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Economics 101: In-house versus Reference
Testing - Criteria to Consider for Molecular
Testing
Jordan S. Laser, MD, FCAP
October 22, 2014
Jordan S. Laser, MD, FCAP
2
• North Shore Long Island Jewish
Health System, New York
o Medical Director, Pathology and Laboratory Medicine; Long Island Jewish Medical
Campus
o Associate Medical Director, Core Laboratories
o Senior Director, Division of
Cytogenetics and Molecular Pathology
o Director, Division of Near Patient Testing
• CAP
o Member of Personalized Health Care Committee
Disclaimer
The College does not permit reproduction of any substantial
portion of the material in this Webinar without its written authorization. The College hereby authorizes attendees of the
CAP Webinar to use the pdf presentation solely for educational
purposes within their own institutions. The College prohibits use
of the material in the Webinar – and any unauthorized use of the College’s name or logo – in connection with promotional
efforts by marketers of laboratory equipment, reagents,
materials, or services.
Opinions expressed by the speaker are the speaker’s own and do not necessarily reflect an endorsement by CAP of any
organizations, equipment, reagents, materials or services used
by participating laboratories.
3
Disclosures
• Dr. Laser has no disclosures
4
Learning Objectives
• Understand the complexities in the decision making
process of “In-house vs. Reference”
• Apply basic financial concepts to perform a break
even analysis
• Analyze the impact of “In-house vs. Reference” on
the medical group as a whole
Pre Test Question 1
• What is a key characteristic of a complete
stakeholder analysis?
o A) It is critical component of project management, usually
performed during the execution phase
o B) It is the process of analyzing stakeholders attitudes
towards your progress in project management
o C) Stakeholder analysis can be done once or on a regular
basis as stakeholder attitudes change
o D) All of the above
Pre Test Question 2
• Which type of expense is correctly matched to an
example?
o A) Fixed direct cost; electric bill
o B) Variable indirect cost; instrumentation
o C) Fixed indirect cost; personnel
o D) Variable direct cost; reagents
Pre Test Question 3
• Which component of a SWOT analysis is correctly
matched to its definition?
o A) Strength, an attribute that is helpful and of
internal origin
o B Weakness, an attribute that harmful and of
external origin
o C)Threat, an attribute that is harmful and of
internal origin
o D)All of the above
Background
• Why do we send some molecular studies to
reference laboratories?
Background
• Why do we send some lab work to reference
laboratories?
– Low volume tests
– Lack of expertise
– Regulatory
– Intellectual property
– Lab space
– Personnel shortage
– SIMPLY TOO MANY TESTS TO DO THEM ALL
Scale of Tests to Perform
• AMP test directory statistics:
– 242 Labs
– 7001 total tests • 4969- Hematopathology • 1252- Infectious disease • 780- Solid tumor
• Literature:
– CAP Today: • “With AML Genetic
Profiling, It Takes All Kinds – Karen Titus, June 2012
– 2008- FLT3, NPM, CEBPA
– 2012- Patel et al:
» DNMT3A, TET2, WT1, IDH2, IDH1
» Exomes
» Genomes
In-House vs. Reference
• “Make vs. Buy”
o What information do you think is appropriate to
consider when deciding to make vs. buy?
6 Step Process
1. Medical Management Value
2. Current Status
3. Stakeholder Analysis
4. Instrumentation
5. Financial Analysis
6. Mini-SWOT
Medical Management Value
• Issue:
– Do the patients need the results?
• Technique:
– Review literature
– Reach out to ordering practitioners
• “If it is positive…… If it is negative…..”
• Resolution:
– If it doesn’t add value, don’t make or buy
• Other opportunities
Current Status
• Issue:
– Are the patients currently getting the results they need? Timely?
• Urgency
• Technique:
– Investigate reference dept, practitioners
• Resolution:
– Yes- less urgent, time to decide
– No- more urgent
• Consider reference testing-short term
Stakeholder Analysis
• Issue:
o If I were to offer this test, who would it impact?
