CEO SUMMARY: Currently the American healthcare system is struggling to evolve away from its “cottage industry” roots and adopt modern corporate management methods. Within the clinical laboratory industry, Quest Diagnostics Incorporated has staked out the high ground. Its strategic objective is to infuse the entire laboratory company with knowledge of specific management methods commonly known as “quality leadership” systems. For Quest Diagnostics, this means company-wide ISO 9000 certification first, followed by a Six Sigma Quality program.
FIRST IN A SERIES
IT WAS A LAB INDUSTRY FIRST in May 1998 when the Nichols Institute division of Quest Diagnostics Incorporated received its certification as an ISO-9001 lab facility. (See TDR, July 6, 1998 and July 27, 1998.)
Nichols Institute can measure significant benefits from shifting its management system to ISO 9001. Encouraged by these benefits. Quest Diagnostics is working to gain ISO certification throughout its national laboratory system.
Already in 2000, three additional laboratory sites have earned ISO 9002 certification. They are: Juarez, Mexico (January 2000); Deerfield Beach, Florida (February 2000); and Wallingford,Connecticut (March 2000). The company expects to announce several more ISO-certified laboratory operations during the early months of 2001.
New Management Systems
“Quest Diagnostics is committed to introducing quality management frameworks throughout its laboratory system,” stated George Pounds, Corporate Director of ISO 9000 at the company. “We see these management frameworks as the foundation for delivering sustained and ongoing improvements in day-to-day operations and, most importantly, in customer service.”
Pounds made his comments during a recent visit by THE DARK REPORT to Quest Diagnostics’ headquarters in Teterboro, New Jersey. It was an opportunity for company officials to discuss how and why they are changing management methods at the world’s largest laboratory testing company.
“There’s an easy way to understand why Quest Diagnostics is spending significant resources to become an ISO-certified laboratory company,” noted Pounds. “Across the globe, companies in manufacturing, distribution, and services have repeatedly demonstrated that a management philosophy rooted in ISO 9000 systems is customer-friendly and creates sustained improvements to quality, productivity, and net profits.
“Our CEO, Kenneth Freeman, is challenging all of us within Quest Diagnostics to create a laboratory company where customers, particularly patients and physicians, can recognize a positive difference in how our company delivers lab testing services,” explained Pounds. “ISO 9000 is an internationally-proven management framework to accomplish that goal. It creates an environment where team members in all laboratories and corporate support functions are motivated to work together to solve problems and achieve goals.”
Using ISO certification as a way to change the management culture and business practices of a clinical laboratory is unprecedented within the United States. Virtually all the major diagnostics manufacturers which sell instruments and reagents to clinical laboratories have been ISO-certified for almost a decade. But clinical laboratories have been slow to understand and embrace the management philosophies and methods articulated by ISO 9000 standards.
Different Way To Manage Labs
“ISO 9000 is a different way to manage a clinical laboratory, for several reasons,” said Pounds. “First, it requires customers to be the company’s highest priority. It also recognizes that customer-supplier relationships exist both externally and internally.
“ISO 9000 emphasizes that the primary goal of an organization is to meet and exceed the expectations of its customers,” he continued. “This requires laboratories to maintain a close dialogue with their customers to identify needs and monitor customer satisfaction. Quest Diagnostics uses regular customer surveys to accomplish this requirement.
“Second, ISO 9000 organizes work processes around a system of prevention. It requires a laboratory to constantly evaluate how it performs its tasks, then implement improvements on a continuous basis. The objective is to create a framework that allows the company to study every work process and refine it to produce goods and services that are flawless,” Pounds said. “This is where a Six Sigma Quality program can have significant impact.
“Third, ISO 9000 teaches a laboratory how to accurately measure, over time, the effectiveness of overall work processes, the quality of products and services, and the satisfaction of customers with the laboratory,” he added.
“As most laboratorians know, clinical laboratories are under extreme pressure to continually lower costs. They are also under pressure to improve quality and acquire new test technology,” commented Pounds. “Since Nichols Institute became ISO-certified over two years ago, we have found it much easier to successfully deal with these challenges.”
Led ISO Certification Effort
Pounds led the ISO certification effort at Nichols Institute in 1997 and 1998. He now helps other operating divisions within Quest Diagnostics become ISO-certified.
“It is not difficult for laboratories to gain ISO certification,” observed Pounds. “Basically, ISO requires labs to measure customer perception, then respond to these perceptions with tangible improvements. The lab is required to establish an overall framework to fully document work processes and carefully measure outcomes. Most laboratorians are already trained to follow work processes and document what they do.
