Quality Case(1)

Case 17-2: Kelsey Hospital

"We need a way to identify quality indicators and measure these on an on-going basis. We already have some

indicators of quality relating to clinical operations, but we want to add measures relating to service, such as

patient waiting time. Eventually, we want to have hundreds of indicators to allow us to track performance

throughout the hospital." Michael Hopkins, Quality Control Manager

BACKGROUND

Kelsey Hospital is a private, nonprofit

hospital located in Pennsylvania. The hospital has

an affiliation with a local university medical

school, and as such, its staff has faculty

physicians and medical student residents and

interns. Kelsey Hospital was founded in 1922 and

in 2003 had adjusted revenues of $132 million

and expenses of $126 million. This margin is

fairly typical for tertiary health care providers,

i.e., institutions that provide most services of a

traditional hospital. Kelsey serves a seven-county

area within a radius of 45 miles. The vast majority

of patients, however, live within 10 miles.

Like most other hospitals, Kelsey's in-patient

numbers have been decreasing in recent years

(currently averaging around 350 patients), while

its out-patient numbers have been on the increase

(an average of eight percent for the last three

years). In 2003, there were 16 out-patient

programs. Contracted physicians are generally

working in these areas. The contracted physicians

are not employed by Kelsey Hospital. In contrast,

"house physicians" are those directly employed

by Kelsey.

Kelsey Hospital's strategic goal is to provide

as many services as possible in health care. The

hospital provides the following major in-patient

services: Cardiology, Obstetrics/Gynecology,

Orthopedics, and Neurology. Open-heart surgery,

in particular, is one of Kelsey's specialties for

which it is renowned. Two significant services

that Kelsey does not perform, and does not plan

to offer, are Psychiatry and Pediatrics. Several

years before, Kelsey attempted to provide

pediatric services, but abandoned it because of

strong competition from other hospitals in the

area. Kelsey has responded to market trends by

increasing its capacity to handle out-patient

treatments.

QUEST FOR QUALITY

In 2001, Kelsey Hospital commissioned a

task force to study the issues affecting long-run

success. One of its findings was that quality

management would become an increasingly

important factor for health care institutions. The

task force concluded that all health care payers,

from insurance companies to individual patients,

would become more attentive to the quality

management of health care service. The task

force also recommended that Kelsey institute a

balanced scorecard performance measurement

system using the four standard categories

(financial, customer, internal business process,

learning & growth) found in the literature on

balanced scorecards. It envisioned that quality

measures would be included within the balanced

scorecard.

A sense of urgency for quality control was

felt largely due to the phenomenon of managed

care contracts. With managed care contracts

representing approximately 35 percent of

Kelsey's patients, the task force believed Kelsey

would need to convince these managed care

organizations that it can provide high quality

services at a reasonable cost. The Medicare and

Medicaid programs also have a significant

influence on Kelsey's revenues. For the majority

of Medicare patients, their bills are reimbursed

based on a system known as DRGs (Diagnosis

Related Groups). For patients that cost more to

treat than the fee schedule allows, Kelsey suffers

a loss. Conversely, if Kelsey can treat the patient

for less than the DRG reimbursement, then

Kelsey is permitted to keep the difference.

As a result of the task force study, Kelsey

made quality management one of its top

priorities. Michael Hopkins was appointed as

Quality Control Manager and, together with the

Management Services Department, was

instructed to develop a system for the entire

hospital that would identify and measure quality

indicators to be used for all of Kelsey’s

Blocher, Stout, Juras, Cokins: Cost Management: 6e 17-11 ©The McGraw-Hill Companies, Inc., 2013

customers. Hopkins had been reading and hearing

about cost of quality (COQ) systems in

manufacturing settings and was impressed with

what he came across and heard, so his first

decision was to initiate a COQ system for one

specific area of the hospital as a pilot study. He

chose the Respiratory Therapy Department

because of its relative simplicity. If a feasible

COQ system could be developed in Respiratory

Therapy, it would be used as a basis to implement

COQ systems elsewhere in the hospital.

