The Cost of Quality: An Academic Health Center's Annual Costs for Its Quality and Patient Safety Infrastructure

In the United States, regulatory bodies, state licensing boards, hospital accreditation organizations, and medical specialty boards have increased their demands for data, public reporting, and improvement. Survey research suggests that as much as $15 billion is spent on reporting quality measures, but those costs, as well as those associated with improvement, have not been sufficiently characterized. A study was conducted to examine, in detail, the costs incurred by one health care organization—an academic health center (AHC) with employed physicians—in responding to quality and safety requirements. To identify annual costs associated with an AHC's quality and safety infrastructure, a conceptual model was developed for organizing costs into four domains—Measurement and Reporting, Safety, Quality Improvement, and Training and Communication. In an inventory approach, a purpose-specific instrument was used to aggregate and sort costs; clinicians and administrators were asked to identify all domain activities and the associated full-time equivalents and other direct costs (labor and nonlabor) allocated to each activity. For this AHC, nearly $30 million of direct costs—more than 1.1% of net patient service revenue—were incurred to maintain the quality infrastructure. Approximately 81.6% of the costs were associated with mandates by regulators, accreditors, and payers—49.8% of which supported required public reporting. Indisputable good for patients and providers has resulted from organizational investments in quality and safety. But policy makers must be cognizant of potential trade-offs and explicitly recognize the incremental costs of additional measurement, improvement, and mandated reporting in their decision making.