Test prices in Pathology – an evaluation of a commercial costing model

Introduction

The current climate in Pathology has been driven towards modernising and improving services1-4 and, in particular, delivering detailed costing of Pathology tests requiring many laboratories to devise internal systems for producing information about productivity, cost-effectiveness and schemes for modernising workforce. Some laboratories have created in house spreadsheets using conventional software to produce costs, an approach that creates variability between models that has encouraged a non-standardised way of analysing the costs involved in Pathology pricing.

A new product5 called the Pathology Test Prices Costing ModelTM offers a potential solution for the Pathology market as a standard tool for calculating test prices in all major disciplines.

The Pathology Test Prices Costing ModelTM contains modules for five major disciplines in Pathology including:

Biochemistry Haematology Histopathology Microbiology Virology

Each module operates using Microsoft Excel and is presented as a workbook that contains a nine inter-linked worksheets that are adjusted by the user to reflect the situation in the user’s laboratory. The Biochemistry module has ten worksheets, the reason for which is explained below. The worksheets are issued already populated with data such as test names, components and staffing. The costing models are marketed either individually or as an entire Pathology package and each discipline has it’s own illustrated colour User Manual.

An evaluation of the Pathology Test Prices Costing ModelTM was undertaken to establish whether the product was a suitable tool for Pathology departments to use to generate accurate test prices and useful data to analyse various performance indicators such as effort, workload and average test prices. A detailed description of the evaluation is given below.

Method

A complete version of the Pathology Test Prices Costing ModelTM was evaluated by following the instructions in each discipline specific User Manual supplied with the software to test if each module produced test prices and performance indicators as claimed by the developers RLK Associates.

Results

Each module of the Pathology Test Prices Costing ModelTM is a well structured Excel workbook containing nine worksheets:

Test Prices Pay Direct Pay Non Direct Weightings Non Pay Direct Non Pay Non Direct Capital Service Analysis

The Biochemistry module also contains a “Calibrators” worksheet.

The workbook is already set up with some data to enable the user to rapidly populate the model with data unique to their laboratory or department.

The worksheets interact within the workbook linking different areas to produce prices for laboratory tests fast and in real time whilst the workbook is being used.

Many laboratories will have a different portfolio of tests – to facilitate, a series of Help Sections have been produced to describe how tests can be added or deleted easily without affecting the structure of the model.

There are a number of pre-set formulae within the worksheets to enable automatic calculations to be made when producing test prices. These formulae are listed in a separate Help Section that indicates where formulae are entered into specific cells in each worksheet just in case a formula is accidentally deleted whilst working with the model.

The User Manuals are each approximately 30 pages long– they are similar in content and published as discipline-specific guides due to variations between the different sciences. The Manuals were easy to use and contain screen shots of the model for ease of reference. Where specific examples are given, for example calculating the part-use of a component, illustrations are highlighted to attract the reader’s attention.

Each worksheet is described below with illustrations from the different modules to assist explanations.

Test Prices worksheet

The “Test Prices” worksheet (Table 1) calculates the test prices for the Department. The prices generated are:

Full cost Consumables plus direct pay Consumables only

The prices are calculated by automatically gathering information from the other worksheets about the components that make up the cost, for example pay, capital and consumables. Calculations are then made using pre-set formulae. The only data entered here by the user are the names of tests.

For each discipline a list of tests has already been inserted into the costing model so it is a quick process to delete tests that are not performed, insert new tests or to over write the names of tests already present.

The model not only calculates test prices for each test, it also calculates the total cost for all tests performed in a year by the laboratory by automatically gathering information from another worksheet that contains workload information and multiplying it by the costs

calculated in the “Test Prices” worksheet. The analyses of annual costs allows checks to be made on what proportion of a laboratory’s budget is spent on specific tests or to inform ordering (eg standing orders) or to assist stock checks and so on. It is also a useful check to test whether the budget for a laboratory can be reconciled.

Table 1. Test Prices worksheet for Haematology

Pay Direct worksheet

The “Pay Direct” worksheet (Table 2) calculates the unit costs of staff directly involved in performing the tests.

The user enters information about staff grades, names, total annual costs and whole time equivalents (WTEs). The worksheet is pre-populated so the user can add or delete rows and over write existing data to form a picture of the workforce. The worksheet automatically calculates the “Cost per unit workload” and the “Cost per unit weighted workload” for each test performed by the laboratory.