Needing somebody with COQ expertise,

Hopkins engaged the services of an experienced

consultant, Norma Highlander. Highlander had

developed COQ systems in several other service

industries such as lodging and transportation.

Hopkins arranged an introductory lunch meeting

with Highlander, Morry Easton (Director of

Respiratory Therapy Department) and Mildred

Berger (Administrative Director of Respiratory

Care Services). Easton was managing three

different departments, the smallest one of them

being Respiratory Therapy. Berger had over 20

years of experience as a therapist and was

currently working directly for Easton. The

following conversation took place at this first

meeting:

Hopkins: Norma will look at your

operations and try to develop indicators

of quality. We want to look at both

clinical and service indicators.

Easton: Well, we already have our clinical

indicators identified. But, I don't see how

you can measure our service level.

Berger: That's right. I mean, you perform

the therapy and either it helps the patient

or not. How do you determine after the

fact how performance was?

Hopkins: The main reason for going

through this exercise is to assign costs to

what we are doing. We need to categorize

our quality costs as being prevention,

appraisal, or failure costs. Hopefully,

from this, we can assess our

performance.

Berger: I just don't see how you break

down what we do into neat little

categories. If we were actually making

1 Examples of other treatments are mechanical

ventilation, oxygen treatment, and saline solution

treatment

something, a product, then maybe. But

we are working on people.

Easton: I'd like to see us do this, but I just

don't think it can be done. If you and Ms.

Highlander can come up with something,

that would be great.

Highlander: I know I have my work cut out

for me, but I'm sure we can come up with

something useful.

Their lunch ended soon thereafter and a second

meeting was scheduled for highlander to become

acquainted with the procedures in the respiratory

therapy department.

RESPIRATORY THERAPY

To make the project more manageable,

Hopkins and Highlander decided to focus further

study on only two of the nine primary treatments

performed in Respiratory Therapy. The two

chosen were intubation and bronchodilator

treatments because these were felt to be most

representative of all the primary treatments.1

Intubation is the process of placing a

breathing tube down the patient's nose, or more

typically, throat. This procedure can only be

ordered by a physician. Usually, intubation is

ordered as the result of an emergency call. A total

of eight to ten doctors, nurses, and therapists

typically respond to the call. Once on the scene,

one or two therapists examine the patient and

another one or two get the equipment ready for

use. A therapist is given two attempts at correctly

placing the tube. If unsuccessful, another

therapist makes an attempt. The wrong size tube

is occasionally placed in the patient and must be

replaced when this happens. All of this

information is recorded and delivered back to

Respiratory Therapy for quality review purposes.

Exhibit 1 contains a flowchart for the intubation

process.

Bronchodilator treatments are also ordered

by physicians. A bronchodilator is anything that

opens or expands the bronchi (that part of the

body that conveys air to and from the lungs).

Unlike intubation, however, bronchodilator

treatments do not result from emergency

conditions. Once the treatments begin, they are

Blocher, Stout, Juras, Cokins: Cost Management: 6e 17-12 ©The McGraw-Hill Companies, Inc., 2013

given every four to six hours thereafter. The

treatments last for four days and then a written

order must be received for continued treatments.

Once Respiratory Therapy receives an order for

bronchodilator treatment, a therapist examines

the patient for at least one of five medically

necessary criteria (e.g., reversible air flow

obstruction). If the patient fails to meet any one

of the criteria, the therapist notes this on the

patient's chart. However, even if none of the five

criteria are present, the therapist still provides the

treatment unless he/she feels it would be harmful

to the patient. Exhibit 2 contains a flowchart for

the bronchodilator process.

