Auto Industry Drives to Improve Healthcare

by R. Dan Reid

The U.S. auto industry has been challenged by its need to compete in a global marketplace while burdened by steep healthcare expenses for workers and retirees.

This fall, the Automotive Industry Action Group (AIAG) released its new hybrid healthcare standard, Business Operating Systems (BOS): For Healthcare Organizations—Requirements for Process Improvements to Achieve Excellence.

BOS was developed as an evolutionary AIAG replacement for the now expired ISO International Workshop Agreement (IWA) 1, which was solely based on ISO 9001.

BOS is based on the 2006 Malcolm Baldrige National Quality Award performance excellence criteria for healthcare, but it also includes ISO 9001 requirements. This is thought to be the first such combination of these two improvement models to occur in the standards world.

In blending these two improvement methods, the AIAG BOS standard provides both the basic requirements for a functional quality system and the requirements for a business system that will drive performance excellence.

Why Baldrige?

The Baldrige criteria, which are updated and published annually, have resonated in the U.S. healthcare sector. Through 2006, six healthcare organizations have received the annual award, first opened to the sector in 2002.

The Baldrige healthcare criteria are written in a style and uses vocabulary that is more familiar to the healthcare audience than ISO 9001, which is an international and generic quality management standard applicable to all types of organizations. While applicable to healthcare, ISO 9001 is not specific to healthcare. This presents challenges for users of voluntary standards that are based on ISO 9001 but aimed at the healthcare sector.

The AIAG BOS standard, with its unique hybrid approach, has adopted the best of both. It adds requirements and guidance based on valuable experience from other economic sectors that are also applicable but not specific to healthcare. This experience includes the use of techniques such as error-proofing, inventory management, emergency planning and risk management.

Making the Case

The quality of U.S. healthcare delivery services is improving but still has a long way to go. Consider facts from recent articles:

  • Even though people in the United States are living longer, the life expectancy of Americans is now lower than in 40 other countries, including Japan, Jordan, Guam and most European countries.1
  • Studies indicate one of every five admissions to American hospitals will include some kind of error.2 The rate of wrong site, wrong patient and wrong procedure errors remains steady after years of concerted efforts by hospitals and the Joint Commission to address the problems.3
  • Studies estimate that 90,000 patients die each year because of infections they catch while in hospitals or other medical facilities. Deadly germs gain entry through surgical incisions and catheters and are sometimes transmitted by doctors and nurses who fail to wash their hands.4

Pressure is mounting both for providers and users of healthcare. Several measures are set for a 2009 implementation. For example, the Centers for Medicare and Medicaid Services announced in August that by late 2008 it will no longer reimburse hospitals for conditions associated with errors such as bedsores, in-hospital falls, objects left inside surgery patients and certain types of infections. A Wall Street Journal blog said:

The government estimates its direct savings at about $20 million a year, and Medicare has said hospitals can’t turn around and stick patients with the tab. ... Other insurers are likely to follow suit, and hospitals may well do a better job for all patients, not just those on Medicare.5

Organizations are also making significant changes. One Indianapolis company plans to charge employees more for healthcare insurance in 2009 if they allow health risks to go unchecked. Others are likely to follow.

Sixty-two percent of 135 top executives responding to Pricewaterhouse-Coopers’ May 1 Management Barometer survey said their companies should require employees who exhibit unhealthy behaviors such as smoking or overeating to pay a greater share of their health benefit costs.6

These initiatives are expected to have two major demands:

  1. Users should become more discriminating consumers of healthcare.
  2. Healthcare organizations should get into the continual improvement fast lane.

BOS writers hope some healthcare organizations will heed the advice from the Institute of Medicine (IOM), which several years ago recommended that healthcare organizations look outside their sector to adopt what the IOM called “engineering principles” used in other industries to improve quality.7

It’s the Culture, Stupid

These so-called engineering principles are really quality management methods, and BOS is full of such tried and tested principles to drive organizational excellence.

Culture continues to be a big challenge to BOS adoption. Primary healthcare delivery is a product of hundreds of years of history. It evolved around a craftsperson model based on the needs of doctors in an era of low technology. Physicians were viewed as experts who were beyond making errors. Not anymore.

