Vol. 18 • Issue 9
• Page 18
The Molecular Edge
The field of molecular diagnostics (MDx) is the most rapidly growing area in laboratory medicine. During the last 25 years, from the advent of Southern analysis to the acceptance of array-based assays, methods used for MDx have quickly evolved.
These technological advances, however, have been accompanied by substantial increases in instrument costs. The laboratorian is faced with balancing the adoption of cutting-edge technologies with justifying the increased cost of validating and implementing new instrument platforms. Knowing the most effective method for acquiring equipment for the laboratory is an essential responsibility of the laboratory director and manager. These ideas must be articulated and justified to administrators. What follows are approaches the laboratory director can use when requesting the acquisition of new instrumentation.
Step One: Know Thyself
The first step toward acquiring instrumentation is to determine the philosophy of your institution. Is your institution willing to take risks to grow its business? Risk-tolerant organizations strive to be nimble but are endangered by adopting instrumentation with unproven performance records. In contrast, institutions that are more financially restricted, such as county, state or charity hospitals, may focus on maintaining the status quo or on reducing costs. A risk-averse institution may prefer to wait until new technologies are proven reliable (i.e., via peer-reviewed publications, FDA clearance or approval).
Also, examine reasons why and when your laboratory needs to acquire new instrumentation. Is patient safety/care compromised by existing equipment? Is current instrumentation no longer supported by the manufacturer? In either of these scenarios, the cost of sending tests to a reference laboratory and subsequent delays in reporting should provide quantifiable and objective metrics to easily justify the need for new instrumentation. Are your clients demanding performance improvements (i.e., shorter turnaround time, greater linearity or increased sensitivity) that the current platform cannot offer, and would this potentially jeopardize loss of business?
Alternatively, perhaps your laboratory is seeking to "corner the market" in a specific area; if so, obtaining platforms that permit specialized testing using highly esoteric assays may be justified. The laboratory should also consider the capability of its staff in implementing new technologies. Not all technologists may be able to perform highly complex methodologies.
Step Two: Know Your Options
Make sure the laboratory and administration are using the same terminology. One definition of capital equipment is: "Equipment that you use to manufacture a product, provide a service or use to sell, store and deliver merchandise. This equipment has an extended life such that it is properly regarded as a fixed asset."1Organizations will have differing definitions of "extended life" and differing cost thresholds for defining capital instrumentation. For example, some institutions consider extended life to exceed one year; for others, it is 10 years. Some institutions consider capital equipment as an expense > $5,000 while others set the threshold at > $25,000.
Numerous options are available to enable your laboratory to acquire instrumentation:
• Capital purchase (outright purchase) of instrumentation permits the institute to depreciate the cost of the instrument and reduce profit levels. Depreciation rates will differ from one organization to another. Outright purchase of instrumentation limits the cost of testing to consumables and labor, unlike reagent-rental contracts. Potentially negative aspects of direct purchase include committing to a technology for the life of the depreciation cycle and the need for service contracts and instrument insurance.
• Capital lease is similar to capital purchase except that the lab agrees to purchase a certain amount of reagents for a period of time, followed by a final cash payment for the instrument. Following the final purchase of the instrument, reagent costs generally decrease. Depending on the agreement, the laboratory may not have to obtain insurance or service contracts during the lease period; however, it may be also unable to depreciate the cost of the instrument. For institutions with low capital reserves but with a long-term commitment to molecular testing, this may be a better approach for acquiring needed instrumentation.
• Reagent-rental agreements permit the laboratory to have new instrumentation without the need for capital purchase. Such arrangements typically require a commitment to purchase a particular volume of reagents for a specific time. Caution should be exercised when signing long-term commitments as technologies can change rapidly and insurance and service contracts may or may not be included in agreements. Depreciation of equipment costs cannot be claimed under such agreements.
Step Three: Know Who Controls the Purse Strings2
You should understand who controls the financial resources at your institution. Some organizations empower the medical director to make these purchases, but an operations manager, non-doctoral laboratory director, or hospital administrator may be involved in the decision-making process.
The institution also may have levels of authority or review for acquiring large purchases. For instance, a hospital administrator may have authority to approve capital equipment purchases, but may not be involved with reagent rental agreements. Alternatively, if an institution may benefit academically from the addition of new technologies, individuals representing a center of excellence or core facility may be able to influence the decision.
Step Four: Know How to Get Your Point Across
Many institutions have forms that assist in triaging various capital equipment requests. These forms typically require a succinct description of services that would be supported by the new instrumentation (Table). A market and risk assessment describing the market characteristics, competition, barriers to entry and projected growth of test volumes and negative effects of not acquiring the new instrumentation also should be included.
The lab should research the vendor's ability to provide on-site support, ease of technical operation and training, inventory control systems and the instrument's robustness.
Dr. Payne is the director of the Molecular Diagnostics Laboratory and Dr. Melton is a Molecular Genetics Pathology Fellow, Department of Pathology at the University of Texas Southwestern Medical School, Dallas.
Descriptions to Support Instrumentation Purchase
• Indicate if the instrumentation is a new instrument, replacement or upgrade.
• Identify the total cost of the new technology.
• Emphasize how it will impact patient safety.
• Determine (and list) if it is required by regulatory entities, i.e., FDA, Joint Commission, HIPAA, etc.
• Describe how it will impact other departments or centers and identify key revenue-generating sources and other benefits, i.e., clinical revenues, clinical trials.