The Invisible Cost: Why the Cost-Per-Test Fallacy is Bankrupting Hospitals

Clinical laboratories represent about 5% of a health system’s total costs, yet the data they generate impact up to 70% of critical medical decisions.¹

This disproportionate leverage makes the laboratory one of the most powerful diagnostic engines in healthcare. For obvious reasons, it is also one of the easiest, but most dangerous, targets for blind cost cutting.

Using a laboratory’s “cost per test” to measure its effectiveness is a fundamental economic miscalculation because diagnostic data is treated as a commodity.

When hospital administrators force laboratories to drive down unit costs, capability unavoidably suffers. It goes like this: A cheaper test arrives too late and results in an extra day of inpatient admission. Just because somebody needed to save $3 in the lab, it ended up as a $3,000 loss in the ward.

The Invisible Cost of Errors

At the point of origin, the economic impact of a laboratory error is mostly invisible to the laboratory itself.

Yet viewed globally, a pre-analytical error affects patient outcomes, increases overall healthcare costs, and reduces efficiency.² And, because those costs mainly manifest as extended length of stay, redundant clinical interventions, or adverse patient events, they get flagged in the hospital’s budget, not the laboratory’s budget.

According to recent analysis, 89% of the total cost for pre-analytical errors is detected in the hospital, while only 11% is detected in the central laboratory.³ Therefore, the true cost of compromised laboratory output will only show up downstream.

Unnecessary or delayed lab tests can multiply healthcare expenses. When a laboratory has to implement wholesale budget cuts, the quality and speed of service often drop. These reductions may actually lead to increased costs downstream, as medical decisions are delayed or made without adequate data.⁴

High-performing laboratories do not just manage their own budgets. They manage the diagnostic value stream for the entire organization.

How much does inappropriate laboratory testing actually cost the healthcare system?

A recent analysis of more than 1 billion outpatient laboratory claims has highlighted that Medicare alone may have incurred up to $3.28 billion in unnecessary costs from inappropriate testing in just one year.⁵

Those are just the visible costs. The hidden costs of excessive testing are expressed in downstream care, repeat procedures, and the clinical consequences of acting on false positives.⁵

The ADLM estimates that by eliminating redundant tests, hospitals could reduce their costs by perhaps $5 billion per year.⁶

This is why “cost-per-test” is the wrong benchmark. The endgame shouldn’t be to produce unnecessary tests for less. We should be instituting the capability that prevents them from being assigned in the first place.

How do we stop the loss of billions of dollars as a result of inappropriate testing?

By moving from utilization management to diagnostic stewardship.

Laboratory stewardship programs use test utilization strategies and add a quality component focusing on the value of the service relative to its cost.⁷ It’s not just about denying tests; it’s about guiding clinicians to the right test, for the right patient, at the right time.⁸

Under the value-based care paradigm, laboratories risk being left as commodity suppliers unless they reposition themselves as assets for driving high-quality, cost-effective healthcare.⁹

A capable laboratory does not just process the orders it receives; it drives the diagnostic conversation.

As we move from volume-based to value-based healthcare, we must also move from volume-based ideas of the laboratory’s importance to value-based realities.

Value in healthcare is defined by health outcomes achieved per monetary unit spent.¹⁰

Laboratory medicine is a “hidden treasure” whose value is systematically underestimated.¹¹

A capable laboratory understands its true value proposition: it is not a factory producing results; it is a clinical partner reducing systemic waste and improving patient care.

Stop managing the 5% and start managing the 70%.

[1] Hiltunen, M. (2017). Dispelling the 70% Claim with Laboratory’s True Value. MedicalLab Management Magazine.

[2] Lippi, G. (2025). Unveiling the hidden clinical and economic impact of preanalytical errors. Turkish Journal of Biochemistry, 50(3), 331–338.

[3] Eker, P. (2022). Direct cost analysis for 32,783 samples with preanalytical phase errors. North Clin Istanbul, 9(4), 391–400. https://doi.org/10.14744/nci.2022.73555

[4] ARUP Lab. (2016). Avoiding Financial Waste: UM Strategies in the Pre- and Post-Analytical Phases.

[5] Smart, D., Schreier, J., & Singh, I. R. (2025). Inappropriate Laboratory Testing: Significant Waste. Archives of Pathology & Laboratory Medicine.

[6] ADLM. (2020). Advancing value-based healthcare: Laboratory medicine’s essential role. Position Statement.

[7] ASCLS. (2021). Laboratory Stewardship 101: Effective Interventions.

[8] bioMérieux. (2024). Diagnostic Stewardship: Choosing the Right Test.

[9] 4SightHealth. (2025). The Future of Clinical Laboratories in Value-Based Care.

[10] Tomaiuolo, R. & Banfi, G. (2026). Value is equal to outcome/costs: how to apply to laboratory medicine. Clinical Chemistry and Laboratory Medicine, 64(2), 284–289. https://doi.org/10.1515/cclm-2025-0691

[11] Adeli, K. (2017). Laboratory medicine – A hidden treasure in healthcare. Clinical Biochemistry.