3 Drivers of Labor Costs in Hospitals

The Cost of the Healthcare Workforce

Laurie Moore

MHA/543

April 1, 2019

James Kinneer
​

The Cost of the Healthcare Workforce

The cost of healthcare in this country has risen significantly over that past several decades. Part of this rise can be attributed to the cost of the workforce required to deliver quality care. Labor costs include scheduling, productivity, and turnover. Controlling these costs will have a significant impact of the success of the organization.

Key Drivers of Labor Cost in a Hospital

Turnover, productivity, and scheduling are all dependent on one another, which means that scheduling errors or mistakes can create poor staffing ratios, causing lower employee satisfaction which leads to increased turnover. Staff scheduling by patient acuity creates a productivity balance and will allow caregivers to provide optimum care without being overloaded. Allen (2013), stated “strategic development and deployment of the workforce is the key to achieving long-term sustainability in a continually evolving marketplace, and implementation of technology provides an immediate positive return on the investment”, (para. 4). Providing appropriate staffing levels will result in staff that are not overworked, that are content, and engaged, which will create higher levels of productivity. According to Nowak, Holmes, and Murrow (2010),” Happy employees who are getting their economic, personal, and professional needs met by their existing employer”, (p. 15).

Solutions

Recruiting is the first stage of containing labor costs. Choosing the appropriate screen tools pre-hire will curtail much of the future turnover cost. Utilizing pre-interview assessments will screen out those that are not up the hospital’s standard. Providing a realistic job preview, in the form of shadowing a current employee, will give the candidate an opportunity to see what their day will be like should they accept the position. The candidate will have a chance to see how scheduling and patient assignments work, as well as, the level of expected productivity. This should reduce turnover because the candidate will understand exactly what they are getting into. Changes in the future will likely include lowered patient ratios, increased communication with the hospital system, and tighter controls on staff utilization.

Conclusion

Productivity and scheduling feed directly into turnover. According to Allen, (2008) “To manage retention most effectively, you need to engage in an ongoing diagnosis of the nature and causes of turnover, as well as develop (and constantly hone) the right mix of retention initiatives”, (p. 11). Being able to perfect scheduling and productivity will enable the hospital to control turnover and provide an environment for employee engagement to flourish.














References

Allen, D. (2008). Retaining talent. Retrieved from SHRM – The Voice of All Things Work.

Brimmer, K. (2013). Cut labor costs with smarter scheduling. Retrieved from

Healthcare Finance

Nowak, P., Holmes, G., & Murrow, J. (2010). A model for reducing health care employee

turnover. Journal of Hospital Marketing & Public Relations, 20:14-25.

 

The Cost of the Health Care Workforce

Monna Marrongelli
MHA/543: Tackling The Talent War In The Health Sector​

July 20, 2020
Lawrence Fergus​

The Cost of the Health Care Workforce

There is no denying healthcare has many challenges. One of the leading challenges a healthcare organizations face, is the labor costs of maintaining the nursing staff. “An example of that burden was that labor’s share of total expenses increased steadily from 2008 to 2018, rising from 50.6% to 54.9% among hospitals tracked by Fitch Ratings” (Daily, 2019, pg. 5). Some organizations have begun to research and evaluate the reasons for such large numbers of nurse turnover to find a solution.

