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A cost-of-quality model for a hospital laboratory.

Calculating the cost of quality, which can constitute as much as 35% to 50% of a service organization's operating expenditures, [1] is vital to any quality improvement process. That was our goal when we began a total quality management (TQM) process in the laboratory of our 528-bed not-for-profit acute care facility in 1989.

Managing our TQM effort is a three-tiered work group. At the top is the quality working team, a 15-member advisory panel that includes technologists, phlebotomists, clerical staff members, supervisors, and the laboratory manager. A subunit of the team is the quality action board, which meets monthly to consider problems and appoint even more specialized teams to attack them.

The basis of the program is a model that helps determine the cost of quality and identify areas of laboratory service in which corrective action will reduce wasteful spending. An early step in our TQM was to calculate the cost of the ideal--that is, routine daily operations when all goes well--and then estimate the cost of nonconformance to that standard.

Adding the price of conformance to the ideal (POC) and the price of nonconformance (PONC) yields the total cost of quality. The model I constructed revealed our cost of quality as 35% of operating expenses. Of that figure, POC consisted of 10% of operating expenses and PONC of 25%. A substantial amount of money was going for Stat testing and unnecessary telephone calls (39.4% and 30.0% of PONC, respectively).

* Unnecessary expenses. POC costs cover routine daily operations, such as normal specimen collection, testing, and result reporting. PONC includes retests and expenses that are otherwise avoidable--that is, the price of maintaining quality when things go wrong. A break from normal conditions often results in a flood of compounding costs. When an instrument breakdown delays results, for example, funds must be spent on salaries for troubleshooting or overtime, replacement parts, and rerunning controls and specimens. Delayed results may postpone diagnosis and treatment while increasing length of stay.

To create the model, I identified and priced elements that contribute to POC and PONC. The two lists were condensed into 11 categories each and ranked according to the percentage of the total POC and PONC represented by each item. The elements are meant to serve as a guide for general laboratory operations; additional categories may be added as needed. Adding the cost of individual items in dollars provide an estimate of total POC.

We used manual check sheets to collect data and an off-the-shelf spreadsheet to compile them. The math was done on a calculator.

* Elements. The 11 elements of POC are listed in Figure I in descending order of proportion at our institution at that time. QA and QC materials and related salaries constituted the bulk of these expenses, which represented 10% of total operating expenses. The same procedure was used to calculate the cost of nonconformance, which represented 25% of total operating expenses (Figure II). After implementing changes that resulted in a saving on unnecessary phone calls, PONC dropped to 22.5%. Having determined the percentages, we generated bar graphs to illustrate the proportional causes for concern in clear graphic form.

* Element description. Section supervisors act as "reporters," responsible for reporting nonconformances. Reporting is done on a quality action request form, which is submitted to the quality action board. The board then assigns a team to suggest a solution. Such teams, which frequently cut across lab section or hospital department boundaries, meet within two weeks after a problem has been identified. The goal is to involve everyone in TQM.

When a problem is discovered, a PONC form we devised helps establish a cost formula and total outlay for the item under investigation (Figure III). The source document for the tobramycin problem, reported by the lab's central processing section, was a test cancellation report from the laboratory information system (LIS). Every time a test proved uninterpretable because of the inadequacy of information collected at the time of specimen draw, we had to cancel the charge and absorb the cost of the assay ourselves.

The base was the number of cancellations divided by the total test count, yielding a percentage of canceled tests. I calculated the outlay from the number of cancellations and the total expense per test, including specimen collection and the time required to cancel the assay.

On average, 30 tobramycin tests (15% of all such tests ordered) were canceled each month. With a cost per test of $25, the monthly expense was $750. Reducing the number of cancellations would lower the cost of quality. Corrective action was delegated to the nursing-laboratory quality action team. They devised a form to be generated by the LIS and filled out by the nursing staff when the test was ordered. Phlebotomists would pick up completed forms after drawing the specimen. The forms contained the information needed to make test results usable and allow us to bill for the work.

* Needless calls. Unnecessary phone calls were those made for results that a technologist read off a screen identical to one at the caller's workstation. The cost formula for calculating the number of pointless calls made to the lab involved the time spent communicating results multiplied by an average technologist's salary measured in minutes. The source document was a manual log kept at each appropriate lab phone. The base compared a percentage of time spent unnecesarily communicating results with total productive technologist time.

Our phone problem was years old. In each of several months after identification of the waste, the lab received an average of 17,361 unnecessary telephone inquiries. I estimated that retrieving and communicating the results took technologists an average of six minutes per call. Salary expense was $1.80; the base was technologist time at $18 per hour, including benefits. Multiplying $1.80 by the number of calls revealed that $31,250 per month was being spent on this item. Unwarranted telephoning occupied 6.6% of productive (worked) hours and accounted for 30% of the price of nonconformance in the lab overall. Again, corrective action was assigned to the nursing-laboratory quality action team.

Success has followed swiftly. By reducing the number of canceled tobramycin tests, we reduced that element of PONC by 83% within nine months. The $750 per month prodigality became $127.50, saving $7,470 per year. Excessive calls for test results dropped greatly, partly because we installed an automated phone distribution system. The PONC for telephone interruptions was reduced by an estimated two-thirds in the year after addressing the problem.

Our three-tiered system for quality management allowed us to solve problems in other areas as well. A lack of consistency in venesection was corrected by new training procedures, and a failure to chart results in a timely manner resulted in a revision of nursing rounds.

There also was a catch-22 involving turnaround time on morning testing. Orders would come down timed for 5 a.m. based on the mis-conception that they would be done faster. Since timed specimens often take priority, the new ordering practice increased pressure on the night shift and, ultimately, on TAT. We solved the problem by promising four-hour turnaround on morning draws. The result was an improvement in TAT of 61% on CBCs and 41% on seven-test chemistry panels.

* Streamlining solutions. Identifying the price of nonconformance based on Pareto analysis, which holds that 80% of the cost are caused by 20% of the problems, allows the laboratory to establish a priority for improvement projects based on the costs associated with rework. The element description forms permit objective measurement of the work processes that contribute to the price of nonconformance. With this model, the laboratory can quantify the cost of quality, identify areas for improvement, and measure the results of efforts made in that regard.

[1] Crosby, P.B. "Qualtiy Is Free," chap. 7. New York, Mentor, 1979.

General references:

Sholtes, P.R. "The Team Handbook." Madison, Wis., Joiner Associates, 1988.

"Total Employee Involvement: Basic Quality Improvement Techniques." Deerfield, Ill., Baxter Healthcare Corp., 1990.

Walton, M. "The Deming Management Method." New York, Dodd, Mead, 1986.
COPYRIGHT 1992 Nelson Publishing
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Author:Menichino, Thomas
Publication:Medical Laboratory Observer
Date:Jan 1, 1992
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