The sector is now trying to morph into a service industry focused on the needs of patients in a high-tech era.8

Today, many people have experienced or know somebody who has experienced healthcare errors. The problem of medical errors is now well documented. So, healthcare organizations need to be re-engineered, and as a sector they are going to need lots of help.

ISO 9001’s Quality Management Principles

Healthcare’s culture has made it challenging to adopt the eight quality management principles ISO 9001 identifies to lead organizations toward improved performance excellence:9

1. Customer focus: One disconnect inhibiting healthcare quality improvement is that healthcare practitioners use a unique vocabulary. They do not widely use the word customer, instead referring to the client, resident of extended care facility or patient.

Standards developers have struggled to address this variation by consolidating the terms into a generic phrase such as “subject of care,” but these phrases can be even more ambiguous.

2. Leadership: The traditional hospital organization consists of two separate leadership silos: the CEO for hospital functions (the nursing staff or the lab, for example) and medical staff (credentialing and peer review, for example). The only place they come together is on the board of trustees, which typically meets infrequently.10

While not specifying any particular organization structure, the BOS standard focuses significant requirements on leadership, including appointing a person responsible for its implementation and maintenance, irrespective of other duties. This will ensure leadership’s attention to the entire scope of the business.

BOS can also provide the umbrella system to incorporate healthcare accreditation criteria and regulatory requirements to ensure compliance all the time, not just in advance of a periodic audit.

3. Involvement of people: In the past, hospitals had a rigid hierarchy with well-defined silos where practitioners in different silos had infrequent interaction. Communication in the operating room was muted.

The healthcare sector has recently been taking a page from another high risk service sector—aviation—by teaching the principles of teamwork with courses like Crew Resource Management, which is required of airline pilots and included in the BOS standard.

4. Process approach: Healthcare practitioners also do not use the terms nonconformance or nonconformity, instead referring to adverse or sentinel events. This is related to a challenge with the process approach principle.

Healthcare practitioners do not seem to view their work as a process, with inputs, outputs and one or more customers or downstream users of their service. Fundamental quality management science recognizes the need for appropriate controls on the quality of the inputs as well as controls for the process itself and the output (see Figure 1). The AIAG BOS standard focuses on requirements for process improvement and the metrics needed to drive excellence.

Figure 1

5. Systems approach to management: George Halvorson of the Kaiser Foundation says:

We don’t really have a healthcare delivery system in this country … we have an expensive plethora of uncoordinated, unlinked, economically segregated, operationally limited microsystems, each interacting in ways that too often create suboptimal performance both for the overall healthcare infrastructure and for individual patients.11

According to David Nash, a researcher into the causes of medical errors, there is no simple solution.12

The BOS standard brings a number of the processes required for excellence into one place and uses a systems approach for implementation and maintenance. This provides organizations with a business management system that is sustainable, providing for integration of new technology, on-boarding of new people, process design and control, and other improvements.

6. Continual improvement: Even though healthcare’s culture is hundreds of years old, there is nothing to preclude today’s practitioners from making continual improvement. Certainly the adoption of lean principles and Six Sigma from industry, as well as implementation of electronic records, will drive significant improvement.

7. Factual approach to decision making: Several industries have determined failure mode effects analysis to be an effective way to identify and quantify risk. It is now gaining popularity as a Joint Commission requirement and Institute for Healthcare Improvement recommendation. BOS also recommends this technique as a way to manage risk.

Despite the initial cost, more organizations are jumping on the IT bandwagon. Healthcare investment in all types of IT in 2006 was growing faster as a percentage (nearly 5%) than in any other field, and it is expected to be in a strong growth mode through 2010.13

IT systems, such as electronic health records and electronic physician order entry, lead to fewer medication errors, decreases in medication processing time, reductions in problem medication orders, reductions in duplicate testing, improved turnaround time for diagnosis and treatment, and reduction in the average length of patient stay.14

However, organizations should have good business processes in place first and then base their systems on the business process rather than the other way around. BOS provides considerable help regarding the processes a healthcare organization should have in place to achieve excellence.

In addition to implementing new forms of IT to drive improvement, the concept of sharing patient health information across multiple healthcare organizations in a region or state is gaining strength.