Sharon King serves as the Respiratory

Therapy Department's quality coordinator. Her

duties include the monitoring of clinical quality

for all nine primary treatments performed in

Respiratory Therapy and also providing training

for those therapists identified as having clinical

skills deficiencies such as performing unneeded

therapies2 or installing tubes incorrectly. For

example, King will make random spot checks of

patients’ charts to determine how many unneeded

therapies were performed within a given time

period (as evaluated and noted by a physician).

Based on these checks, therapists with clinical

skills deficiencies may be identified and then sent

to obtain additional training. If retraining does not

solve the problem, then the therapist’s

employment is usually terminated.

The department holds meetings on a monthly

basis to discuss quality problems and to

determine corrective courses of action. These

meetings also serve to review the performance of

therapists. If a therapist is continually being

written up by physicians for improper procedures

(e.g., intubation installation), then the therapist is

given an opportunity to explain the

circumstances. If deemed unsatisfactory by

Mildred Berger, then Sharon King will be asked

to provide retraining to that individual.

COSTS OF QUALITY

Norma Highlander came up with the

following list of items pertaining to costs of

quality after spending two months reviewing

2 While intubation and bronchodilator treatments are

ordered by physicians, other primary treatments

manuals and other documents, conducting

interviews and surveys with employees

(particularly Sharon King) and customer groups,3

and examining financial records (e.g., payroll,

budgets):

a) Quality Planning and Procedures

—involves tracking of quality and

actions to improve quality; primarily

performed during a monthly three

hour meeting with the Director of the

Respiratory Therapy Department,

Administrative Director of

Respiratory Care Services, three

Supervisors, and three Lead

Therapists; also includes costs

associated with activities of a

Program Instructor from a local

university who also serves as

Respiratory Therapy's quality

coordinator (approximately one day

per week of her time is spent on

quality improvement).

b) Quality Audits—every time a

therapy is ordered by a physician, a

therapist must ascertain the

appropriateness of the therapy (takes

about five minutes per newly ordered

therapy); also includes checking

patient charts, generating quality

reports, and developing indicators

(performed by the quality coordinator

one day per week).

c) Therapy Write-ups—after each

therapy and procedure, the activity is

written up by the therapist; typically

takes five minutes, but for non-routine

activities like intubation, the write-up

will take about ten minutes.

d) Malpractice Lawsuits–these are

legal costs and losses resulting from

malpractice lawsuits.

e) Training Procedures—involves

maintenance of manuals (2.5 hours

per month for one Supervisor), in-

house educational programs, and

monthly departmental awareness

activities. These training procedures

performed in Respiratory Therapy are initiated by

therapists. 3 For a listing of key personnel, see Exhibit 3.

Blocher, Stout, Juras, Cokins: Cost Management: 6e 17-13 ©The McGraw-Hill Companies, Inc., 2013

should help prevent problems like

improper placing of tube, wrong size

intubation, etc.

f) Incorrect Installations—primarily

limited to intubation procedures;

normally, two intubation attempts are

allowed.

g) Performance Audits—consists of (1)

time card reviews, where each of three

Supervisors spends one-half hour per

week reviewing time cards, and (2)

order-entry reviews, where each

therapist spends one-half hour per

week reviewing the computerized

order entries.

h) Forecast and Budget Generation --

performed once a month by the

Director, taking approximately one

hour.

i) Overtime—if the number of required

personnel has been underestimated for

a given period, overtime cost is

incurred for existing personnel.

j) Customer Relations—before

starting a series of treatments,

therapists spend about five minutes

explaining the procedure and need for

the therapy to the patient.

k) Rework–this involves the additional

cost of labor and supplies for a

treatment already performed and then

redone for any reason.

l) Retraining Current Employees—

due to unsatisfactory performance

(usually by the therapist). This

involves time spent in sessions by

both the employees being retrained as

well as those doing the retraining.

m) Handling Complaints–this involves

the time spent handling and correcting

specific complaints made by

physicians and patients.

