The late great quality guru Phil Crosby had a famous saying that he lived by which was that “Quality is Free”. Phil believed this to be true since he proved that the waste and inefficiencies inherent in all businesses (healthcare included) was costing enterprises more than the fixes needed to improve their quality. This was a very simple concept that led to major changes in how businesses and hospitals attacked their quality problems in the 80s and beyond.
To put this in context, I just read that the top 100 hospital award winners spend about 13% less for supply costs than nonaward-winning hospitals and 6% less for their pharmacy cost according to Thomason Reuters. Correspondingly, this same study reveals that as spending increases in these two areas, performance decreases.
What this study points out to me is that there is a correlation between cost and quality: More efficient hospitals have better quality outcomes. So in essence “Quality is Almost Free”. You don’t need to spend more money to improve your quality, but you do need to drive out all waste and inefficiencies in your supply streams if you want to be a top performing hospital.
Thomson Reuters gives evidence to this fact when they looked at hospitals thirty-day readmissions data. They found that as supply and pharmacy cost goes up in acute myocardial infarction, heart failure and pneumonia these same hospital’s readmission rates goes up.
In world of economics, this phenomenon is called “The Law of Diminishing Returns”. This is where there is a point where increasing your supplies and pharmacy cost will improve a hospital’s readmission rate to a certain point (or tipping point), but then if you add even more resources to fix this problem it will actually increase your readmission rate. It’s counter intuitive, but absolutely true that a hospital can actually spend less money, but at the same time have superior quality outcomes.
Quality is an illusory term that too often means to the uninitiated that you need to increase your cost to increase your quality. Nothing can be further from the unvarnished truth! Quality experts like Crosby, Juran and Deming have proven that quality can be almost free if you define quality as the conformance to specifications, develop a system to prevent defects, set a standard of zero defects and measure quality as the price for non-conformances.
Nowhere in these guiding principles will you hear these quality experts asking you to increase your costs beyond what you are now spending. In most situations, you will discover that if you follow these principles religiously that you will actually spend substantially less than you think to improve your quality, however beyond a certain point you are just throwing your money away. Yes, “Quality is Almost Free” if you would only change your mindset!
Robert T. Yokl
Chief Value Strategist
Strategic Value Analysis® in Healthcare