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Exploring the Cost of Quality in the Laboratory

“Prevention is better than cure” is a statement frequently used in medicine and healthcare, and it also applies to quality systems used in the laboratory. There’s little doubt that anyone who works in a lab knows that the prevention of adverse incidents is preferable to implementing corrective actions once an issue occurs. However, in today’s health care economic environment, many lab management teams are finding their resources are stretched to the breaking point, forcing them to make cuts that they worry could potentially affect patient test quality. Applying cost of quality principles is a solution that helps labs to make fiscally sound decisions while maintaining high standards of quality.

Quality processes have a clear relationship with laboratory costs. If more money is invested in good quality processes, there will be fewer errors and decreased costs related to recovery from failures. If little attention is given to good quality processes, failures (and the corresponding cost of poor quality) will increase.

A cost of quality mindset not only works to streamline lab processes, reduce waste and cut unnecessary expenses, but also to invest in positive quality processes that can ultimately drive down overall failure costs for the short and long term.

It is important to remember that quality issues are usually due to inefficient or flawed laboratory processes, and high failure costs are rarely the fault of lab staff.[1] Learn more about quality controls

Why quality principles are so essential

Customers, clinicians and patients should always be the first priority for a health care business. Every laboratory should strive to provide customers with superior and dependable services, and implementing a cost of quality approach will make the lab budget as efficient and effective as possible in achieving high quality results.

While implementing more quality processes might seem like an unnecessary increase in costs, the subsequent reduction of high failure costs more than justifies the initial expenses. It takes some effort and financial investment to produce high quality services, but it is far more costly to deal with the failures that arise from neglecting quality. Efforts towards high quality can also reduce waste and help the laboratory maintain a strategic and effective budget.

However, if money is not spent on quality activities, the number of errors and failures will be much higher, with potentially daunting economic consequences.

What are the costs of quality?

To understand how quality costs affect the lab, it is first important to recognize that there are both good and poor quality costs.

Good quality costs are divided into two categories

  • Prevention costs are spent on quality activities intended to proactively prevent problems from ever occurring.
  • Appraisal costs are spent on quality activities intended to identify current issues and prevent them from happening again.

Poor quality costs attempt to deal with the consequences of quality failures (also called non-conforming events), and they can be very expensive. Poor quality costs are also divided into two categories:

  • Internal failure costs are spent resolving errors before they leave the control of the laboratory.
  • External failure costs are spent resolving errors after they have left the laboratory’s control. These are the highest quality costs.

While good quality costs are usually easy to identify in a lab budget, poor quality costs are not always as straightforward because failure costs do not have their own category and are often folded into the rest of the budget.

For example, it is easier to identify how much is being spent on proficiency testing or preventive maintenance than it is to determine how expired materials or invalid instrument runs affect the budget. This means that laboratories might not have a clear picture of how much money and time failures are costing them. Chances are, a laboratory is spending far more on failure costs than one would think.

Examples of each type of quality cost

Prevention Costs

To prevent problems from happening in the first place

  • Quality management system
  • Quality planning
  • Quality improvement activities
  • Quality education
  • Validation of lab processes before they are implemented
  • Initial staff competency assessments
  • Preventive maintenance

Appraisal Costs

To assess service and product quality

  • Ongoing competency assessments
  • Tracking quality indicators
  • Internal audit programs
  • External accreditations
  • Instrument calibration
  • Sample and reagent inspections
  • QC materials and data evaluation
  • Proficiency testing

Internal Failure Costs

To resolve failures while they are still under laboratory control

  • Pre-examination issues (such as insufficient/flawed/ mislabeled samples, data entry errors, etc.)
  • Invalid instrument runs
  • Expired reagents/materials
  • Rework, repairs, restesting
  • Downtime

External Failure Costs

To resolve problems once they have left laboratory control

  • Lost/erroneous reports
  • Customer complaints
  • Report recalls
  • Misdiagnoses
  • Damaged reputation
  • Lost revenue
  • Lawsuits

Understanding the cost of quality in practice (an example)

QC materials are one example of a key appraisal activity. If QC isn’t run frequently enough, a laboratory might not realize an instrument is malfunctioning and producing invalid results.

As an example, let’s assume that QC that is typically run once per day is reduced to once per week. If something changes after the QC is performed, the laboratory will not know that the instrument is functioning incorrectly until the next week. The entire week’s results will be called into question. Those results need to be re-evaluated, and if any affected information was submitted from the laboratory, it needs to be retracted. If they leave the laboratory and reach the customer, those invalid results could negatively affect patient treatment and have major economic consequences for that laboratory. Dealing with this QC failure quickly becomes much more costly than it would have been to simply run QC more frequently.