− Think in all directions
– Up stream
– Laterally
– Down stream
Stakeholder Analysis
• Issue:
o If I were to offer this test, who would it impact?
− Patient
− Ordering practitioner
− Technologists
− Administration
− Other Departments
− Other laboratories
− etc
Stakeholder Analysis
Name Role
Interest /
Involvement Influence Supporter
P. Juan Ordering Physician Low High YES
H. Adams Chairperson High High NO
F. Gonzales Technician Low High AGNOSTIC
C. Chao Marketing rep High Low NO
Stakeholder Analysis
Instrumentation
• Issue:
– What instrument do I have / need? • Performance characteristics • FDA vs. LDP • Open vs. closed platform • Capital purchase vs. reagent rental
• Technique:
– Vendor relationships
– Colleagues • Listserv
• Resolution:
– Recommend limit to two possible instruments
Financial Analysis
• Issue:
o Is this service financially viable?
• Technique:
o Cost identification / categorization
o Revenue identification
o Break-even analysis
o Net Gain/Loss analysis
• Resolution:
o Gains or losses
Financial Analysis
• Cost Identification:
o What costs are associated with performing this
service?
Financial Analysis
• Cost Identification:
– What costs are associated with performing this service?
• Reagents • Instrumentation
– Service contracts • Personnel
– Wages and benefits • Marketing • LIS • Logistics • Electricity • Water • Etc…..
Financial Analysis
• Cost Categorization:
– Direct vs. Indirect
– Fixed vs. Variable
• Definitions:
– Direct cost:
• Costs that can be identified specifically with a
particular activity / service / test
– Indirect cost:
• Costs that are incurred for common activities /
service / tests
Financial Analysis
• Definitions:
o Fixed cost:
− Cost that is
independent of
output (volume)
o Variable cost:
− Cost that varies
with output
(volume)
0
2000
4000
6000
8000
10000
12000
14000
16000
0 100 200 300 400 500 600 700 800 900 1000
Co
st (
US
D)
Volume (Tests / Month)
Fixed vs. Variable Costs
Fixed Cost (USD) Variable Cost (USD)
Financial Analysis
Fixed Variable
Cost Direct Indirect Direct Indirect
Reagents X
Instrumentation X
Personnel X
Marketing X
LIS X
Logistics X
Electricity / Water X
Financial Analysis
• Issue:
o Is this service financially viable?
• Technique:
o Cost identification / categorization
o Revenue identification
o Break-even analysis
o Net Gain / Loss analysis
• Resolution:
o Viable or not?
Financial Analysis
• Revenue Identification:
– How much will I get paid to perform this test?
• Technique:
– 1) Historic data (if currently sent out) • Institutional bill
– 2) Other lab list prices • Average list price • Global average reimbursement (GAR)
(revenue/charges ratio) – Revenue= X(list) * GAR
– 3) Other determination • Medicare Fee Schedule • Finance Director
Financial Analysis
• Issue:
o Is this service financially viable?
• Technique:
o Cost identification / categorization
o Revenue identification
o Break-even analysis
o Net Gain / Loss analysis
• Resolution:
o Viable or not?
Financial Analysis
• Break Even Analysis:
o Tells you at what
volume your costs
equal your revenue
− Volumes above
profit
− Volumes below
loss
0
50000
100000
150000
200000
250000
US
D
Volume (Tests / Year)
Break Even Analysis
Cost Revenue
• Break Even Analysis:
o Combine:
− Cost identification / categorization
− Revenue identification
− Algebra!