Key Drivers

Key drivers of labor costs are management, nurse turnover and retention. Management must be willing to empower, engage and support nursing staff. Nursing is a very difficulty job. Management should be “in the trenches” with nurses offering support and rallying the nurses. “When physicians and nurses are engaged and supportive, he said, good things can happen for the patient” (Lagasse, 2016, pg. 14). This supportive culture can provide a culture of job satisfaction and can lead to retention of nurses. Healthcare is in a state of constant change. The constant changes in policies and regulations has a direct impact on patient care. "The reality of healthcare reform is that while continuous cost improvement is important, it can't be done in a way that sacrifices the quality of care or patient satisfaction. Poor quality can have a direct correlation to financial returns." (Lagasse, 2016, p.7). Cost improvement is directly related to staffing. Staff, in this case nurses, who are happy in their jobs perform better, thus, patient satisfaction is better, and hospitals can have a direct impact on profits. Curbing the costs of labor can have significant affects on nurse turnover. When nurses are empowered and engaged in the job, the culture of nursing becomes attractive to those already employed and any potential employees. Organizations could direct by this example, “efforts to improve retention included adding ways for Northwell employees to advance their careers. An example was the launch of a school for nurses and physician assistants in partnership with Hofstra University that includes a track for nurse practitioners (Daily, 2019, pg. 19). Management should be willing to listen to nurses and implement change processes to encourage staff satisfaction. An article in the Journal of Hospital Marketing & Public Relations, 2010, an expectation of “20% turnover rate yearly” (Nowak, Holmes, & Murrow, (2010, p. 15). Turnover rates this high are constant reminders to healthcare organizations, for the need to change tactics. When nurses leave organizations are forced to look to agency or travel nurses to fill the vacancy. This is at a premium cost to the organization.

Conclusion

If organizations focus some of the funds used to replace those who leave, on employee retention, there could be some significant impact to retention. Developing interventions aimed to encourage and engage staff, resulting in happier more productive employees. This may directly impact nurse retention numbers and decrease nurse turnover. A 2019 article explains “efforts were credited with reducing the organization’s turnover rate to 9% and allowing average tenure to reach 9.5 years (Daily, 2019, pg. 17). Management must focus efforts to working with nurses, having conversations to decrease these high labor costs.

References

Daily, R., (2019), Hospitals innovate to control labor costs, Healthcare Financial Management Association.

Lagasse, J., (2016), Healthcare providers keep close tabs on labor costs to keep spending in check, Healthcare Finance, (p. 14).

Nowak, P., Holmes, G., & Murrow, J. (2010). A model for reducing health care employee turnover. Journal of Hospital Marketing & Public Relations, 20(1), 14–25. https://doi.org/10.1080/15390940903450925

Marrongelli, M. (2020), The Cost of the Health Care Workforce, Unpublished Manuscript, University of Phoenix.

 

Hospitals & Labor Costs—What do we do?



Navigating through the health care hospital setting regarding labor costs is no easy task. Three key drivers of labor costs are: staffing shortages, overtime and employee benefits. All three of these labor costs can affect the bottom line negatively. Labor costs are always among the top three hospital CFO’s want to discuss (Daly, 2019).

Staffing shortages and overtime stem from the same root cause; employee turnover. If the hospital had adequate staffing levels and low overtime it would also mean that their employee turnover would be low. Employee turnover can be a huge cost to an organization. For example, a hospital that has 600 nurses on staff and has a 20% turnover rate would spend approximately $5,520,000/year in replacement costs (Nowak, 2010).

Employee benefits can also be a large component of labor costs. Employees are more demanding of their employers when it comes to benefits. Paid time off, health insurance, etc. are all benefits that employees have come to expect from their employer. For hospitals to stay competitive & retain their employees, they must find a way to offer an appealing benefits package.

There are many solutions for cost containment regarding employee turnover. A way to decrease employee turnover would be to have regular communication between leadership and employees to improve trust & loyalty and to forge a real partnership within the organization (Nowak, 2010). Management should ask for suggestions to improve meeting employee & patient needs within the organization (Nowak, 2010). Management support is a primary factor in an employee deciding to stay at an employer. Management support can include managements care for employees, how managers responded to concerns & how managers acknowledged employee’s contributions in the workplace (Nowak, 2010). Another way to lower employee turnover is to create incentives to stay. Letting staff choose their own schedule, educational reimbursement and mentor programs are all offerings an employer can make to retain staff (Nowak, 2010).

