Wednesday, November 11, 2020

The Distributed Costs of Poor Laboratory Quality

 I have written about Costs of Poor Quality before (see: Tuesday, March 3, 2020CVP - The Coronavirus Vanity Project -or- Sunday, March 6, 2016 Another look at costing Quality-2016 -or- Saturday, June 7, 2014 Taking Charge - Taking Responsibility ) It is a favourite topic of mine.
While first introduced by Joseph Juran, it was best defined by Philip Crosby as the Measurement of Quality. “Take everything that would not have to be done if everything were done right the first time and count that as the price of non-conformance.” 

 Crosby made the point that all too often these non-conformance costs could add to more than 10 fold the costs of “doing it right the first time”. My guess is that he didn’t just pick that number 10-fold of the air; my guess it was probably based on a ton of calculation, which must have been a megaton of work considering the state of computers (by reference that was the year that I bought my first Commodore 64 with its amazing 64K of RAM).
Today we can take a better measure of the Costs of Quality and Costs of Poor Quality. My estimate is that today the Costs of Poor Quality can run up to 100-1000 times the cost of doing it right the first time round.

When thinking about Quality Costs any organization,  it becomes apparent that the Quality Costs are core or nuclear, but Poor Quality Costs are expansive, maybe explosive. Quality Costs can all be captured as a series of single line items in the laboratory’s budget. It is much harder to capture Poor Quality Costs because they not only affect the laboratory through extra reagent costs, extra staff work time, and repair and maintenance costs, but they also extent outside the laboratory hitting the budgets and pocketbooks of our customers. Think about these as the Distributed Costs of Poor Laboratory Quality

When a clinician is notified about an incorrect result, they will need to go into their files, find the patient, contact them and explain the problem and may have them go back to the laboratory for another test. They will need an additional note in the chart. That all takes time out of their day, maybe 20 minutes to an hour for each patient (more if contact requires a few phone calls) for which they probably cannot bill.
For the patient, their time and patience are consumed; they were notified and informed a test result may be in error causing stress and probably annoyance. They may need to have a retest; maybe they will need to get a sitter, or leave work early, or drive to the laboratory and park, all of which is money out of their pocket. Maybe they will lose work time and maybe lose income. Maybe they have already purchased medications based on the wrong information. Pretty sure the pharmacist is not going to take the pills back.
And what if the problem was a microbiological problem that got public health attention (an errant COVID-19 test, or stool pathogen test). The chase-down and corrections can consume many hours.
Worse, if the problem had some bad outcomes and lawyers got involved, there are going to be facility costs that could run into the thousands, if not millions of dollars.

And what if the error was not picked up right away and more than one patient was involved. Maybe it was 5, or maybe 10. I was involved in the investigation of one that involved over 100 patients.

So what starts as a simple “oops” can sometimes within the blink of an eye evolve into a very big deal. Capturing these distributed costs can be an important part of your awareness and corrective action process. Taking ownership may be a bitter pill to swallow, , but learning about these distributed costs has to be a part of the nonconformance / OFI investigation, which certainly is an accreditation requirement, and far more importantly and Quality requirement. 

If you want to visualize how much these distributed costs can climb, I have a tool that calculate the estimated costs and give you a graphic depiction in dollars and minutes. Let me know if you think it helpful.


  1. Michael, as the author of “Principles of Quality Costs: Financial Measures for Strategic Implementation of Quality Management, Fourth Edition” I enjoyed your article. Enjoyed may not be the right word, as your observations are alarming. Alarming, but accurate.
    In 2016 I did research looking at quality costs in health care delivery. I spent a year interviewing CEOs, health care cost accountants, health care improvement executives, pundits in health care, laboratory managers, and others. My results were disappointing.
    There was not then, and may not exist yet, a market for a book focused on cost of poor quality in health care. No one was interested. After we got beyond the “cost is different from revenue” stage, top executives, middle managers, and medical staff were not interested. One key aspect is that cost of poor quality is a metric for process managers. Who is the process manager in health care delivery?
    One physician I spoke with claimed it was the patient’s doctor. It cannot be. A process manager looks at time, cost, required skills, outcomes, and risk and helps make a process successful while balancing all of these. The physician does not know the cost and is not responsible for the entire process (admitting to rehab). Frankly, only the patient can halfway manage the process, and they are not informed (and lack critical skill and knowledge) to do it.
    Until there are end-to-end process managers in health care delivery, cost of poor quality is no one’s metric.
    Putting my project to write a book aside, I then sought to measure cost of poor quality (or the more complete cost of quality: prevention, appraisal, internal waste and external consequences) for focused projects in health care. There have been many Lean projects published in health care, so I looked at seven of these. I asked the project authors if they would allow me to prepare a cost of quality frame for their published Lean projects. All seven I approached said yes!
    To support your contention of the ratio of cost of poor quality (internal) to investment, the 7 studies average this: each $1 of added prevention reduced $84 of internal waste to $47 for ongoing monitoring and control (first year only). If external cost of poor quality could be calculated, your figure of $1000 is not unreasonable. One case showed each $1 of prevention showed a savings of $226 in just internal waste!
    Only one organization allowed publication of the jointly developed cost of quality calculation connected to their already-published Lean study. Most leaders did not want to reveal the extent of their process and financial ignorance. This is another reason coat of quality is not to be openly shared in health care delivery institutions: embarrassment.

  2. Thanks Douglas
    Your comments are valuable and insightful. This might be a problem more easy to address in Canada, or Australia that in the US because our health systems are more integrated. Family docs, specialists, institutions and laboratories in each province all largely have a single payer, which is their provincial government (There are some exceptions for private billing but the overwhelming majority is public). So there is potentially a central process manager position in the provincial Ministries of Health, but my experience is that that position is NOT used optimally, if at all.

    In my Certificate Course I see a lot of Quality Managers from a variety of countries, including USA, who see a mandate for looking at Costs of Poor Quality, so I do see some rays of hope. I think the graphic nature of my app creates a visual about how much we are spending and how much we are costing others.

    Ultimately it is reputational costs and the potential liability costs that may change the day.

    As a related story, I had an uncle who lived in Louisville who had a position and platform for making comment. It became his norm that if he was stuck in his family docs waiting room for what he determined was an unreasonable time, he would send them a bill for his wasted time. Don't know if he backed that up with a visit to small claims court, but I always supported his decision and action. If you let other people get away with wasting your time and money, you really have no one to blame except yourself.

  3. Hello Michael, I like your tool! As I work in medical lab with a responsability in quality management, I did not activate yet the cost of poor quality in the NC module because its formula was very simplistic in my opinion, yours seems to cover most of what it entails to correct and mitigate follow-ups of NC. I was wondering where do the costs of reagents and otehr lab material fit in the equation.Finally I agree and concurr with you and Douglas that until ''ownership'' is acquired, transparency shall be opacity.

    1. Yamama... My apologies for the late response. This tool for Extended Costs of Poor Quality has been update to try and accommodate more factors including reagents, etc. For the current version this is included as a general lump amount, rather than trying to be specific. My justification is that in the greater scheme of laboratory testing, once the equipment has been bought or rented, the costs of reagents etc is small to trivial as compared to the personnel costs.


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