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Controlling Labor Cost in Healthcare

Discussion in 'Healthcare Reform Discussions' started by studentLBG, Aug 4, 2019 at 10:47 AM.

  1. studentLBG

    studentLBG new user

    Mar 17, 2019
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    The cost of labor within hospital systems is typically 50% of their total operating cost, (Daly, 2018). Key drivers of this cost include labor supply, productivity improvements, and technology. It is no secret, hospitals have and will continue to see shortages of clinicians, registered nurses, pharmacists, and medical technicians. With the demand for service projected to increase, hospital systems are looking for ways to do more with less, people. Declining reimbursements and increasing labor cost is pushing these organization to move toward more automation and other types of technology to improve outcomes. This includes everything from robotics, telehealth, to information technology. This will, in some capacity, reduce the number of low-skilled, entry level jobs as the demand for smaller positions such as automation technicians will see new opportunities will increase.

    To control labor cost, hospitals are constantly analyzing the areas: labor focus and workforce practices (Gamble, 2013). Labor focus is entailing several objectives aimed at controlling labor expenses. These initiatives include organizational activities that restructure pay for performance models, benefits design and eligibility, and setting limits on the use of contractual labor and their pay rates. (Becker's Hospital Review, 2010), suggest hospitals are having to make decisions regarding which services are at the core of their identity, organization, and mission. This type of analysis is leading to leaner organizations that outsource services which can efficiently be outsourced.

    Workforce practices focus on slowing the growth of labor expenses. Hospitals are instituting practicing such as scheduling staffing levels based on expected flows, patient acuity, and trends in volumes. They are also increasing the visibility on overtime and callouts to put pressure on individuals and departments to control labor. Organizations are also undertaking restructuring to become leaner. This is putting a focus on their managerial staff and consolidating departments to ensure they are not top heavy. Workforce practices are constantly being evaluated to find optimal staffing levels across all levels of employees. Hospitals recognize that financial, clinical and employee engagement outcomes are tightly interlinked. Working long hours has a negative impact on patient satisfaction and HCAHPS scores, which directly impacts reimbursement rates (Ertl-Rosner, 2015).

    To control labor cost, government will need to focus on total health care spending versus primarily Medicare and Medicaid they have with the resurgence of the Bundled Payment model, (Shih, 2015) in which fixed payment is made for a single episode of care that is distributed amongst all providers, including facilities, that participated in treatment. To help alleviate labor cost and shortages, states will need to review policy and make necessary changes to allow clinicians and practitioners to practice to the full extent of their education and training. This will allow necessary services to be completed by fully trained and competent professionals at lower cost.

    Becker's Hospital Review. (2010, December 16). 8 Ways to Cut Labor Costs in Your Hospital. Retrieved from www.beckershospitalreview.com: 8 Ways to Cut Labor Costs in Your Hospital: Labor costs are one of the largest expenses for most hospitals, so tight management of staffing is essential to maintaining financial health. Dennis Patterson, chairman of The Collaborative for Healthcare Leadership, discusses eight ways hospital CEOs can cut labor costs and staff appropriately.

    Daly, R. (2018, July 13). What’s Driving Increased Hospital Cost Concerns? Retrieved from www.hfma.org: What’s Driving Increased Hospital Cost Concerns?

    Ertl-Rosner, M. (2015, July 7). Productivity Goes Beyond Cutting Labor Costs. Retrieved from www.apihealthcare.com: Productivity Goes Beyond Cutting Labor Costs | Healthcare in the Know Blog

    Gamble, M. (2013, October 15). Where Can Hospitals Find Labor Cost Savings? Retrieved from www.beckershospitalreview.com: Where Can Hospitals Find Labor Cost Savings?: In a Sept. 25 webinar hosted by Becker's Hospital Review, two experts from Objective Health, a McKinsey Solution, discussed how hospitals can drive down their labor costs through performance improvements.

    Shih, T., Chen, L. M., & Nallamothu, B. K. (2015). Will Bundled Payments Change Health Care? Examining the Evidence Thus Far in Cardiovascular Care. Circulation, 131(24), 2151–2158. doi:10.1161/CIRCULATIONAHA.114.010393