How to calculate the cost of poor quality
How to calculate the cost of poor quality
The following is a hypothetical example to illustrate how to calculate the cost of poor quality (COPQ) and the financial impact of improved quality in the ED. The example was provided by Diana S. Contino, RN, MBA, CEN, FAEN, manager of public services-health care for Costa Mesa, CA-based BearingPoint, which provides consulting, application services, technology solutions, and managed services for health care clients and others. She also is a certified Six Sigma Green Belt and is obtaining Lean certification. Six Sigma Sigma methodologies are focused on reducing errors and decreasing variability in processes, and Lean methodologies are focused on eliminating waste (extra or unnecessary steps) in processes.
Assume the following: A 40,000 visit ED with a 20% admission rate. The goal is to reduce time to patient exit for discharged patients.
The ED staff collaborate on a process improvement project to reduce their time to patient exit. Through incremental data collection, they discover the median time from MD disposition to the patient leaving the ED is 20 minutes. They brainstorm on solutions and implement three significant changes, focused on eliminating steps (waste in their discharge process):
- The team created a process in which the physicians directly discharged patients who didn't require any additional nursing or hospital services.
- For those patients who needed additional services, the physician communicated the disposition order directly to nurse and entered it into their patient tracking system. Also, the physician instructed all stable patients to dress and wait in the internal waiting room where the nurse would take prescriptions and discharge instructions.
The ED reduced their median disposition time to 10 minutes, and data analysis revealed that the outliers were those patients who needed closer observation after medication administration or while they waited for their ride home. The gaining of 10 minutes for each of the 32,000 discharged patients (admitted patients were tracked separately with a goal of 60 minutes) led to an increase in room availability of 14 hours per day. If the median turn around time for discharged patients is two hours, their project essentially gave them additional space for seven more discharged patients.
If the average facility reimbursement for an ED visit is $100, then that would equate to $700 per day, or $255,500 per year, in revenue gained by eliminating poor quality.
This revenue is the reason that so many facilities strive to change their culture to one focused on reduction of error, reducing process variability, and data-based decision making, Contino says. She adds that the "1, 10, 100 rule" provides additional insight into COPQ. That rule states that if the operator finds the error, it is one time the error cost; if a quality double-check finds the error further down into the process, then more value is added to the cost through a multiplier of 10. If the patient/customer finds the error, it is estimated to be 100 times the cost of the operator finding the error at the point of occurrence.
Additional information on Six Sigma can be found at: www.isixsigma.com.
The following is a hypothetical example to illustrate how to calculate the cost of poor quality (COPQ) and the financial impact of improved quality in the ED. The example was provided by Diana S. Contino, RN, MBA, CEN, FAEN, manager of public services-health care for Costa Mesa, CA-based BearingPoint, which provides consulting, application services, technology solutions, and managed services for health care clients and others.Subscribe Now for Access
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