Tips to Improve Laboratory Quality Management

January 2024 - Vol.13 No. 1 - Page #2
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Category: Compliance

This material comes from the article Tips for a Successful Cost of Poor Quality Initiative by Jennifer Dawson, MHA, FACHE, CPHQ, LSSBB, DLM(ASCP); and Christina Nickel, MHA, MLS(ASCP), CPHQ. For the full context of this material,
visit: medlabmag.com/article/1486

Great attention is being paid to the cost of poor quality (CoPQ) concept in clinical laboratories. First described by Joseph Juran in his 1951 handbook on quality,1 CoPQ can be defined as the cost of not performing a process correctly the first time or “the costs associated with providing poor quality products or services.”2 It is widely accepted that poor quality engenders significant financial losses for organizations.3-6 In fact, studies show that CoPQ costs companies millions of dollars annually, and the reduction of this waste can help transform an institution from marginally successful to profitable.5

The CoPQ concept can be useful in demonstrating the financial value provided to a clinical laboratory or hospital by its quality program through the cost avoidance and cost savings realized by eliminating root causes of nonconforming events. Without the interventions enabled by the nonconforming event management system and lab quality program improvement initiatives, the laboratory and/or hospital would continue to experience financial losses for these opportunities, in addition to potential patient safety risks. Further, calculating CoPQ aids laboratory leadership in identifying the often large amount of waste in everyday operations, more effectively triaging nonconforming events for remediation, and in justifying additional investment in quality tools and resources.

Common Nonconforming Events

The following are seven types of nonconforming events commonly encountered in the clinical laboratory:

  • Specimen mislabeling
  • Instrument downtime
  • Test reruns
  • Proficiency testing failures
  • Corrected reports
  • Product recalls
  • Turnaround time delays

Accordingly, the following tips are intended to convey helpful information that will enable laboratories and their leadership to more efficiently optimize their efforts in preventing costs related to poor quality.

Tips for Success

1. Use a Standardized Tool

Ensure reproducible CoPQ calculations are being performed using a standardized methodology. It helps to list all the different costs in as much detail as possible. Whether you use an existing tool or create your own, be sure to beta test your tool with users and thoroughly train staff to ensure the capture of reliable and useful CoPQ data.

2. Management Buy-In is Essential

It is necessary to meet with executive management prior to starting collection of CoPQ data to gain consensus regarding meaningful metrics for your specific organization. While buy-in for overall quality can be strong, there are varying levels of buy-in for the inclusion of soft costs in CoPQ calculations. Thus, be sure to emphasize the calculation of these more nebulous, but real financial implications when addressing the quality program.

3. Be Creative, but Conservative with Soft Costs

Although it can be difficult to collect substantive data regarding soft costs (which likewise challenges buy-in), it remains a worthwhile exercise in order to fully understand the holistic impact of nonconforming events. Furthermore, all facilities take different approaches to the calculation of soft costs, as these are largely dependent on data availability and management’s tolerance for estimated figures.

One such exercise is applying creative calculations for soft costs such as low morale, where example metrics can include a percentage of overall daily revenue or percentage of an individual employee’s wages. Hard costs tend to be more straightforward to calculate in a standardized, reproducible way using basic cost accounting, although some such quantifiable information may not be available from other departments. The cost to the organization to operate the emergency room for one patient for one hour, or to observe isolation precautions for one patient for one day are examples of costs of poor quality that may not be readily available.

4. CoPQ Is Not Useful for External Benchmarking

Considerable intrafacility and interfacility variability in the cost of poor quality can exist for the same event type. Variation within and amongst labs for the same event type is likely to be significant even with the use of a standardized tool. This is due to the variables surrounding each event, lack of a standardized CoPQ calculation method in industry, and the unique laboratory environments in which they occur. As an example, 35 corrected report nonconforming events were included in one study with CoPQ values ranging from $31 to $54,526 (average $4,913, median $541).7 Likewise, there were 28 turnaround time delay events included in the study with a range of $21 to $106,179 (average $6,820, median $232).7 (CoPQ values rounded to the nearest dollar.) For this reason, external benchmarking of CoPQ data has limited value.

