CEO SUMMARY: Perceptive laboratory executives and pathologists should welcome the impending arrival of ISO 9000 into the clinical laboratory industry. It promises to solve many problems of laboratory management. The diagnostics industry, responsible for manufacturing instruments and supplies used by clinical laboratories, has already embraced ISO 9000 with good results.
MANY LABORATORY EXECUTIVES yawned at the news that Nichols Institute, a division of Quest Diagnostics Incorporated was now certified as ISO 9001 compliant. After all, what competitive advantage does Nichols Institute gain by this accomplishment? And what is ISO 9000, anyway?
“ISO 9000 is the spearhead for an entirely different way of managing a laboratory,” stated David Nevalainen, Ph.D. and Director of Abbott Quality Institute, a part of Abbott Diagnostics, Inc. “Consistently, those companies which adopt ISO 9000 and similar formal quality management systems find significant improvement in four key areas: customer satisfaction, error reduction, cost reduction, and profit enhancement.”
Consulting SWAT Team
Nevalainen heads up a consulting SWAT team established by Abbott Diagnostics as a consequence of its own ISO 9000 certification program. “During the last five years, all our manufacturing sites worldwide were certified as ISO 9001-compliant,” he observed. “The Abbott Quality Institute was formed to help customers and healthcare providers introduce quality management systems like ISO 9000 into their organizations.”
According to Nevalainen, there is growing awareness of ISO 9000 by the laboratory community. “One blood bank in San Antonio gained certification last year. We are assisting several quality system efforts by laboratories in Denver, Minneapolis, and Portland, Oregon. We are also helping two different blood banks become ISO 9000-certified.
“Also, NCCLS is currently revamping its laboratory guidelines to incorporate processes and procedures inherent in quality management systems like ISO 9000,” continued Nevalainen. “The reasons behind these changes are well-known to people who understand the principles of quality management.”
Among other things, quality management principles require a business organization to identify and flow-chart all work processes. Outcomes from each process must also be accurately measured and reported as a defect rate in terms of errors per million. The impact of such activities is revealing. “I am part of the subcommittee at NCCLS which is revising laboratory guidelines,” said Nevalainen. “As the study team looked at data from those blood banks and clinical laboratories which are implementing quality systems, they were surprised at the findings, particularly in defect rates.
“When defect rates are converted to errors per million, it becomes startling,” explained Nevalainen. “For example, in the airline industry, the error rate for lost bags is 2,500 per million. That is considered so poor that serious business travelers carry their luggage on board rather than check it. Yet, in the laboratory, error rates in excess of 10% on simple processes are not uncommon. For example, at one laboratory, Pap smear labels had an error rate in excess of 10% for missing, incomplete, or inaccurate information. That is 100,000 defects per 1 million labels!”
“What this demonstrates is that most laboratory managers do not really know how well or poorly their laboratory processes are performing,” said Nevalainen. “When managers get accurate information, presented in a defects-per-million format, it allows them to redesign systems and processes in the laboratory to improve performance in a controlled, steady manner.”
Nevalainen’s work with blood banks and clinical laboratories involved in the ISO 9000 certification process gives him an unmatched perspective on the industry’s acceptance of this management tool. “We are on the verge of a major change,” he said. “The public announcement that Nichols Institute earned its certification will accelerate many trends already under way in the laboratory industry.”
“The reasons for impending breakthrough are undeniable,” continued Nevalainen. “The amount of money wasted by healthcare organizations is startling. Quality management systems like ISO 9000 permit a laboratory or other healthcare provider to generate big cost savings, while at the same time improving the quality of its products and services. That is powerful, particularly at a time when the reimbursement squeeze is taking money off the table.”
“We don’t have a systematic approach to producing healthcare services. Defect rates, when accurately measured, would surprise most consumers. Waste and unnecessary expenses go undetected.”
Director, Abbott Quality Institute
“Also, what I am about to say is well-understood by those who understand quality management,” added Nevalainen. “We don’t have a systematic approach to producing healthcare services. Defect rates, when accurately measured, would surprise most consumers. Waste and unnecessary expenses go undetected. These are fundamental problems which effective quality management systems can help resolve.
“As the improved performance of ISO 9000-certified labs like Nichols Institute becomes known,” he predicted. “it will stimulate other clini- cal laboratories to introduce serious quality management programs into their laboratory organizations. As this happens, physicians, patients, and the entire healthcare community will benefit.”
THE DARK REPORT concurs. Quality management programs are an over-have hesitated to adopt. Further, this is one vital area of management where laboratory administrators and pathologists have generally failed to lead change. The marketplace now offers many examples of the consequences where lab directors failed to take the initiative in redirecting their laboratory organizations.
Lab Consolidation at Tenet
In southern California, lab directors at many of the Tenet hospitals recognized the need to consolidate testing and re-engineer their laboratories. However, during the last five years, no two Tenet lab administrators succeeded in getting their hospital CEOs to approve such consolidation proposals.