– y=mx+b
Financial Analysis
31
Cost curve:
− y= cost
− m= slope = variable costs
− x= volume of tests
− b= y-intercept = fixed costs
Revenue curve:
− y= revenue
− m= slope = reimbursement / test
− x= volume of tests
− b= *** generally not used
Financial Analysis
PGX Genetic Test- In house
Cost Identification / Categorization
• Personnel:
– 1 technician – 78,000
– Fixed direct cost
• Instrument:
– Reagent rental – 8 dollars / reportable
– Variable direct cost
• Reagents: – 45 dollars / reportable
– Variable direct cost
• Cost Curve Equation:
– y= (53*x) + 78000
Revenue Identification
• Revenue:
o 209 /reportable
• Revenue Curve
Equation:
o y= (209*x)
0
50000
100000
150000
200000
250000
0 100 200 300 400 500 600 700 800 900 1000
US
D
Volume (Tests / Year)
Break Even Analysis- PGX Genetic Test- In House
Cost Revenue
PGX Genetic Test- Send out
Cost Identification /
Categorization
• Send out cost:
• $230
• Direct Variable Cost
• Cost Curve Equation:
– y= (230*x)
Revenue Identification
• Revenue:
o 209 /reportable
• Revenue Curve
Equation:
o y= (209*x)
36
0
50000
100000
150000
200000
250000
0 200 400 600 800 1000
US
D
Volume / Year
Break Even Analysis PGX Test- Send Out
Cost Revenue
Should I perform in house or send out?
37
0
50000
100000
150000
200000
250000
0
10
0
20
0
30
0
40
0
50
0
60
0
70
0
80
0
90
0
10
00
US
D
Volume (Tests / Year)
Break Even Analysis- PGX
Genetic Test In House
Cost Revenue
0
50000
100000
150000
200000
250000
0 200 400 600 800 1000 U
SD
Volume (Tests / Year)
Break Even Analysis- PGX
Genetic Test Send Out
Cost Revenue
• In House Testing:
o Revenue-cost= Net Gain/Loss
• Send Out Testing:
o Revenue-cost= Net Gain/Loss
Net Gain / Loss Analysis
38
39
-100000
-80000
-60000
-40000
-20000
0
20000
40000
60000
80000
100000
0 200 400 600 800 1000 USD
Volume (Tests / Year)
Net Gain/Loss
Send out
In house
Mini- SWOT
• SWOT
o Strengths
o Weaknesses
o Opportunities
o Threats
• Issue:
o What other issues might impact my decision, not
specifically addressed in
the process above?
PGX Genetic Test
• Strengths:
– Excellent relationship with requesting practitioners
– Marketing expertise
• Weakness:
– No experience with this technology
• Opportunities:
– Joint venture with other lab in health system
• Threats:
– Unknown reimbursement rates
– Intellectual property (?)
6 Step Process
1. Medical Management Value
2. Current Status
3. Stakeholder Analysis
4. Instrumentation
5. Financial Analysis
6. Mini-SWOT
Post Test Question 1
• What is a key characteristic of a complete
stakeholder analysis?
o A) It is critical component of project
management, usually performed during the
execution phase
o B) It is the process of analyzing stakeholders
attitudes towards your progress in project
management
o C) Stakeholder analysis can be done once or on
a regular basis as stakeholder attitudes change
o D) All of the above
Post Test Question 2
• Which type of expense is correctly matched to an
example?
o A) Fixed direct cost; electric bill
o B) Variable indirect cost; instrumentation
o C) Fixed indirect cost; personnel
o D) Variable direct cost; reagents
Post Test Question 3
• Which component of a SWOT analysis is correctly
matched to its definition?