5. Choose the Right Approach for Your Lab

Different approaches to the collection of CoPQ data are taken based on the availability of resources and the number of nonconforming events that occur in a specific lab. Some labs will choose to calculate CoPQ data for all events, while others will take a few representative events to determine an average CoPQ for that event type, enabling application of an average number to their monthly and annual frequency of occurrence. Alternatively, some may choose to only calculate CoPQ for single issues that are particularly problematic or ongoing. Regardless of your approach, do not expect perfect calculations from the beginning. The process of capturing CoPQ is likely to evolve for your organization, requiring flexibility and change as the program takes shape.

6. Know the Difference Between Cost Savings and Cost Avoidance

It is common for the terms cost savings and cost avoidance to be confused or used interchangeably. However, if the intent is for these terms to be used to express a return on investment for quality initiatives in your laboratory, they must be distinct and used properly. In order to foster an understanding of the vital role of quality in the lab and to gain buy-in and support from those who hold sway over the necessary resources, you must speak their language, as doing so lends more credibility to your claims (see the SIDEBAR).

Cost savings measures are reflected in financial statements and the annual budget. On the other hand, cost avoidance measures are never reflected in financial statements or the annual budget. They are only reflected in instances where a proposed action is not implemented, resulting in a cost increase.8 Consider quality control (QC) in your laboratory. For example, if we can order control material at a lower cost, or perhaps implement an individualized quality control plan (IQCP), which would result in running less QC without compromising patient safety, these actions will result in cost savings. Cost avoidance is provided to the laboratory by QC, simply by virtue of the reliability of issued results being verified by running controls. Without ongoing QC, the laboratory would inevitably issue unreliable results, which would result in misdiagnoses and harm to patients (at elevated cost). Ultimately, cost avoidance is more difficult to convey because it requires factoring in events that did not occur because an intervention was implemented.

Get Started Capturing CoPQ

Capturing the CoPQ associated with nonconforming events or near misses enables laboratory leadership to quantitate the financial benefit of quality initiatives. This further allows lab leadership to speak the language of key executives in the organization whose interest invariably lies in the financial bottom line. Approaching executive management armed not only with quality and patient safety benefits, but also with an indication of financial benefit will allow the lab to sell proposed quality initiatives effectively. Poor quality and rework create unnecessary financial losses to an organization. Assigning a monetary value to that waste provides the motivation to eliminate it.

Investment in costs of good quality (prevention and appraisal) results in lower cost of poor quality and overall cost of quality reduction. For laboratory leadership, understanding, articulating, and recording examples of CoPQ in lab operations will help demonstrate the implications of nonconforming events in the laboratory, as well as the cost savings and cost avoidance achieved through the elimination of root causes. These actions are key to initial and ongoing administration support of quality programs.


References

  1. Juran JM. ed. Juran’s Quality Handbook. 5th ed. New York: McGraw‐Hill, 1999.
  2. Wood DC. ed. Principles of Quality Costs: Financial Measures for Strategic Implementation of Quality Management. 4th ed. Milwaukee, WI: ASQ Quality Press; 2013.
  3. Harry M, Schroeder R. Six sigma: the breakthrough management strategy revolutionizing the world’s top corporations. New York, NY: Currency; 2000.
  4. Clinical and Laboratory Standards Institute. Understanding the Cost of Quality in the Laboratory; A Report. CLSI document QMS20-R. CLSI. Wayne, PA; 2014.
  5. Archambeau S. What is Your Company’s Cost of Poor Quality? Quality Digest. 8/23/2004. Accessed January 1, 2024. https://www.qualitydigest.com/inside/quality-insider-article/what-your-companyrsquos-cost-poor-quality.html#
  6. Clark T. Success through Quality: Support Guide for the Journey to Continuous Improvement. ASQ Quality Process; 1st ed, 1998.
  7. Dawson J, Nickel C, Benavides R, et al. Calculating the Cost of Poor Quality: A Multi-Facility Study. Poster presented at 2017 Lab Quality Confab. New Orleans, LA.
  8. Oliver L. Cost Savings and Cost Avoidance: Why You Should Know the Difference. Medium website. Accessed January 1, 2024. https://medium.com/@lianabeloliver/cost-savings-and-cost-avoidance-why-you-should-know-the-difference-2eb627965067

For Further Reading

What’s Your CoPQ? Quantifying the Value of Laboratory Quality
Jennifer Dawson, MHA, FACHE, DLM(ASCP)
medlabmag.com/article/1393

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