Concerns have been raised often across the healthcare industry about the overuse of lab testing for inpatients, yet it’s unclear to what extent it poses a real problem. Studies focusing on unnecessary lab tests have reported that unnecessary lab tests constitute anywhere from 30 to 95 percent of inpatient test performed. a Because of the wide disparity of these findings, it is unclear how much money can be saved by reducing testing, and who would benefit, because the vast majority of the costs of lab tests are fixed. b
Is It Worth the Effort to Reduce Lab Testing?
Excessive testing, specifically lab testing of inpatients has been studied for decades, and it continues to be a widely cited concern today, with recommended solutions generally focusing on making it more difficult to order tests.
The lack of institutional interest in this excess is striking, however, in an era of cost containment and emphasis on value in health care. The disinterest suggests that there is little money to be made, or few costs to contain, by reducing lab testing. Many experts support the view that the fixed costs of lab testing dwarf the variable costs in health care, suggesting that, although reducing testing might help increase supply or capacity, it would end up not saving much real money. Covering the fixed costs from the labs (or any study such as imaging) helps defray general hospital expenses, providing another disincentive to reduce lab utilization. Conversely, others assert that significant savings can be realized by quality improvement (QI) interventions and reductions in utilization. c
Which of these positions is closer to the truth? Should hospitals take notice, and should providers order labs in a more deliberate and restrictive manner? Or is trying to curb excessive ordering not worth the effort?
For an additional perspective on these questions, let’s consider an analysis performed at a rural, academic, tertiary care hospital in New England. A detailed cost analysis was performed for every test and procedure in the facility, assuming the payment structure of a fixed payment per encounter, such as the DRGs of the Centers for Medicare & Medicaid Services (CMS) for inpatient care where routine labs are common.
The cost analysis examined the breakdown of fixed and variable costs for several common lab panels including complete blood count (CBC); basic metabolic panel (BMP) including sodium, potassium, chloride, bicarbonate, blood urea nitrogen, creatinine, glucose, and calcium; and complete metabolic panel (CMP) comprising BMP plus total protein, albumin, total bilirubin, direct bilirubin, aspartate aminotransferase, alanine aminotransferase, and alkaline phosphatase.
The results of the cost analysis support the contention that fixed costs are far higher than variable costs. Fixed costs accounted for 68 percent of a CBC, 71 percent of a BMP, and 69 percent of a CMP. The total institutional cost of each of these tests is about $10 to $20. Changing practices would save only $3 to $5 of variable costs per test per day on a subset of patients who do not need daily labs, so it is not surprising these changes are not high on priority lists.
Putting Volume Reduction Into Context
On the other hand, all (or most) costs are variable on some level, so much greater savings could be realized if unnecessary tests were not run to the point that the unused sources of fixed costs—the unneeded overhead and personnel—eventually could be shed. Although it is true that many so-called fixed costs could be reduced or repurposed if the decrease in volume could enable a reduction of staff or equipment, the organization also would have to ensure the change could be sustained.
Furthermore, because lab tests are largely automated and the human time involved in any test is on the order of 1 to 2 minutes, it would be necessary to perform about 62,000 fewer tests to warrant the reduction of one FTE. Putting that into context, the tertiary care academic center previously mentioned ran 210,000 CBCs and 233,000 chemistry panels in 2012, so there would have to be a combined reduction of 14 percent in these tests before one lab position could be eliminated—and this percentage is underestimated because these annual institutional totals include outpatient tests (for which payment differs from that under the DRG model).
Whether or not one subscribes to the idea that all costs are variable, it’s clear that addressing the fixed costs can lead to truly significant cost reductions. d In fact, it may be possible to practice more efficiently by transferring some of the capacity of fixed-cost operations to locations that operate at lower costs. By keeping people healthy and delivering care in their homes or local community when possible, and reserving care at a tertiary or quaternary care facility for only the instances in which it’s absolutely necessary, organizations can reduce fixed costs over the long term. Once a patient has entered the high-cost tertiary care institution, the opportunity to achieve the biggest cost reductions has been lost.
The same idea applies to radiology studies, which have a similar cost breakdown to that of labs. Seventy-eight percent of the cost of a head or abdominal computed tomography (CT) scan is fixed. The dollar figures and the amount of time that is spent preparing, performing, and cleaning after the test, however, are much greater. The dollars and time are even greater for magnetic resonance imaging, where the table-time can be well over an hour. Consequently, only about 1,000 MRI scans need be eliminated before one FTE can be reduced (4.5 percent of the medical center’s annual volume as opposed to the 14 percent for lab reduction noted above).
