Part of the challenge is that hospitals and other healthcare providers do not know the cost of procedures. It seems almost unbelievable to run a business that way, but it’s common. We cannot reliably say, for example, “It costs us $10,000 to repair a hip.” There are many reasons for this, but one thing they can do is use their profit and loss statements for each service line, and figure out the costs associated with poor quality. Poor quality in healthcare most of the time negatively affects the patient outcome, but it also has an unfavorable cost associated with it. Consider a mistake in surgery that requires another operation to correct the mistake and additional hospital time for the patient. Not only is the patient impacted, but also the hospital incurs higher costs. When we think about the value metric, at least in conceptual terms of outcome over cost, if we can reduce the cost we are increasing the value of the service delivered. The cost of poor quality is something we can work on and it should be included in the denominator of the metric for value representing cost. We may not know the total cost to repair a hip, but we can definitely see how much waste there is in the system as represented by the cost of poor quality (COPQ). Whatever the absolute costs are, if you can reduce the costs of poor quality, which is waste, the result is higher, meaning you’re providing a more valuable service.
Bill: You mentioned earlier that healthcare is many years behind other industries in utilization of advanced quality improvement methods. Are hospitals starting to use these tools at this point? What kind of opportunity is there for savings from reducing the cost of poor quality?
Dr. Kashmer: It’s already happening; I’m seeing it every day now. The most fascinating thing is hospitals don’t realize how much they are typically losing to poor quality. The way our accounting is structured, there’s not a red line item on the profit and loss statement for poor quality, so it’s difficult to perceive. Without a good grasp of relevant data, there’s also a danger of not really knowing if we’re doing better in bring improved value to the patients.
I’ve led a number of quality improvement projects in an acute care hospital setting and our median recovery has been about $320,000 per project. It’s a lot of savings and the important thing to remember is that by reducing mistakes, and thus the cost of poor quality, we are improving patient outcomes at the same time.
Focus on improvement is going to be more important than ever, because as the reimbursement model gets more focused on value, if not done properly, there is that risk of misalignment and the risk of significantly decreased reimbursement for hospitals.
Bill: Dr. Kashmer, thanks for this informative discussion today. Your book, “Volume to Value,” provides a good overview of the application of Lean Six Sigma in healthcare. Where can readers find additional information?
Dr. Kashmer: I edit a blog that features current topics in healthcare quality. It can be seen at http://TheHealthcareQualityBlog.com. It was good speaking with you today, Bill.