The result? Tenet’s corporate executives stepped in and gave SmithKline Beecham Clinical Laboratories the green light to design and implement a streamlined regional laboratory system for the 31 hospitals, most located in Los Angeles and Orange Counties.
Within 60 days of launching the project, the 31 hospital lab directors were reduced to 13 (two core lab directors and 11 directors of rapid response lab clusters). Further, because of the cost-cutting goals of this Tenet project, there will be less ability to reduce laboratory staffing through attrition.
If laboratory consolidation proves successful at these 31 Tenet hospitals, can pathology consolidation be far behind? At what point do reductions in reimbursement cause corporate executives at Tenet to finally pursue cost-saving opportunities in pathology?
Will the pathologists at these 31 hospitals wait to see what will happen next? Or, could they exercise more control over the situation by overcoming traditional issues of turf, politics, and control, giving Tenet a well-designed consolidation plan of their own? This is not an idle question. Any objective observer would seize the initiative, because radical change will occur, whether or not they initiate it.
The strategic services alliance between Premier, Inc. and Quest Diagnostics further illustrates how the marketplace is pushing changes upon hospital-based laboratories. Although participation in the alliance is voluntary for any hospital, lab directors should realize that a number of hospital and system CEOs among Premier’s membership are ready to be the first guinea pigs. Here is another example in the marketplace where hospital owners are ready to push radical change down into the laboratory.
New Management Systems
The longer the delay by hospital laboratory administrators and pathologists in introducing these new management systems into their organization, the greater the financial pain will be inflicted upon both the laboratory staff and the hospital served by the laboratory. Administrators and managers have a responsibility to bring positive changes to their laboratory. Economic trends make it imperative to act sooner, not later.
The ISO 9001 certification of Quest’s Nichols Institute is a marketplace signal that new management models are finally reaching the clinical laboratory industry. THE DARK REPORT recommends that hospital laboratory directors and pathologists give serious study to the new management principles which are about to transform healthcare.
The future of both the clinical laboratory industry and pathology lies in early adoption of quality management systems like ISO 9000. It will be the source of both financial success and employment stability for those laboratories fortunate enough to have perceptive leadership.
Management Revolution Overlooked By American Healthcare Providers
ISO 9000 STANDARDS ARE A DIRECT RESULT of the revolution in management philosophy which swept through the business and industrial world starting in the 1980s.
Even as this management revolution reshaped and transformed business organizations throughout the world, healthcare providers in America tended to remain oblivious.The reason was simple.Hospitals, physicians, and clinical laboratories still enjoyed ample profits from fee-for-service reimbursement, giving them little incentive to change the way they conducted business. That is why, even in 1998, a sizeable majority of provider organizations operate today under old-paradigm management philosophies.
Such was not the case in other segments of the business world. Behemoths of the American economy found themselves going broke as a result of a new type of competitor, invented by Japanese corporations. These corporate giants would only survive if they learned to match this new type of competitor.
Clinical laboratories should understand the parallels between themselves and these industries: Xerox and the copy machine business (late 1970s); General Motors, Ford, and Chrysler and the auto industry (late 1970s through early 1990s); Braniff, Pan American, and Eastern Airlines and the airline industry (1980s).
Faced with competitors who man- aged their business with a different philosophy and system, each of the above companies was forced into radical change. Xerox survived. General Motors continues to struggle. Ford is doing okay, but Chrysler has merged with Daimler-Benz. And the three airlines? Each went bankrupt and ceased operations. Meanwhile, the hot performer in the airline industry is Southwest Airlines, organized around the new management philosophy.
The financial struggles of big companies in the copy machine, automotive and airline business were also matched in the laboratory industry. Recent years found the commercial laboratory landscape littered with the debris of failed lab companies. Physicians Clinical Laboratories and Meris Laboratories both filed Chapter 11 bankruptcy. Unilab lost tens of millions of dollars before stabilizing operations. Losses at Nichols Institute forced its sale to MetPath, which itself lost hundreds of millions of dollars.
The point should be obvious. Healthcare in the United States led a profitable, but sheltered existence. As the business world around it changed in the 1980s and 1990s, healthcare did not adapt and incorporate much of the new philosophy and techniques which were transforming international business management.
It is time for hospital-based laboratory directors and pathologists to wake up to this new world. Commercial laboratories have already begun the process of management transformation. ISO 9001 certification at Quest’s Nichols Institute division is just the first round of far-reaching management initiatives planned for the billion-dollar laboratory company. Similar efforts are under way at SmithKline Beecham Clinical Laboratories and Laboratory Corporation of America.
At the least, hospital-based lab directors and pathologists at should recognize that the ISO 9001 certification at Quest’s Nichols Institute sets into play a new series of market forces. Should Quest Diagnostics gain competitive advantage from ISO 9001 certification, it will cause competing laboratories to similarly revamp their management systems. As David Nevalainen points out, once a laboratory adopts quality management principles, it “becomes a way of life.”