This paper focuses on methods for costing and funding hospital pathology services, and their relevance for government cost-control goals. Cost is an elusive, socially constructed phenomenon. As such it is context dependent and can be defined in different ways for different purposes. Misunderstanding of the contexts and purposes creates confusion and leads to contradictions and 'costly' mistakes for the New Zealand taxpayer. The cost to the taxpayer is not synonymous with the costs incurred in laboratories. The calculations of the latter, in a hospital setting, are so complex that often those responsible for running the cost systems do not understand the inscriptions produced by computer translations. In this paper, two costing initiatives potentially useful for non-competitive cost containment are outlined. The paper argues that the multiple funding methods resulting from New Zealand's public/private health care mix perpetuate perverse incentives that drive laboratory test volume escalation and discourage the full exploitation of potential economies-of-scale. The long-held objective of successive New Zealand governments to divert health funding away from hospitals and into preventive health care, is being subverted by the retention, at laboratory service level, of a competitive contracting system that was initially set up to contain test prices. The result for the New Zealand taxpayer is that costs are excessive, with millions of dollars passing to foreign-owned laboratories, which have incentives to take the tests, as well as the profits, offshore. (C) 2003 Elsevier Science Ireland Ltd. All rights reserved.
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