o A) Strength, an attribute that is helpful and of
internal origin
o B Weakness, an attribute that harmful and of
external origin
o C)Threat, an attribute that is harmful and of
internal origin
o D)All of the above
• Gene Sets for Cancer NGS Testing: What’s Available
o Thu, Dec 4, 2014 10:30 AM - 11:30 AM
o Mary M. Zutter, MD, FCAP, and Ian S. Hagemann,
MD, PhD, FCAP
o Register by going to www.cap.org/webinars
Don’t Miss Our Upcoming Webinars
47
Archived Webinars
View at www.cap.org/webinars->Previous Sessions
48
TOPIC SPEAKER(s)
Practical Issues in Surgical
Pathology that Enhance Ancillary Molecular Testing for Cancer
John Pfeifer, MD, PhD, FCAP
Viral Respiratory Tract Infections: Detection Now and in the Future
Frederick L Kiechle MD, PhD, FCAP
Prenatal Screening for Down
Syndrome: Past, Present and
Emerging Practices Testing Maternal Plasma DNA for Down Syndrome
Glenn Palomaki, PhD
IHC Assays – New Evidence-Based Guideline for Analytic Validation
Jeffrey Goldsmith, MD, FCAP
Practical Genomics for the Practicing Pathologist Webinar Series
Practical Genomics for the Practicing
Pathologist Webinar Series
Date/Time (US Central Time)
Garbage in, Garbage out: How Every
Pathologist Can Ensure Accurate
Genomic Oncologic Testing
November 20, 2014 @ 12 pm
Cancer Genomics: Selecting the Right
Test at the Right Time
December 11, 2014 @ 12 pm.
• The College of American Pathologists is pleased to release this new webinar series on
critical genomic testing knowledge and skills.
• Each hour-long webinar highlights a critical genomics skill that practicing pathologists
will find relevant, practical, and timely.
• Each webinar carries 1 AMA PRA Category 1 Credit™. And because the series
supports advancing the specialty as well as CAP’s Genomics Strategy, each is
available to members for just $10.
49
CAP Learning
50
Course Learning Objectives
Good Laboratory Practices for
Molecular Genetic Testing
CME– 2.0
Upon completion of this course you will be able to:
•Describe the application of the CLIA requirements to molecular genetic
testing.
•Select quality assurance measures for molecular genetic testing which are
consistent with good laboratory practices.
•Develop procedures and processes for a molecular genetic test which are
consistent with regulatory requirements and good laboratory practices.
Molecular Testing Guideline for
Selection of Lung Cancer Patients
for EGFR and ALK Tyrosine Kinase
Inhibitors
CE/CME/SAM – 0.0
The guideline provides answers to these important clinical questions:
•When should testing be performed?
•How should EGFR testing be performed?
•How should ALK testing be performed?
•Should other genes be routinely tested in lung cancer?
•How should molecular testing of lung cancer be implemented?
The implementation of the CAP/IASLC/AMP guideline will ensure a uniform
approach to the molecular testing of lung cancer and will improve the
effectiveness of lung cancer treatment for patients.
© 2014 College of American Pathologists. All rights reserved.
CAP Learning
51
Course Learning Objectives
The Business Argument for Cancer
Genome Testing
SAM/CME– 0.00
•For cancer clinical testing, what is the right time to move from single gene tests
to large molecular panels using a sequencing platform?
•What are the internal considerations - pro and con? How do you build the
business plan for bringing such testing in-house?
•How do you convince the decision makers in your institution to deploy the
needed resources?
•What are the lessons learned by “early adopter” pathologists who are now
using these platforms in-house?
Molecular Diagnostics and
Predictors in Thyroid Cancer
CE/CME/SAM – 0.0
Recent studies have demonstrated the feasibility of mutation detection in
clinical FNA samples from thyroid nodules and their contribution to improving
the diagnostic accuracy of FNA cytology. It appears that molecular testing is
most beneficial for thyroid FNA samples with indeterminate cytology, where it
can resolve the diagnosis in a significant number of cases. In addition to BRAF
mutation, which has been studied most extensively, detection of RAS, RET/PTC,
and PAX8/PPARgamma mutations also contribute substantially to cancer
diagnosis. Some of these molecular markers, particularly BRAF, can also be
used for tumor prognostication. In clinical setting, molecular testing of thyroid
FNA samples and surgically removed tumors should utilize a restricted number
of techniques that provide high accuracy and specificity of mutation
detection.
© 2014 College of American Pathologists. All rights reserved.