I am predicting that labor costs in the future will be a challenge due to funding sources, growing population & an aging population. Looming health plan payment trends could accelerate the continuing need for labor savings and implementation of such initiatives well into the future (Daly, 2019). If government funded programs (Medicare and/or Medicaid) decided to decrease the reimbursement rate, it would have a negative financial impact to the organization. This would then place pressure on the organization to be fiscally responsible (Schuler, 2020). I believe a part of this initiative would be to find savings regarding labor costs. Due to this, there will be a lot of pressure to find ways to retain employees, thus lowering the overall labor costs (Schuler, 2020).






References:

Bryant, Phil C., and David G. Allen. “Compensation, Benefits and Employee Turnover.” Compensation & Benefits Review, vol. 45, no. 3, 2013, pp. 171–175., doi:10.1177/0886368713494342.

Daly, Rich. “Hospitals Innovate to Control Labor Costs.” Healthcare Financial Management Association, Oct. 2019.

Nowak, P., Holmes, G., & Murrow, J. (2010). A model for reducing health care employee turnover. Journal of Hospital Marketing & Public Relations, 20(1), 14-25.

Schuler, Stephanie. (2020), Hospitals and Labor Costs-What do we do?, Unpublished Manuscript, University of Phoenix.

 

The Cost of the Healthcare Workforce​

Kahdeejah Horton

University of Phoenix

MHA/543: Tackling the Talent War in The Health Sector

Dr. Melissa Green

October 12, 2020
​

The Cost of the Healthcare Workforce​

Healthcare costs are continuously on the rise. Although, there are strategies and analysis’s regarding cost limits, these costs continue to increase. Administrative costs, the prices of labor and pharmaceuticals are the main motivations of high healthcare costs. ("Prices of Labor, Prices of Pharmaceuticals, and Administrative Costs are The Key Drivers of High US. Healthcare Spending", 2018.

The largest group of healthcare workers are nurses. 50-60% of a hospitals expense budget is accounted for by labor costs. Due to increasing complications of chronic diseases, competition, high demands of quality patient care, and an aging population, it should be mandatory for hospitals to hire more staff.

Three key drivers of Labor Costs Within A Specific Health Care Service, Facility, or Other Health Sector-Related Occupation​

The demands for higher wages thus resulting in higher over labor costs has been contributed by a shortage of skilled labor alongside constricting labor costs. With low nurse to patient ratios and an increasing number of acutely ill patients who require care at a higher level, this situation is intensified. Turnovers, heightened work stress, burnouts, and improper staffing levels are all results of evaluating and measuring the productivity of healthcare workers specifically nursing. This has been both a source of discontentment and a challenge for nurses. In a tight labor market, high turnover rates are an important cost driver and a developing problem (Hunt, 2016). It creates a void when workers leave. Due to the onboarding processes and the recruitment there is an increased expense for the organization and stress on the remainder of workers.

Current Industry Solutions/Remediation Activities to Address the Identified Labor Costs​

Current industry solutions for labor challenges that are associated with labor supply, employee retention strategies should be employed appropriately, productivity should be balanced, turnover and productivity should be focused on encouraging recruitment for training, and working conditions should be improved. If healthcare organizations were to provide a clear path for career advancements, balance the demands of patient acuity and staffing shortages, and advocate new internships for graduates, this will these organizations by indicating a greater level of support for training and recruitment. They can also reduce turnovers by improving the working conditions and recognizing worthy employees by rewarding them. There are effective strategies such as generating staffing pools that are centralized and building labor controls into staffing evaluations.

Future Changes That Might Exacerbate/Accelerate the Solutions​

Demands for the provision of quality care and increasing costs represents the healthcare industry. A complete understanding of the various causes to establish suitable strategies for solution is required when addressing the emerging and current challenges in association with labor supply, turnover and productivity.

To gain beneficial insights on what has and has not worked, a good starting point would be to evaluate and collect data of the strategies operated in the healthcare industry. This information should be collected over the past decade using adequate technology. At the policy level, if the educational institutions and healthcare organizations did a collaboration with one another, this could possibly have positions constantly being filled in hospitals by graduates.

