The laboratory plays a key role in healthcare. In fact, 60–70% of all critical decision-making (such as admittance, discharge, and medication) leverages lab services.1 This article will give an overview of current laboratory industry challenges and then discuss four cost-saving opportunities to help mitigate industry pressures. These opportunities include the costs of inappropriate test utilization; labor; equipment/supplies and reference testing; and blood products.
Why is it important to capitalize on cost savings, particularly in the laboratory? There is significant cost pressure on hospital expenses today. Due to changes in laboratory and healthcare as a whole, leadership is rethinking how to optimize lab revenue and cost structure to remain competitive in a changing environment.
Since the 2014 passage of the Protecting Access to Medicare Act (PAMA), the Centers for Medicare & Medicaid Services (CMS) started setting prices for lab tests in 2018 based on collected private payor rates. This was intended to reduce spending on lab testing; but as implemented, PAMA collected a disproportionate amount of data from large national labs. These typically have the lowest prices, and this led to deeper payment cuts than would have occurred had reporting been more representative. Meanwhile, private insurers have continued to drive down reimbursement as well. These changes present challenges to hospital labs and small independent labs, which don't typically enjoy the volumes nor efficiencies of large reference labs. Yet, they must make do with these reimbursement levels.2 This is still a pressing issue today, as reimbursement is expected to reduce further over the next three years.3
What costs associated with laboratories could be targeted for improvement?
Inappropriate test utilization
The demand for lab services is increasing. This is primarily due to 1) increased acute, chronic, and preventive primary care visits, 2) increased population aged 65+, and 3) expanding esoteric testing with increased complexity.4
Much is spent on tests and procedures that do not improve clinical outcomes. 10–30% of laboratory tests performed in the United States are either unnecessary or inappropriate, and this results in over $200 billion in overtreatment per year.5 There are wide variations in test ordering practices, but there is no correlation between volume (nor cost) of tests and quality of care.
The cost of inappropriate test utilization can be reduced through a lab stewardship program. This is a careful, responsible, and evidenced-based approach to management of laboratory resources by reducing clinically unnecessary testing. A methodical lab stewardship program will increase lab capacity, reduce expenses, and maximize profitability. It also improves patient care — correct patient testing improves diagnosis and reduces blood collection. A successful program should include metrics and analytics, changes to computerized provider order entry (CPOE), education and awareness, clinical strategies, and strong program governance and infrastructure.
Laboratory labor
The biggest expense for most clinical labs is staffing. Labor expenses constitute over 60% of the total operating budget of a clinical lab (including both salaries and benefits). Labor costs can significantly impact the profitability of the laboratory, hence it’s crucial to understand and manage this expense.6 Lab labor cost per test is a metric frequently used to measure efficiency.
Today, it is well known among laboratory leaders that there is a shortage of qualified medical laboratory scientists.4 This increases costs through the use of expensive agency/traveling staff, turnover, and wage competition with competitors. To counter increasing labor costs, it is important to have continuous improvement in place as well as to capitalize on the time/labor savings of the process improvements through “labor optimization,” a long-term initiative to right-size the labor pool to the amount of work needed to support the business. As an organization pursues continuous improvement, successful projects reduce workload. The labor pool can then shrink over time while maintaining or even increasing quality and service standards. If the organization is seeing an increase in the volume of services provided (or would like to pursue increased volume), right-sizing might look like maintaining the labor pool while growing the business. If volumes/business are stagnant, then right-sizing can be achieved through attrition — not layoff of staff. Four key components to successful labor optimization are continuous improvement, establishing labor oversight, data analytics, and counter-metrics.7
Lab equipment, supplies, and reference testing
Lab supply chain costs are rising in health systems across the country. The average hospital supply cost increase from 2019 to 2022 was 18.5% (outpacing inflation by nearly 30%), and lab expenses increased 27% over the same time frame.8
However, there is much opportunity for reducing costs, even while improving performance, through improved management of the lab supply chain. Hospitals or laboratories may not have a dedicated team of experts focused on the lab, as it is a small department within the hospital, but with robust market data and lab product and vendor knowledge, one can achieve cost savings year over year. A challenge is that lab equipment and supply contracts often require capital investment and are only renegotiated every three to eight years. In addition, any change in product should be supported with clinician and laboratorian buy-in. For these reasons, the organization may want to seek expertise in this area.
