Revenue and Cost Accounting

for Clinical Laboratories

• Basic accounting principles
• Accounting for lab revenue
• Accounting for lab cost
• Salary and wage cost evaluation
• Productivity management
• Wage and salary budgeting
 Basic Accounting
• A/c payable • Direct expense
• A/c receivable • Liability
• Assets • Payback period
• Balance sheet • Profit
• Budget • Present Value (PV)
• Cash flow • Return of Investment
• Chart of accounts (ROI)
• Credit
• Debit
• Depreciation
 Financial Management
• Health care is a business and ranks second after
the defense budget with regard to gross national
product (GNP)
• Providing lab services is a business that requires
managers to have a comfortable understanding
of how finances apply to the technical aspects of
the lab environment
• It is the responsibility of the lab manager and
director to work together towards making the
laboratory a revenue centre.
 Lab Revenue
• Revenue
– Total money received during a certain time
period.
• Government revenue
– The increase in assets of government funds
that do not increase liability of expenditure.
This revenue is obtained from taxes, licenses
and fees.
 ….cont
• Revenue is part of financial analysis
• A company’s performance is measured to
the extent to which its asset inflows
(revenues) compare with its asset outflows
(expenses).
• Net income is the result of this equation.
• Revenue is used as indication of quality
of earnings.
 Wage and Salaries Guidelines
• Pay ranges (max/min)
– New or vacant positions should be budgeted
realistically
• Individual increases
• Normal minimum increases
• Merit, market, equity.
• Review of increases (promotion, bonus, year
end appraisal)
• Wage/salary adjustment
• Shift/Overtime/Claims
 Accounting for lab cost

• MOST HOSPITALS ARE NOT-FOR-PROFIT

institutions
• Revenues generated by lab often contributes
toward the financial support of hospital services
that do not generate revenue.
• Costs
• Variable
• Fixed
• Semifixed
• semivariable
 4 categories of costs
• Fixed
– Do not change related to volume
– May change due to strategic changes
• Variable
– Decrease (or increase) based on product output
• Semifixed
– Change in a step wise manner.
• Semivariable
– Cost result from a combination of variable and fixed
ones.eg. utility costs
Main Types of Cost Analysis
• Cost-of-illness analysis: a determination of the economic impact of an
illness or condition (typically on a given population, region, or country)
e.g., of smoking, arthritis or bedsores, including associated treatment
costs
• Cost-minimization analysis: a determination of the least costly among
alternative interventions that are assumed to produce equivalent
outcomes
• Cost-effectiveness analysis (CEA): a comparison of costs in monetary
units with outcomes in quantitative non-monetary units, e.g., reduced
mortality or morbidity
• Cost-utility analysis (CUA): a form of cost-effectiveness analysis that
compares costs in monetary units with outcomes in terms of their
utility, usually to the patient, measured, e.g., in QALYs
• Cost-consequence analysis: a form of cost-effectiveness analysis that
presents costs and outcomes in discrete categories, without
aggregating or weighting them
• Cost-benefit analysis (CBA): compares costs and benefits, both of
which are quantified in common monetary units.
 Wage and salary budgeting
• Budget
• A way of working out your income and expenses
so you can effectively manage your finances and
ensure you are saving for the future.
• Record all sources of income and all the
items you regularly spend
• Any money left is called your disposable
income.
 Productivity management
• Human Productivity
• Ratio of labour hours to units of outputs
• Keys to effective productivity management
• Eliminate unnecessary calls on labour that consume time but
to not increase output
• Optimize the effectiveness of peoples time through the
application of good technology
• Schedule as much of work as possible (match with resources
and human resources)
• Inventory the tasks and sort according to “time critical” or “not
time critical” groups
• Evaluate the work flow and labor demand (full time or part
time)
• Make judicious use of overtime
• Establish attainable productivity goals
• Values human productivity