Utilizing basic benchmarks to evaluate production such as Care Hours Per Patient Day (CHPPD), should be the leading evaluation of measurement on how hospitals use healthcare assistants and nurses. So that the same metrics are composed across all hospitals, there should be a regulation of nursing, indicators, and benchmarks. This is to ensure excellent use of staff resources (Hunt, 2016). Also, important strategies to prevent employee turnover are to approach job satisfaction issues, enforcing flexibility to increase work life balance, and controlling acknowledgement programs.

References​

Hunt, J. (2016). How should nursing productivity be measured? | Nursing Times. https://www.nursingtimes.net/roles/nurse-managers/how-should-nursing-productivity-be- measured-10-10- 2016/#:~:text=CHPPD%20are%20calculated%20by%20adding,patients%20at%20the%2 0midnight%20census.

Minich-Pourshadi, K. (2010). Taking On the Cost Drivers - www.hcpro.com. http://www.hcpro.com/HOM-252241-3749/Taking-On-the-Cost-Drivers.html?page=1

Prices of labor, prices of pharmaceuticals, and administrative costs are the key drivers of high U.S. healthcare spending. (2018). https://www.hsph.harvard.edu/news/press-releases/labor-pharmaceuticals-administrative-costs-health-costs/

Title International Best Practices in Health Care Management: Vol. 17 | Emerald Insight. (2020). https://www.emerald.com/insight/publication/doi/10.1108/S1474-8231201517.

 

Cost of the Health Care Workforce in an Assisted Living Facility


Jasmine Johnson

University of Phoenix

MHA/543

March 1, 2021

Dr. Joseph Harrison Jr., Ph.D.


Cost of the Health Care Workforce in an Assisted Living Facility

The rising cost of health care has presented itself as a huge problem in the United States. The cost of labor or the cost of the workforce is a large contributing factor to the increased costs in several different health care facilities. Assisted living facilities largest expense is labor. This article will discuss key drivers of labor costs, solutions to drive labor costs down, and future changes that will help continue keeping labor costs low.

Key Drivers of Labor Costs for an Assisted Living Facility

According to Corless (2017), “overtime, staffing to budget and employee retention” are three of the key drivers of labor costs in an assisted living facility. Overtime encompasses additional time an hourly employee works outside of their allotted schedule. Many companies offer increased pay for overtime worked. Staffing to budget and employee retention fall hand in hand. Onboarding a new employee is much more expensive than maintaining a current employee. “Employee retention can drastically reduce these expenses” (7 Ways Employee Retention Benefits Your Company 2020).

Current Industry Solutions to Address Labor Costs

Industry solutions to curb overtime spending include “proactive scheduling” and “open shift management” (Corless, 2017). Proactive scheduling just means that scheduling is kept up to date and accurate by a watchful eye, and constant monitoring to manage callouts, time off, and schedule changes. Knowing who is available, who is not, and who is dependable to cover a shift in case of any emergency can keep costs down significantly.


Future Changes that May Accelerate Solutions

Change that can assist with keeping labor costs down are accurate, easily accessible, and easy to use scheduling programs that can track time off, callouts, and any other schedule changes up to the minute. Employees should be able to enter their information in real time while in the assisted living facility or from a log in portal online, but offsite from the facility. Another change would be companies focusing on employee retention rather than focusing on hiring new staff.

Conclusion

In conclusion, the largest expense for assisted living facility care is the cost of labor. This cost is driven by proper staffing and employee retention.


References

Corless, P. (2017, May 22). Why Managing Labor Costs Needs to Be the #1 Priority in Senior Care. Retrieved March 01, 2021, from https://www.onshift.com/blog/why-senior-care-needs-to-make-labor-their-top-priority

7 Ways Employee Retention Benefits Your Company. (2020, January 16). Retrieved March 01, 2021, from https://www.forusall.com/401k-blog/employee-retention-benefits/

Johnson, J. (2021, March 1). Cost of the Health Care Workforce in an Assisted Living Facility. Retrieved March 01, 2021, from http://www.cafepharma.com/boards/threads/3-drivers-of-labor-costs-in-hospitals.635669/reply