Table 2. Pay Direct worksheet for Virology

Pay Non Direct worksheet

The “Pay Non Direct” worksheet (Table 3) calculates the unit costs of staff not directly involved in performing the tests. The worksheet is similar to the “Pay Direct” worksheet (above).

Table 3. Pay Non Direct worksheet for Microbiology

Weightings worksheet

The “Weightings” worksheet (Table 4) calculates the “Weighted workload” of tests performed by the Department. The list of tests pre-populated in the Test Prices worksheet are repeated here enabling the user to cross check between these two worksheets to ensure all tests are being captured. The user enters workload and weightings for each test.

Weightings can be calculated in various ways including time motion studies, Welcan units, or estimates comparing tests with one another to analyse the amount of effort involved. A significant amount of time can be spent producing weightings using methods such as time motion studies but the evaluation showed that reliable data can be obtained by estimating weightings. The model has been designed so that total pay costs are captured even when weightings are adjusted allowing the user to enter weightings and change them until satisfied with the comparison.

If the user decides to apply arbitrary weightings the least labour intensive test should be given the lowest weighting, eg 1.0, and all other weightings set as a proportion of the lowest denominator.

For example, if it was decided that an ESR was the least labour intensive test a weighting of 1.0 is entered. If it is then decided that a blood film requires five times the effort in terms of labour as an ESR, a weighting of 5.0 is entered for blood film, and so on.

Table 4. Weightings worksheet for Haematology

The weightings used in the Histopathology module (Table 5) are based on workload allocation scores6 and take account of the effort involved for both macroscopic and microscopic investigations when processing different specimen types. These weightings are used to automatically place each specimen type into a “Group”.

Table 5. Weightings worksheet for Histopathology

Non Pay Direct worksheet

The “Non Pay Direct” worksheet (Table 6) calculates the cost of all components of the test other than pay. The worksheet is pre-loaded with test names and components that are likely to be used for each test. However, due to the variability of components used between laboratories the user needs to enter the data for each test. The time utilised for this worksheet is the most significant for the entire workbook but it pays dividends when the final test prices are generated. The evaluation demonstrated that the best approach was to keep the same pre-loaded components, adding and deleting other components as required, or to over write components already present. Once data has been loaded into this worksheet it is easy to add or change the details to fine tune the test costs. It is important to get the information as accurate as possible and this can be achieved gradually by populating the component details over time. Once populated the model can be continually updated as required so that the main content is kept and only changes, for example, the cost of a kit, need to be altered.

The User Manual that accompanies each model contains numerous examples of how “pack sizes” and “use per test” are calculated so that there is no need to understand fractions in great detail to be able to accurately load the correct allocation of a component to a test.

In several disciplines there will be tests that use very small volumes of components, eg analyser diluents, and the model is designed to enable the user to capture these small volumes to ensure all costs are allocated accurately, even though the individual cost per test is small.

The “Non Pay Direct” worksheet has a number of uses other than providing data for the “Test Prices” worksheet, including calculating the annual use of individual components, the annual cost of components and the amount of money spent with each supplier.

Table 6. Non Pay Direct worksheet for Microbiology

Non Pay Non Direct worksheet

The “Non Pay Non Direct” worksheet (Table 7) calculates the “Cost per unit of work” of other non pay items that are not directly involved in testing. The user enters the categories of items that have not been placed in to the “Non Pay Direct” worksheet (above) and the associated annual costs. The worksheet normally contains only residual sums of money as most components can be captured as non pay direct but there will be items that are “spread” across all tests performed by a laboratory, for example accreditation fees. The individual contribution of these costs to each test is very small but the model automatically captures them and allocates them to the test prices.

Table 7. Non Pay Non Direct worksheet for Virology

Calibrators etc worksheet

The Biochemistry module contains an additional worksheet called the “Calibrators etc” worksheet (Table 8), calculating the “Cost per unit of work” of other non pay items that are directly involved in testing but are not listed on the “Non pay direct” worksheet as “Components”.

The items that would normally be listed include calibrators, standards, buffers, controls and other consumables such as cups and tips. These items are often used to run a range of different tests on the same analysers and therefore cannot easily be calculated as individual components that contribute to single tests. Hence, they are captured in this worksheet and not in “Non pay direct”.

