Productivity and productivity improvement are popular topics. People generally agree about the need to improve productivity in this country, yet there is little consensus as to how to achieve productivity improvement or how to measure this improvement. Furthermore, there is misunderstanding regarding the relationships among productivity, profitability, and price recovery. This paper defines and examines these relationships. These concepts are used to evaluate the productivity of a hospital's pathology laboratory. The distinction is made between income statement analysis and the potential role of productivity measurement. The analysis demonstrates that although profitability is declining, productivity improvement is making a positive contribution to profitability. On the other hand, the decline in price recovery more than eliminates the positive contribution of productivity improvement to profitability. This approach is perhaps one of the first serious attempts to measure the productivity of knowledge workers in a service organization.