Earlier, we learned how to determine fixed and variable costs. Determining revenue can be a bit more complicated. In hospital laboratories, most testing is paid through managed care and not a direct fee for service, making the revenue computation more complex. Some facilities credit the laboratory for revenue based on fees from their Charge Master. In contrast, others may use the Medicare reimbursement fee for service schedule to represent revenue generated by the lab for the purpose of financial studies such as BEP. Since the charge Master often has higher fees than the highest fees paid by the health insurance providers, the Medicare direct fee for service fees is the most realistic. Below is an example BEP calculation.
Revenue = $1,000,000
Reportable tests = 100,000
Revenue per reportable test (r)= 1,000,000 / 100,000 = $10.00/reportable test
Variable cost = $186,500
Variable cost per reportable test (V) = $186,500/100,000 = $1.86/reportable test
Total fixed costs (F)= $159,500
Fixed Costs /reportable test (f) = $159,500/100,000 = $1.59
Net income contribution (C) set at 0
For this example, the laboratory does not see a profit in the laboratory operation until a minimum of 19,595 reportable patient tests have been done. For every test after that there is a profit of $6.55 on average ($10.00 - $1.86 - $1.59 = $6.55)
