Cost of Quality

One of the most challenging issues for healthcare organizations today is the need to reduce operating costs while simultaneously improving the quality of care, patient safety and access to services. Cost and quality are often seen as competing or even conflicting priorities; however, there is compelling evidence that systematic actions to improve quality and patient safety, reduce waste and minimize process variation lead to lower operating cost and better organizational performance. Depending on the methods of data collection and specific organizational circumstances, it is estimated that between 15 and 30 percent of total operating costs are associated with poor quality of care. Adverse events and medical errors not only exact a human toll in terms of premature deaths and diminished quality of life, but also place a significant economic burden on our healthcare system.

Over the last two decades a number of studies have attempted to quantify the cost implications of adverse events and medical errors. In a classic study of adverse events Thomas et al. (1999) randomly selected and reviewed the medical records from 28 hospitals in Utah and Colorado and they estimated that the total cost of preventable adverse events in the United States was a staggering US$17 billion. The most expensive types of adverse events involved surgical complications, adverse drug events, and delayed or incorrect diagnoses and therapies. Bates et al. (1997) studied the costs of adverse drug events (ADE) in 4,108 eligible patients admitted to a random sample of medical and surgical units in two tertiary-care hospitals in Boston over a 6-month period. They estimated that the hospital operating costs increased by US$2,595 per ADE and US$4,685 per preventable ADE. Based on these costs and data about the incidence of ADEs, it is estimated that the annual costs attributable to all ADEs for a 700-bed teaching hospital are US$5.6 million and US$2.8 million for preventable ADEs. These estimates are deemed to be conservative because they do not include the costs of injuries to patients or malpractice costs. The costs of adverse events in Canada have also received significant public, political and scientific attention. According to the technical report The Economics of Patient Safety in Acute Care published in 2012 by the Canadian Patient Safety Institute, the attributable costs of adverse events in Canada range from $4,028 to $12,648. It is estimated that the economic burden of adverse events in Canada is $1.1 billion including $397 million for preventable adverse events. Although more difficult to quantify, the costs associated with employee disengagement, loss of productivity, stress, anxiety, fear, feelings of guilt, and loss of trust should not be underestimated.

Since the vast majority of adverse events result from poorly designed systems and processes, it is essential to establish unified strategic goals, engage employees and align enterprise-wide quality improvement, cost reduction and patient safety programs. Some of the additional quality problems that need to be addressed may include preventable hospital-acquired infections, failure to provide preventive care and screening tests, underdiagnosis, needless hospitalizations, incorrect use of medical equipment, unnecessary surgeries, failure to administer vaccines, overuse of medications, administrative inefficiencies, and insufficient use of evidence-based medical procedures, tests and treatments. By measuring the cost of quality organizations can recognize the magnitude of the problem, identify opportunities for improvement with high payoff, quantify the impact on overall financial performance, and effectively communicate the economic case for quality.

Total Cost of Quality

The total cost of quality represents the sum of various quality costs across the four categories that include appraisal costs, prevention costs, internal failure costs, and external failure costs. Appraisal costs are associated with measuring and evaluating the quality of medical care, delivery of services, compliance with standards of practice, and conformance to performance requirements. Prevention costs arise from systematic efforts throughout the entire organization to prevent or minimize internal and external failures. Internal failure costs result from process inefficiencies, failures to meet performance requirements, and errors that are uncovered and addressed before delivery of services to patients and other customers. External failure costs are associated with problems, process deficiencies and errors that actually reach the patients. Combined internal and external failure costs are also known as the cost of poor quality (COPQ).


Total Cost of Quality