Health economics is concerned with an analysis of the cost and benefit associated with a procedure or process, and can range from an individual procedure through to a whole life. One might argue that to do the former ignores the benefit side of the equation - simply paying attention to the comparative cost of two procedures, whilst the latter involves some very complex analysis but even tougher decision making in order to implement findings. This dilemma epitomises the problems that face the resourcing and management of in-vitro diagnostics and pathology services in the health service today.

The results from in-vitro diagnostic tests provide information on the likelihood of the presence or absence of a disease, confirm the presence of a disease, and can help to assess the effectiveness of a therapy. Topical examples include the use of biochemical markers to screen pregnant women to indicate an increased risk of Down's Syndrome, blood glucose for detection and management of diabetes, brain natriuretic peptide for early detection and management of heart failure, DNA based testing for the early detection of chlamydia infection and assessment of HER-2/neu status to determine whether a women with breast cancer will respond to a particular drug therapy, Herceptin.

The benefits achieved by such testing can accrue to the patient, and thence society as a whole - greater life expectancy, better quality of life, less pain, greater mobility etc. The benefit also has an economic dimension both at a societal and an individual level, but there may be intermediate benefits of a more operational nature. Thus careful management of diabetes can reduce the cost of treating the complications of the disease, as is also the case with earlier detection of chlamydia infection, and in the earlier detection of heart failure.

A global perspective toward benefits is important because in-vitro diagnostics is only one element of the clinicians' armamentarium for treating ill health and disease. Patient education and counselling, as well as therapies, also play an integral role in improving health. However it also hides a wealth of opportunity for diagnostic services which remains untapped.

As an example, developments in technology also mean that tests can be performed at the point-of-care e.g. the emergency room, the outpatients clinic, the health centre or the home. Such rapid access to results can enable earlier initiation of treatment, more informed dialogue with patients, shift of care away from hospitals and greater convenience for patients. This can lead to a better quality of care and clinical outcome as well as a reduction in the cost of care - further highlighting potential operational benefits.

Realising the potential that in-vitro diagnostics and pathology services can offer is, however, challenging - and for a number of reasons. Firstly, in-vitro diagnostics and pathology services are not funded in a way that takes into account the potential benefit associated with the investment. In most hospital trusts the pathology services are organised and funded as a separate cost centre i.e. separate from the clinical directorates that they support. In a case where a private laboratory is used the service is the subject of a cost and volume contract. This approach to "silo financial management" takes no account of the benefit gained against the cost.

The second challenge is that investment in a new diagnostic service, or modality of delivery e.g. point-of-care testing, invariably involves a change in practice and possibly "moving money from one cost silo to another". Thus it has been shown that in-vitro diagnostic testing can reduce the number and length of hospital visits, as well as the need for referral to hospital. Clearly the overall cost to the health service can be reduced, but the challenge is to "move the money around in the system". Does reduction in length of stay mean that fewer beds are needed, or fewer clinic appointments required? Obviously not whilst we have waiting list targets - but appropriate use of diagnostic tests could be used to help deliver these targets.

Herein lies the third challenge - increasing awareness of the potential value of diagnostic tests. It is obvious that whilst diagnostic testing is viewed as a cost centre it will never be able to deliver its full potential. Greater importance needs to be given to the value of such testing coupled with a culture change in health service resource management. The culture needs to move away from cost per test to cost per patient episode, or some other more holistic metric. Benchmarking activities, performance indicators and audit activities need to focus on what the diagnostic services can deliver in terms of operational and clinical outcomes, rather than solely on cost per test and laboratory efficiency metrics.

In-vitro diagnostics can help to unlock many of the problems besetting healthcare delivery today. There needs to be a greater awareness of the value of testing, a different approach to resource allocation and a greater commitment to changing practice in order to deliver the benefits. The current pace of research and its productivity in the field of in-vitro diagnostics is generating new opportunities every day.