Regarding reference testing, targeted in-sourcing or out-sourcing (“make versus buy”) analysis should be performed regularly. Decisions should be made based on data, demand, capacity, equipment capability, expertise, and turnaround time. For testing that continues to be sent out, reference labs may be consolidated to obtain higher volumes and better pricing. Sending RFPs (request for proposals) to multiple reference labs and leveraging current market data will help ensure hospitals are not overpaying.9
Blood products
A blood transfusion occurs in the United States every two seconds. In patients over 64, transfusion is the second most common procedure performed in hospitals. In patients 45–64, it is the fifth. Overall, transfusion occurs in 3–5% of hospital stays.10
Due to recent shortages of blood products, and increases in pricing, many hospitals and healthcare systems are aiming to reduce their blood product costs. The best way to minimize these costs is to focus on appropriate utilization of the products themselves.
Many perceptions of blood transfusion, among clinicians and the public, are that transfusions are rare, their safety is high, risk is low, and they contribute positively to patient outcomes. In reality, transfusions are common, risky, costly, inconsistently available, associated with poorer patient outcomes, and often ineffective for the purpose given. Although we think of them as simple, blood transfusions are a “liquid organ transplant” ordered by a physician and often performed by a nurse.
For the typical one to three units of red blood cells that are transfused, there is a bell curve. Few patients receiving transfusions have their lives saved, many transfusions have questionable or no benefit, many are high risk, and some patients experience death.11 For many patients, transfusions only introduce risks and costs.
Patient blood management (PBM) typically involves multidisciplinary teams responsible for advancing only the safe, effective, and optimal use of blood products through quality improvement efforts. The global definition of PBM is a patient-centered, systematic, evidence-based approach to improve patient outcomes by managing and preserving a patient’s own blood, while promoting patient safety and empowerment.12
PBM includes promoting pre-emptive strategies for managing a patient’s anemia in order to avoid unnecessary transfusions. A successful PBM program will not only vastly reduce the cost of blood product usage, but also significantly improve patient care.
Conclusion and final thoughts
Optimizing cost savings in the laboratory is essential given financial pressures on healthcare institutions. By focusing on reducing unnecessary testing, managing labor efficiently, improving supply chain management, and implementing a patient blood management program, hospitals can not only enhance their financial stability but also improve quality of patient care. These strategies require commitment to continuous improvement, data-driven decision-making, and collaboration. As the industry continues to evolve, embracing cost-saving opportunities will be crucial for laboratories to remain competitive.
References
1. Forsman RW. Why is the laboratory an afterthought for managed care organizations? Clin Chem. 1996;42(5):813-6.
2. Bonislawski A. As Reimbursements Continue to Decline, Can Independent and Outeach Labs Survive?” 360Dx.; 2023.
3. Schubert M. A Primer on PAMA: The impending legislation that may determine Medicare laboratory fees from 2025 onward. ASCP News. Published online 2024.
4. American Society for Clinical Laboratory Science. Addressing the clinical laboratory workforce shortage. July 2, 2020. Accessed January 15, 2025. https://ascls.org/addressing-the-clinical-laboratory-workforce-shortage/.
5. Zhi M, Ding EL, Theisen-Toupal J, Whelan J, Arnaout R. The landscape of inappropriate laboratory testing: a 15-year meta-analysis. PLoS One. 2013;8(11):e78962. doi:10.1371/journal.pone.0078962.
6. The Rising Operating Costs of Clinical Laboratories: A Closer Look.
7. Benyo KC. Rightsizing Your Workforce: The Unspoken Need for Labor Optimization to Take the Impact of Continuous Improvement to the next Level.” Lean & Six Sigma Review.; 2024.
8. AHA. The financial stability of America’s hospitals and health systems is at risk as the costs of caring continue to rise. April 2023. Accessed January 14, 2025. https://www.aha.org/system/files/media/file/2023/04/Cost-of-Caring-2023-The-Financial-Stability-of-Americas-Hospitals-and-Health-Systems-Is-at-Risk.pdf.
9. Bolton B. Strategies for Reference Test Contracting.” Laboratory Economics.; 2024.
10. Blood Donation Statistics and Public Messaging Guide, Version 1.0.” America’s Blood Centers (ABC) and ADRP, an International Division of ABC.; 2022.
11. Goodnough LT, Shander A. Patient blood management. Anesthesiology. 2012 Jun;116(6):1367-76. doi: 10.1097/ALN.0b013e318254d1a3.
12. Shander A, Hardy JF, Ozawa S, et al. A Global Definition of Patient Blood Management. Anesth Analg. 2022;135(3):476-488. doi:10.1213/ANE.0000000000005873.