Although QI projects may not lead to significant cost savings, healthcare organizations should not dismiss these efforts. Reduced utilization per patient frees up that resource for another patient. If that resource is a bed, and length of stay has been reduced, the cost-savings may actually manifest as increased revenue as another patient (and DRG revenue) comes to the hospital. With increased throughput, cost savings also may appear as decreased fixed costs per patient.
Lessons From a New England Hospital
This assessment of potential cost-savings from reduced lab testing should hold true for other large hospitals that operate their own labs. Efforts to reduce lab testing are unlikely to yield large, sustained cost savings (more than an average of $20 per patient-day). However, cost savings may not be the only benefit of reduced testing. Patient satisfaction may be one such example.
As noted previously, many studies have found that 30 percent or more of studies ordered on inpatients are unnecessary. These often are “routine morning labs” (as opposed to new diagnostic tests) that are ordered repeatedly despite the fact that nothing changed that would lead the clinician to think that the results would be any different.
Similarly, reduced testing may lead to fewer follow-up tests and treatments that may be triggered by the initial tests. Tests frequently are ordered as part of a “fishing expedition” in order to expedite a diagnosis, without consideration of the likelihood of any particular diagnosis. In this manner, many low-yield tests are ordered. More testing leads to more false-positive results when the likelihood of the patient having the condition being tested for is vanishingly small. A false-positive may then lead to unnecessary follow-up testing or treatments. For example, asymptomatic bacteriuria (bacteria in the urine that is not causing symptoms) does not require antibiotic treatment unless the patient is pregnant or undergoing a urologic procedure, yet many patients do receive unnecessary antibiotics for such test results.
Consequently, QI projects may result in modest direct cost-savings and some indirect cost-savings (as unnecessary follow-up studies are avoided). They also may improve patient safety (as less blood is drawn and fewer procedures are performed) and improve patient satisfaction (if they are not disturbed by unnecessary blood draws). Therefore, although they many not yield enormous savings, QI projects are worth pursuing, if only to fulfill a hospital’s responsibility to deliver the right care to the right patient at the right time. Moreover, the most meaningful savings that can be achieved through such efforts (such as reducing or at least slowing the growth of “fixed costs” such as lab or radiology space, equipment, and personnel) may not even become apparent until after the initial efforts have been undertaken.
Alden W. Hall, MD, MS, MPH, is a hospitalist at Mt. Ascutney Hospital and Health Center in Windsor, Vt., an affiliate of Dartmouth-Hitchcock Medical Center.
a. van Walraven, C., Naylor, C.D., “Do We Know What Inappropriate Laboratory Utilization Is? A Systematic Review of Laboratory Clinical Audits ,” JAMA, Aug. 12, 1998; and Chu U.B., Clevenger, F.W., Imami, E.R., Lampard, S.D., Frykberg, E.R., Tepas, J.J., “The Impact of Selective Laboratory Evaluation on Utilization of Laboratory Resources and Patient Care in a Level-1 Trauma Center,” American Journal of Surgery,” November 1996.
b. Rauh, S.S., Wadsworth, E., Weeks, W.B., “The Fixed- Cost Dilemma: What Counts When Counting Cost Reduction Efforts?” hfm, March 2010; and 64:60-3; and Rauh, S.S., Wadsworth, E., Weeks, W.B., Weinstein, J.N., “The Savings Illusion—Why Clinical Quality ImprovementFails to Deliver Bottom-Line Results,” The New England Journal of Medicine, Dec. 29, 2011.
c. Byrnes, J., “Just How Much Value Can We Create?” hfm, January 2015; Levy, P., “Efficiency Matters Even in a High Fixed Cost Industry,” runningahospital.blogspot.com, Jan. 3, 2012, and Kaplan, R.S., Luther, K., Haas, D., Wertheimer, S., “Four Mistakes of Cost Reduction in Health Care,” Institute for Healthcare Improvement, blog post.”d. Weeks, W.B., Rauh, S.S., Wadsworth, E.B., Weinstein J.N., “The Unintended Consequences of Bundled Payments,” Annals of Internal Medicine, Jan. 1, 2013.
Eric Wadsworth, PhD, William Weeks, MD, PhD, and Stephen Rauh, MD, were gracious in helping to explain various perspectives on this issue. Allen Repp, MD, has offered many helpful insights into various considerations in this project.