CAP Learning
52
Course Learning Objectives
Quality in Laboratory Hemostasis
and Thrombosis: Chapter 8 - Point
of Care Testing in Hemostasis
SAM/CME– 0.00
The hemostasis laboratory has a vital role in the diagnosis and management of
patients with familial and acquired hemorrhagic and thrombotic disorders. Its
role in the monitoring traditional anticoagulant therapy as well as therapy using
new anticoagulants presents new challenges to the laboratory. Quality in
Laboratory Hemostasis and Thrombosis not only addresses these important
issues, but also covers international guidelines for testing, the development of
international standard materials, management of hemostasis testing from the
laboratory to the point of care as well as molecular genetic testing.
Molecular Testing for Mutations in
Improving the Fine-Needle
Aspiration Diagnosis of Thyroid
Nodules
SAM/CME – 0.00
The aim of this study was to establish the feasibility and role of testing for tumor-
specific mutations in improving the FNA diagnosis of thyroid nodules.
The prospective study included 470 FNA samples of thyroid nodules from 328
patients. At the time of aspiration, a small portion of the material was collected
and tested for BRAF, RAS, RET/PTC, and PAX8/PPARgamma mutations. The
mutational status was correlated with cytology and either surgical pathology
diagnosis or follow-up (mean, 34 months).
The results indicate that molecular testing of thyroid nodules for a panel of
mutations can be effectively performed in a clinical setting. It enhances the
accuracy of FNA cytology and is of particular value for thyroid nodules with
indeterminate cytology.
© 2014 College of American Pathologists. All rights reserved.
CAP Learning Portal
53
CAP Learning Portal
• The CAP Learning Portal includes content and tools designed to support the learning needs of pathologists . A user must login to cap.org in order to access the portal. In the portal, you will find: o Learning Options search/catalog
o Competency Model for Pathologists
o Personal Progress Check
o My Learning Plan
o Help Center (Guides, Video, FAQs)
• Benefits Increase effectiveness to plan and manage learning
Increase efficiency to target learning needs and identify premium learning solutions Increase satisfaction with learning solutions that meet specific learner needs Increase capability to maintain professional certifications
© 2014 College of American Pathologists. All rights reserved.
To learn more…
54
• For more details and to register for/access educational offerings:
1. Log in to the cap.org website
2. Click on the “Learning Portal” tab.
3. Click on the “Browse Our Learning Catalog” tab
4. Type your desired topic in the “Search” box or make a selection from the list provided.
A list of available learning options displays
© 2014 College of American Pathologists. All rights reserved.
The CAP has created the Pathology Resource Guides, a tool
(updated September 2014) to assist pathologists in understanding key
emerging technologies. Printed guides are now available for
members and non-members for a small fee. The digital copy of the
Resource Guides are available to members for free.
Molecular Pathology (single gene, small panel)
Genomic Analysis (large panels, exome, genome)
Digital Pathology
In Vivo Microscopy
Register through the CAP member tab. Once registered, you will be
notified when a new issue is released.
Questions? Contact [email protected].
CAP’s Pathology Resource Guides Printed editions available for members & non-members
55
• Pathology SPECs are:
o short PowerPoint presentations, created for pathologists, focused on
selected diseases where molecular tests play a key role in patient
management.
o valuable resource for your discussions with Tumor Boards or other
physician colleagues.
• Now Available:
― Prenatal Screening for Down Syndrome: Past, Present and Emerging
Practices (NEW)
― HER2 Testing in Breast Cancer: 2013 ASCO/CAP HER2 Guideline Update
(NEW)
― Others SPECs available on Respiratory Virus, Breast Cancer, Colorectal
Cancer, Metastatic Melanoma, Thyroid Cancer, Lynch Syndrome, and
JAK2
To view all the available SPECs, register by going to the CAP Member tab on
cap.org
Short Presentations on Emerging Concepts
(SPECS)
56
58
THANK YOU!
Thank you for attending our webinar
“Economics 101: In-house versus Reference Testing - Criteria to
Consider for Molecular Testing” by Jordan S. Laser, MD, FCAP
For comments about this webinar
or suggestions for upcoming
webinars, please contact
Jill Kaufman, PhD,
Director of Personalized Health Care at [email protected]
NOTE: There is no CME/CE credit available for
today’s free webinar.
59