n) Administrative Actions—actions

taken by management resulting from

unfavorable clinician practices

(identified by therapy write-ups,

complaints, rework, etc.);

methodologies, practice guidelines,

and procedures may be reviewed and

changed; disciplinary action may

ensue against the clinician or

supervisor, or both; additional

training may be required of the

employees. This cost is measured by

the time spent on these reviews and

actions.

o) Absenteeism/Turnover – this is

measured by the amount in excess of

industry averages.

p) Appraisal Support—two outside

departments support Respiratory

Therapy in its efforts to appraise

quality: the Quality Assurance

Department conducts monthly

reviews of Respiratory Therapy's

performance and a Quality Assurance

Committee examines Respiratory

Therapy's performance on both a

monthly and quarterly basis. This cost

is measured by the time spent on these

reviews and examinations.

After compiling this COQ list and before

submitting it to Hopkins, Highlander began

thinking about categorizing and measuring these

costs as her next step in developing a COQ

system for Kelsey Hospital.

Blocher, Stout, Juras, Cokins: Cost Management: 6e 17-14 ©The McGraw-Hill Companies, Inc., 2013

Assignment Questions

1. What groups and individuals are the

"customers" of the respiratory therapy

department? Describe the concerns and

perceptions about quality that might differ

across the different types of customer.

Identify the problems that the different

customers would want quality control to

prevent, detect, or correct.

2. Categorize the list of quality costs into

prevention, appraisal, internal failure and

external failure. Justify your choices.

3. What additional costs of quality might you

suggest? How would you categorize each of

them?

4. Discuss how you would estimate (i.e., measure) the following costs for the

Respiratory Therapy Department: Quality

Planning and Procedures, Therapy Write-

ups, and Incorrect Installation.

5. Which of Highlander’s COQ measures (or similar ones) might you include in a balanced

scorecard for Kelsey’s Respiratory Therapy

Department? What other performance

measures would you suggest to include?

Classify each of these measures into the four

standard balanced scorecard categories

(financial, customer, internal business

process, learning & growth).

Blocher, Stout, Juras, Cokins: Cost Management: 6e 17-15 ©The McGraw-Hill Companies, Inc., 2013

Exhibit 1

INTUBATION FLOWCHART

Start

END

Call to the therapist by Nurse, Dr., or Aide...

8 people on average show up (3-4

therapists from Respiratory Department)

Assess the patient

Treatment deemed necessary

Get equipment ready

Reassessment of treatment need, by RN

Start intubation if physician feels it is

necessary

Check if tube is in position by the use of a

stethoscope

Chest X-ray

Fill out the intubation tube

No treatment

required

Treatment not

necessary

Double-check if tube is in right position

Treatment necessary

↓

↓

↓

↓

↓

↓

↓

↓

↓

↓

↓

↓

↓

END

END

Blocher, Stout, Juras, Cokins: Cost Management: 6e 17-16 ©The McGraw-Hill Companies, Inc., 2013

Exhibit 2 BRONCHODILATOR FLOWCHART

Start for New Therapy

END

Order written by the physician

Ward clerk pass order to Respiratory

Respiratory gets necessary equipment

Notification to a therapist for a treatment

Check patient order at nurse’s station

Assess patient

Therapy averages:

4 days of treatment

4 times/day

8-10 min/therapy

Take equipment to the

nursing station

Take chart back to the nursing station

For continuation of an

ordered treatment

For new treatment

Store the equipment away

in the patient’s room for

the next therapy

Start therapy

↓

↓

↓

↓

↓

↓

↓

Introduction of

the therapist and

the technique

Start if not new therapy

Blocher, Stout, Juras, Cokins: Cost Management: 6e 17-17 ©The McGraw-Hill Companies, Inc., 2013

Exhibit 3

Personnel Listing

Name Title

Michael Hopkins Quality Control Manager

Morry Easton Director of Respiratory Therapy Department

Mildred Berger Administrative Director of Respiratory Care Services

Sharon king Quality Coordinator for Respiratory Therapy Department