“What is different is the emphasis on the customer,” he noted. “Most lab accrediting programs ignore the customer. It is just the opposite with ISO. ISO puts the customer into the number one priority position. The laboratory is required to organize its services and workflow so as to best meet the needs of its customers.”
According to Pounds, regional laboratories within Quest Diagnostics were quick to recognize the benefits of ISO 9000 management systems. “When Ken Freeman first asked for volunteer labs to start this process, he had more responses than we could handle,” recalled Pounds. “Some interesting criteria were used to select the clinical labs which would be first to launch ISO certification programs.
ISO 9000 Has Long History in Business
ISO stands for the International Organization for Standardization, based in Geneva, Switzerland. It represents the standardizing committees for 91 countries throughout the world.
Early roots of quality standards go back to 1959, when the American Department of Defense issued Mil-Q-9858. By the late 1960s, NATO had established a set of quality standards. It was 1979 when the business community really began to get behind a consistent set of management standards. This was the year that ISO formed “Technical Committee 176.” This committee’s goal was to harmonize international activity in quality management and quality assurance standards.
ISO 9000 standards were drafted in 1984 and first issued in 1987. Some 26 countries adopted these standards. By the end of 1996, more than 90 countries had adopted ISO 9000 as their national standards for quality management.
Companies and organizations can certify for different levels of compliance to ISO standards. There are three levels:
- ISO 9001: most comprehensive; covers design, manufacturing, installation, and servicing systems and processes. Also covers research and development activities.
- ISO 9002: covers production and installation.
- ISO 9003: covers only final product inspection and test.
These three models were developed for use in contractual situations between a customer and a supplier. Another series designation, ISO 9004, provides quality guidelines for internal use by a producer developing its own quality system to meet unique business needs or take advantage of emerging opportunities.
Recognize The Benefits
“First, it was recognized that lab customers in our Juarez, Mexico would respond favorably to an ISO-certified laboratory,” explained Pounds. “There are plenty of maquiladora firms there. These are American-owned manufacturing businesses located in Mexico.
“Most of these companies operate a healthcare clinic on site for their employees and dependents. As ISO-certified companies, they are required to buy from ISO-certified suppliers whenever possible. These companies saw it as a plus when the Quest Diagnostics lab in Juarez earned its ISO certification. It definitely has boosted our marketing efforts in that city.”
“Selection of the lab divisions in Deerfield Beach, Florida and Wallingford, Connecticut over other volunteers was related to two factors,” continued Pounds. “First, both lab facilities had no other significant management projects slated for the year.
“Second, Quest Diagnostics does quarterly surveys to measure customer satisfaction,” Pounds explained. “For various reasons, these two lab divisions wanted to improve their performance relative to the Quest Diagnostics corporate average for customer satisfaction. It was believed that certification in ISO 9002 would help these labs drive their customer service measurements above the corporate average.”
All three laboratory sites, Juarez, Deerfield Beach, and Wallingford, gained ISO 9002 certification within 11 months of launching the effort. Pounds estimates that it took about $25,000 per site to accomplish this.
“We had the experience of certifying Nichols Institute,” he said. “That learning curve was shared in the other labs. Also, we use the same registrar and are adding facilities to the same certificate. These factors help to hold down costs.”
Within these three laboratory divisions, the goal of ISO certification was embraced by employees. “Most people had already heard some of the success stories from Nichols Institute,” observed Pounds. “Also, any time laboratorians believe they have a way to improve the quality of their laboratory testing while eliminating the unproductive elements of daily workflows, they get motivated.
Launch ISO 9000 Program
“For that reason, it was a straightforward process to launch ISO 9002 certification programs at these three laboratories,” he added. “But more significantly, as this management framework begins to improve the lab’s operational performance, morale can become sky high.
“Let me illustrate. During the past few years Quest Diagnostics has done quarterly surveys of customer satisfaction for every regional laboratory,” said Pounds. “We get a high rate of customer participation in these surveys, averaging about 30%. A score of 25 on a quarterly survey would be perfect. A score of 22 would be world class. The average score within Quest Diagnostics is about 18.
“Prior to launching their ISO programs, Deerfield Beach scored 16.4 and Wallingford scored 17.0,” explained Pounds. “During 1999, while working toward ISO certification, both labs increased their customer satisfaction scores to 18.3 and 18.9, respectively. In fact, both labs posted the largest gain in customer satisfaction measurements among all our laboratory divisions during 1999!
“Within those regional markets, customers took notice of the changes,” noted Pounds. “Competing labs even remarked on the service improvements our two labs accomplished within their regional markets.”
To initiate the campaign for ISO 9000 certification, each lab division picks a project leader who works in tandem with the lab general manager (GM) and George Pounds. At Deerfield Beach, the key leaders were GM Jim Panzer and team leader Tonya Pate. At Wallingford, it was GM Elaine Labrecque and team leader Diane Amato-Tesin.