Data is rapidly populated in the worksheet due to an adaptation of the “Weightings” worksheet for Biochemistry that has a column to enter the different analysers for all of the tests.

Although this worksheet has only been added to the Biochemistry module it was recognised that it would have significant value to some of the other modules for disciplines that use automation, for example Haematology and Virology.

Table 8. “Calibrators etc” worksheet for Biochemistry

Capital worksheet

The “Capital” worksheet (Table 9) calculates the “Cost per unit of work” of capital items that are directly involved in testing. The user enters the name of each item of equipment, the initial purchase cost when purchased, the expected life span, and each test that is performed using the item. The worksheet automatically calculates the allocation for each capital item against all of the tests listed and then apportions a fraction for each test depending on the total workload. The workload data is automatically gathered from the “Weightings” worksheet populated earlier on.

The worksheet is pre-populated with descriptions of capital equipment for each discipline although (quite rightly) does not specify commercial products due to the variability of equipment used between different departments. However, once items are added or deleted the worksheet is rapidly populated and easy to update.

Table 9. Capital worksheet for Virology

Service worksheet

The “Service” worksheet (Table 10) calculates the “Cost per unit of work” of service and maintenance contracts that are directly involved in testing. The worksheet is populated in a similar way to the “Capital” worksheet (above). All costs associated with equipment that have not already been captured as component costs, indirect non pay, or capital costs can be loaded into the “Service” worksheet and allocated to each test performed.

Table 10. Service worksheet for Biochemistry

Analysis worksheet

The “Analysis” worksheet (Table 11) calculates various average test costs and displays the amount of workload and weighted workload (“Effort”) processed per WTE. The worksheet is pre-loaded and requires no input from the user because all calculations are made automatically as the workbook is populated. Whenever a change is made anywhere in the workbook the “Analysis” worksheet is automatically updated providing real-time data on a laboratory’s performance.

Table 11. Analysis worksheet for Histopathology

Conclusions

An evaluation of the Pathology Test Prices Costing ModelTM concluded that it was simple to use and within a short time produced accurate data on test prices. The formulae were all pre-loaded and required no adjustment. All formulae automatically gathered data from inter-linked worksheets and loaded the two main worksheets “Test Prices” and “Analysis” with test prices and performance indicators respectively.

It was clear that the data the model produced would be consistent and accurate. It was easy to load the model and to adjust it without losing any content. As adjustments to the model were made, many of the worksheets automatically changed without the need to take any action. The tool offered a simple and standardised method for calculating Pathology test prices and had clear advantages to Pathology, particularly when significant savings need to be made and evidence needs to be provided to support the cost of services.

The “Analysis” worksheet produced data that could be extracted and illustrated graphically to monitor performance over time – this in turn could be used to identify fluctuations requiring further investigation or can be used to inform the user of workload growth, areas needing efficiency savings and workforce planning. The uses for the analysis table were numerous and wide-ranging and only some of them were utilised during the evaluation.

One of the key benefits that the Pathology Test Prices Costing ModelTM had was the potential for becoming an industry standard tool for producing test prices. Sufficient uptake could encourage further developments; for example, laboratories could work synergistically to produce standardised test weightings that would in turn allow evidence-

based comparisons to be made between laboratories. These kinds of comparisons would provide an acceptable measure of performance and the excuse of all laboratories being different will no longer be a valid suggestion to prevent commissioners, stakeholders and managers comparing the cost effectiveness of services.

Other benefits the Pathology Test Prices Costing ModelTM had included the ability to supply evidence to support service specifications, tenders for Pathology services, bids for service developments and improvements, as well as the ability to check stock, inform ordering and reconcile budgets. A number of the key performance indicators calculated in the “Analysis” worksheet would make a useful contribution to scorecards and dashboards.

References

1 Report of the second phase of the review of NHS pathology services in England. Department of Health, 2008.

2 Report of the review of NHS Pathology services in England. Department of Health, 2006.

3 Modernising Pathology Services. Department of Health, 2004.

4 Modernising Pathology: Building a service responsive to patients. Department of Health, 2005

5 Pathology Test Prices Costing ModelTM. RLK Associates, 2009. www.RLKpathology.com

6 Guidelines on staffing and workload for histopathology and cytopathology departments. Royal College of Pathologists, 2005