaging in limited public health testing, and labs within a hospital located at contiguous buildings on the same campus).