Project Teams In Each Lab
“In a lab of 700 employees, our project teams usually include 40 people,” noted Pounds. “We’ve learned how to implement the ISO-required procedures without interfering with normal, day-to-day workflow.
“In fact, as these teams begin to document procedures and map processes,” added Pounds, “they quickly identify ways of improving existing lab procedures to: a) reduce mistakes and errors; b) eliminate unnecessary steps; c) improve quality and productivity; or d) cut costs.
“Once teams begin to meet regularly, this happens quickly. Everyone gets quite excited when they actually see how ISO 9000 procedures contribute to creating a more rational, productive work environment.
“I would like to emphasize that these improvements can be substantial,” observed Pounds. “Anyone who’s worked in clinical laboratories knows that the number of missed courier pickups or lost specimens in the lab is always higher than it should be—and it happens day after day.
Attack System Problems
“ISO 9000 procedures give laboratorians the tools they need to attack these systemic problems,” he added. “So you can understand why our lab employees, after fighting the same problems for years, get excited when work teams identify effective solutions to ongoing problems that current management systems have been unable to fix.”
Pounds provided one interesting example of such improvements. “At Deerfield Beach, one project team looked at how couriers picked up samples on their routes. The existing situation was measured and studied. Improvements cut logistics errors by 64% in 2000 YTD over 1999’s performance.
“There were similar stories at the Wallingford lab,” he continued. “Patient service center metrics were dramatically improved in a variety of areas, such as patient wait times.”
The demonstrated success of ISO-certification at Nichols Institute and the first three regional laboratory divisions has only strengthened the resolve of Quest Diagnostics’ management to make it a company-wide initiative.
Cooperative Team Action
“The goal is to drive this management philosophy deeper into the culture of our company,” noted Pounds. “It helps to remove the artificial barriers that separate people within our organization and enables them to team up in productive ways. It is motivating to see couriers, accessioners, med techs, medical directors, and the like come together in cooperative ways. I am convinced that we will be a much stronger company as a result of the ISO management philosophy.”
Within the clinical laboratory industry, efforts at Quest Diagnostics to become the nation’s first ISO-certified laboratory organization may be a transformational event. It is widely- recognized in the international business community that a well-run company operated on a philosophy of quality management and quality leadership has a definite competitive advantage in the marketplace.
The examples are well-known, even to most laboratorians. In the 1970s, Japanese car manufacturers used quality management methods to capture huge chunks of the American auto market. They forced Detroit to “go quality” in order to survive. Ford Motor Company’s slogan of “Quality is Job One” was a national sign of its commitment to these new management models.
THE DARK REPORT sees plenty of evidence that Quest Diagnostics’ efforts to infuse ISO 9000 and Six Sigma Quality (see sidebar below) into its corporate culture will “raise the bar” of quality in lab testing services. It intends to set a higher industry standard in the areas of common laboratory operational weaknesses, such as missed courier pickups, lost specimens, lab accidents, inaccurate billing, and other foibles familiar to laboratory administrators and pathologists.
Attract New Lab Clients
If Quest Diagnostics Incorporated can perform measurably better in these areas than competing labs, it expects that physicians and patients will recognize this difference and reward it with their business.
This is the reason why introducing quality management systems into Quest Diagnostics may well cause competing labs to adopt similar management methods. If this happens over the next few years, it will most likely bring welcome improvements in how laboratories operate and serve their customers.
Six Sigma Soon to Arrive at Quest Diagnostics
Even as Quest Diagnostics Incorporated introduces ISO 9000 certification to its regional laboratories, it has another major quality management program quietly waiting in the wings.
It is called “Six Sigma Quality.” This quality management system teaches companies how to achieve a defect rate of 3.4 per million in the products it makes or the services it delivers. The name “six sigma”comes from the goal of producing products and services that meet a quality specification that is within six standard deviations from the mean.
“Before Quest Diagnostics can succeed with a six sigma quality program, everyone in our company must have training in the management methods necessary to accomplish this daunting goal,” stated Gary Samuels,
Director of Media Communications. “That is why our ISO 9000 program must be completed first.”
Quest Diagnostics believes that ISO 9000, in tandem with Six Sigma Quality, can give it a strong one-two punch in the laboratory testing marketplace. If Quest Diagnostics can lift its customer service levels to a noticeably higher standard than competing labs, it will gain competitive advantage.
Because of this fact, laboratory executives and pathologists should pay close attention to the impact these programs have on the profits and success of Quest Diagnostics. Sustained success in this effort will definitely give other laboratory companies the incentive to introduce their own ISO and Six Sigma quality programs.