Benefits of such sharing include streamlined physicians’ work, facilitated research, better tracking of outbreaks or epidemics, and reductions in duplicate tests and unnecessary medical procedures that translate into higher costs.15

This sharing can be viewed as a form of benchmarking—looking outside the organization for information that can be used for internal improvement efforts addressed in the BOS standard.

8. Mutually beneficial supplier relationships: The healthcare industry’s history of regulating itself does not go far enough to protect patients.16 BOS is written as a standard, which makes it a document that is easily audited, whether by internal or external auditors or by second or third parties.

This means customers, payers and others could require evidence of compliance with the BOS requirements as a condition of doing business or as a preferred credential. Healthcare organizations, accreditation bodies and trade associations could also use it as a requirement or preferred credential for their suppliers.

Healthcare Education and BOS

Julie Gerberding, director of the Centers for Disease Control and Prevention, recently stepped into the healthcare reform debate with a call for changing the way doctors, nurses, veterinarians, pharmacists and dentists are educated.17

Not only are more schools needed, Gerberding said, but these professionals also need to start their educations together to foster cooperation and a sense of common mission.

Use of standards like BOS needs to be integrated into undergraduate college curricula. Business and quality management science should incorporate lessons learned from industry. Organizations such as AIAG and ASQ should take proactive and leading roles in an educational initiative aimed at healthcare.

The easy work is now completed—the BOS document is available from AIAG (www.aiag.org). Now comes the hard part—implementation. Think about ways quality principles can make a difference in this critical sector. The life you save might be your own.


  1. “American Life Expectancy Longer Than Ever,” www.cnn.com/2007/HEALTH/09/12/life.expectancy.ap/index.html?section=cnn_latest, Sept. 13, 2007.
  2. “Expert Discusses Medical Errors,” Telegraph Herald (Dubuque, IA), Aug. 1, 2007.
  3. “Wrong Site Surgery Rates Hold Steady,” Patient Safety Monitor, Aug. 17, 2007.
  4. Stephen Smith, “Hospital Infection May Cost $473M,” Boston Globe, Aug. 9, 2007.
  5. “Medicare Won’t Pay Hospitals to Remedy Flubs,” http://blogs.wsj.com/health/2007/08/08/medicare-wont-pay-hospitals-to-remedy-flubs.
  6. PricewaterhouseCoopers, Management Barometer Survey, www.barometersurveys.com/production/barsurv.nsf/barometer_management, May 1, 2007.
  7. Institute of Medicine, “Crossing the Quality Chasm: A New Health System for the 21st Cen-tury,” National Academy Press, 2001.
  8. Martin Merry, M.D., “Healthcare’s Need for Revolutionary Change,” Quality Progress, September 2003.
  9. ANSI/ISO/ASQ Q9000-2000 Quality Manage-ment Systems—Fundamentals and Vocabulary, ASQ Quality Press, 2000.
  10. Martin Merry, M.D., “The Future of Healthcare Quality,” ASQ Region 8 Health Care Conference, Cleveland, April 10, 2003.
  11. George Halvorson, “Healthcare Reform Now—A Prescription for Change,” John Wiley and Sons, http://healthcarereformnow.org/docs/health_care_bklt.pdf.
  12. “Expert Discusses Medical Errors,” see reference 2.
  13. John Buell, “Flexing Their IT Muscles,” Healthcare Executive, September/October 2007, p. 16.
  14. Ibid, p. 19.
  15. Jessica Squazzo, “Health Data Exchange on the Rise,” Healthcare Executive, September/October 2007, pp. 8-14.
  16. “Self-Regulation Doesn’t Work in Health-care,” Patient Safety Monitor, Aug. 17, 2007.
  17. Maggie Fox, “Start From Ground Up to Fix Health Care: CDC Head,” Reuters, July 14, 2007.

R. DAN REID, an ASQ fellow and certified quality engineer, is a purchasing manager at General Motors Powertrain. He is co-author of the three editions of QS-9000 and ISO/TS 16949; the Chrysler, Ford, GM Advanced Product Quality Planning With Control Plan; Production Part Approval Process and Potential Failure Modes and Effects Analysis manuals; ISO 9001:2000; and ISO IWA 1.

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