How to identify and track quality costs

In order to implement strategic cost of quality procedures, the lab team first needs to understand how it is currently spending money on quality costs. From there, it can identify target areas with high failure rates and opportunities for more comprehensive prevention activities.

It is a good practice to create a list of good quality costs and then ask the laboratory’s budget administrator to help find those costs in the budget. While these costs are relatively easy to identify, it is worth noting that some good quality costs also require labor, which may not be captured. The lab should decide if the amount of labor is high enough relative to the hard costs to make it worthwhile to calculate, if not, they may choose to ignore it.

In order to understand exactly how much money a laboratory is losing on failure costs, it is helpful to take a practical approach to those costs.

How to identify and calculate failure costs

Tackling the identification and calculation of specific failure costs may seem somewhat overwhelming at first, but doesn’t have to be. A good place to start is with is Key Performance Indicators (KPIs) or Non-Conforming Events (NCEs). Most laboratories will have statistics about the frequency of failures being tracked as KPIs or NCEs, which will make this first project significantly easier to manage.

  • First, determine key non-conforming events. These incidents (which could be anything from lost reports, unacceptable samples, or any other instances of quality failures) can cost the laboratory a great deal of money.
  • When focusing on high severity or non-conforming events, it can be helpful to prioritize those that have the greatest effect on patient care or those that occur the most often.
  • Next, calculate the failure cost for each non-conforming event. These costs should include all materials needed to recover from the failure and, if necessary, to re-perform the tests. It should also include all labor to troubleshoot and fix the problem, documentation time, supervisor time, etc.
  • Examine the budget and identify the relevant costs (labor, material, etc.) that were expended because of that non-conforming event.
  • Add up these costs to get an estimate of how much money that specific quality failure cost the laboratory.
  • Each time a non-conforming event occurs, the lab now has a pre-calculated estimate of how expensive that quality failure is.
  • To track how much money a certain non-conforming event costs the laboratory, simply multiply the failure cost by how many times that event occurs over a certain period of time. This will provide an estimate of how much money this recurring quality failure is costing the laboratory over time.

How to reduce failure costs

  • Laboratories can reduce failure costs through a combined system of prevention and appraisal activities that minimizes waste and variation in lab processes.
  • It might seem logical to tackle each problem as it presents itself, but relying too heavily on retroactive problem solving can be expensive and inefficient, and makes for very high appraisal costs. Investing more money in advance will actually prevent most problems from occurring in the first place, while still effectively dealing with any issues.

Four Strategies for Reducing the Cost of Poor Quality

  • Begin routinely identifying and tracking quality costs in the laboratory budget. This will allow the laboratory to understand how much is spent on quality and where those quality costs are used.
  • Recognize key non-conforming events that affect patient safety, have negative trends, or result in the largest failure costs. Can these be potentially reduced by prevention or appraisal activities?
  • Start reporting Cost of Poor Quality (CoPQ) data, and include failure costs in lab quality reports or non-conforming incident reports. If failure costs are clearly displayed, they will draw attention to areas for improvement. Consistently reporting CoPQ data will also allow laboratories to track how failure costs are affected by various quality improvement efforts.
  • Educate staff at every level about cost of quality principles, and share CoPQ data throughout the organization. When everyone understands why certain measures or approaches are implemented, they can work together towards a more cost-effective quality system. CoPQ data will also facilitate healthy conversations with laboratory administrators or finance departments on the value of quality programs.

Reporting failure costs

When reporting failure costs, make sure they are clear and easy to understand. It is more important to have a useful, practical, straight- forward estimate than a highly specific figure that took extensive time and resources to determine. A simple estimate will serve as usable, actionable information and simplify communication and comprehension.

Conclusion: Make quality costs count!

Instead of conducting limited quality activities and dealing with failures as they occur, it is more cost-effective to develop comprehensive preventive procedures and efficient problem-solving strategies.

Integrating cost of quality principles works to the advantage of the laboratory, the customers, and the budget. Devoting more attention to strategic quality processes can lower costs while making the laboratory more efficient and reliable.

Information for this article was provided by the Quality Systems Division at Bio-Rad Laboratories. Learn more about Bio-Rad’s Quality Controls

[1] Plebani, Mario. “The Detection and Prevention of Errors in Laboratory Medicine.” Annals of Clinical Biochemistry: International Journal of Laboratory Medicine. December, 2009.

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