What's the Cost of Poor Quality? Measure the Value of Your Lab's Quality Program with the CoPQ Calculator

Contributing Lab Leader: Jennifer Dawson, MHA, FACHE, CPHQ, LSSBB, DLM

Leadership

Article highlights:

By decreasing or eliminating Cost of Poor Quality resulting from nonconforming events, your lab can increase profit margins, which will help you to justify investment in quality to the C-suite.

Lab services are integral to patient care. But extreme reimbursement cuts, as well as the pressure to reduce costs, are driving the need for change. Labs must now shift their image from cost centers to value creators, a repositioning that requires making quality a top priority.

Quality, however, can be a nebulous concept. Without a clear way to measure the success of your lab's quality program, it's difficult to get the funding that your lab needs. Fortunately, new tools exist today to solve this problem by calculating the Return on Investment (ROI) of your quality program in a standardized, efficient way, and subsequently you can use that data to communicate an ROI to the C-suite.

Smart lab leaders know that making a significant contribution to patient care and value-based reimbursement starts inside the lab. Getting a handle on overlooked costs related to nonconforming events is a good place to start.

Nonconforming Events: A Missing Piece of Quality Management

In the clinical lab setting, a nonconforming event is the failure to meet a requirement¹ or, put simply, when something in the laboratory doesn't go as planned².

Less than optimal quality originating in the lab has an enterprise-wide ripple effect, negatively impacting an institution's budget, reputation—and most significantly—patient care. Nonconforming event management is one way labs can not only mitigate risk, but also boost profit margins.

Nonconformity tracking is a regulatory requirement (per CLIA Standard §493.1239) that all labs should comply with. By identifying and characterizing nonconforming events, your lab can carry out investigations to identify the root cause of problems, then take corrective or preventive actions. The result of eliminating root causes of events? Large cost-savings and better operational performance. If rework and nonconforming events can be avoided not just for the lab, but enterprise wide, then healthcare institutions can significantly improve their bottom line.

This underutilized cost of quality metric, known as Cost of Poor Quality (CoPQ), can help you achieve major transformation for your lab.

What Is CoPQ?

Cost of Poor Quality, otherwise referred to as CoPQ, can help you to quantify your current losses due to rework and nonconforming events and demonstrate a value that originates from avoiding errors inside the lab.

CoPQ is not a new concept. It was developed in 1951 by Joseph Juran, an American engineer, who applied it to manufacturing³. Jennifer Dawson, Senior Director of Quality at Human Longevity, Inc., now champions the concept in the clinical lab setting. Her extensive work led to the development of an ROI model that helps labs succeed by raising stature with executives and the C-suite, while also improving patient outcomes.

CoPQ is divided into internal and external failure costs:

Internal failure costs occur when the results of work fail to reach quality standards. They are detected before the product or service is transferred to the customer and include waste, rework,or rectification of defective materials, missing specimens, and failure analysis¹.
External failure costs occur when products or services fail to reach quality standards. They are not detected until after transfer to the customer and include complaints, misdiagnoses, patient harm, corrected reports, or lawsuits¹.

While hard failure costs, such as rework, are obvious and easily measurable, you must also capture soft failure costs related to issues like low morale, litigation, and delays to measure the total negative impact of poor quality on an organization's financials².

Calculate the ROI of Your Quality Program With the CoPQ Calculator

Calculating CoPQ may sound like a tall order, but new tools are making the process simpler. The CoPQ calculator, developed by Dawson and tested with key opinion leaders in the quality/lab management industry, will help you calculate your lab's cost of poor quality. Dawson created this tool after noticing that labs struggle not only with consistent reporting and manually documenting nonconformities, but also understanding the financial loss associated with rework and nonconformatities. Tracking CoPQ electronically solves the latter issue and allows you to trend data efficiently. By using the CoPQ calculator, you can capture and quantify costs associated with nonconforming events.

The CoPQ calculator is a tried and true, user-friendly way to calculate CoPQ in a standardized manner on an event-by event basis: It lists common CoPQ classifications with drop down menus to ensure a big picture approach is taken to COPQ calculation including internal and external failure costs.

Here's how it works: Enter hard internal failure costs. This should be a close approximation of hours spent on error remediation or wasted materials or reagents, for example. The CoPQ calculator also gives you the ability to define standardized estimates for hard-to-measure soft costs (both internal and external failure costs). The totals for each nonconforming event are then compiled into management reports to produce an overall picture of CoPQ in the lab. Don't worry if this is your first time calculating COPQ! There are notes in the tool that walk you through the process and all of the totals are calculated automatically.

Make a Case for Quality Using the CoPQ Calculator

CoPQ gives you the ability to justify additional resources for your laboratory. You can use this data to drive conversation between your lab and the C-suite (particularly with the COO) and demonstrate ROI in the form of cost avoidance and/or cost savings to the reference lab, hospital or other institution.

By decreasing or eliminating CoPQ, your lab's quality program can increase profit margins for the laboratory and be perceived as a value creator. The goal of using CoPQ is to get the executives in your organization to see quality initiatives as cost-savings and cost avoidance, which is a step forward from the traditional view of quality programs as a cost center.

Prevention always costs less than paying for mistakes, which is why showing management the benefits of your quality initiative in financial terms is so powerful. This is money that the lab and institution would have lost had quality efforts not intervened.

Demonstrating the benefit of your quality program in dollars is a way for you to speak the language of the leaders who hold the keys to unlock the resources your lab needs and deserves.

The LabLeaders CoPQ series continues... Get More Here

References:

http://asq.org/learn-about-quality/cost-of-quality/overview/overview.html
Dawson J. Medical Laboratory Management Magazine, What's Your CoPQ? Quantifying the Value of Laboratory Quality, Medical Laboratory Management Magazine, July-August 2017 - Vol. 6 No. 6
History of Cost of Poor Quality. Accessed 8/7/17. http://www.quality-improvement-matters.com/costofpoorquality-history.html

Contributing Lab Leader

Jennifer Dawson, MHA, FACHE, CPHQ, LSSBB, DLM

Vice President, Quality & Regulatory

Human Longevity, Inc.

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