Development of the Model for Total Quality Management and Cost of Quality using Activity Based Costing in the Hospital

Abstract

Healthcare service organizations can apply the cost of quality(COQ) model as a method to evaluate a service quality improvement project such as Total Quality Management (TQM). COQ model has been used to quantify and evaluate the efficiency and effectiveness of TQM project through estimation between cost and benefit in intervention for a quality Improvement to provide satisfied services for a customer, and to identify a non value added process. For estimating cost of quality, We used activities and activity costs based on Activity Based Costing(ABC) system. These procedures let the researchers know whether the process is value-added by each activity, and identify a process to require improvement in TQM project. Through the series of procedures, health care organizations are service organizations can identify a problem in their quality improvement programs, solve the problem, and improve their quality of care for their costumers with optimized cost. The study subject was a quality improvement program of the department of radiology department in a hospital with n bed sizes in Metropolitan Statistical Area (MSA). The principal source of data for developing the COQ model was total cases of retaking shots for diagnoses during five months period from December of the 1998 to April of the 1999 in the department. First of the procedures, for estimating activity based cost of the department of diagnostic radiology, the researchers analyzed total department health insurance claims to identify activities and activity costs using one year period health insurance claims from September of the 1998 to August of the 1999. COQ model in this study applied Simpson & Multher's COQ(SM's COQ) model, and SM's COQ model divided cost of quality into failure cost with external and internal failure cost, and evaluation/prevention cost. The researchers identified contents for cost of quality, defined activities and activity costs for each content with the SM's COQ model, and finally made the formula for estimating activity costs relating to implementing service quality improvement program. The results from the formula for estimating cost of quality were following: 1. The reasons for retaking shots were largely classified into technique, appliances, patients, quality management, non-appliances, doctors, and unclassified. These classifications by reasons were allocated into each office doing re-taking shots. Therefore, total retaking shots categorized by reasons and offices, the researchers identified internal and external failure costs based on these categories. 2. The researchers have developed cost of quality (COQ) model, identified activities by content for cost of quality, assessed activity driving factors and activity contribution rate, and calculated total cost by each content for cost for quality, except for activity cost. 3. According to estimation of cost of quality for retaking shots in department of diagnostic radiology, the failure cost was ￦35,880, evaluation/preventive cost was ￦72,521, two times as much as failure cost. The proportion between internal failure cost and external failure cost in failure cost is similar. The study cannot identify trends on input cost and quality improving in cost of qualify over the time, because the study employs cross-sectional design. Even with this limitation, results of this study are much meaningful. This study shows possibility to evaluate value on the process of TQM subjects using activities and activity costs by ABC system, and this study can objectively evaluate quality improvement program through quantitative comparing input costs with marginal benefits in quality improvement.