U.S. non-profit hospitals’ median operating margin fell in fiscal year 2016 as expenses grew, according to preliminary financial data compiled by Moody’s Investors Service. Moody’s attributed the decline in profitability to lower reimbursement and rising expenses, including rising labor and pharmaceutical costs.
With an average labor ratio of 50 percent or more, emphasis on labor management must be a critical initiative for improving performance and the bottom line. The following are five steps to take on your journey to improvement.
- Measure Organizational Labor Costs: Measuring your Labor Ratio, (total labor costs divided by total revenue), will give you a good idea of how you measure up to industry standards. Steven Berger, Healthcare Insights, stated in a session at the American College of Healthcare Executives 2015 Congress, that the median labor ratio for U.S. hospitals is 55 percent, but the highest and lowest performers vary by 20 percent with best practice about 45 percent
- Identify Opportunities: Identifying opportunities for improvement starts with a drill-down of the data. A careful review of each department’s staffing patterns and labor costs is the best way to identify opportunities. Pay close attention to labor costs associated with:
- Registry / Travelers
- Scheduling practices
- Skill mix
- Inefficient work practices
- Establish Goals for Improvement: Once you have identified opportunities, establish goals for improvement. Goals should be established based on both hours per unit of service as well as labor costs per unit of service. Include a review of national benchmarks as well as any minimum staffing ratios required by your State. Goals won’t be accomplished without a pathway to get there – so think creatively and involve staff in creating solutions that work. For example, there may be times when adding staff is the most cost – efficient solution such as when call-back costs exceed the cost of adding another staff person, or adding an unlicensed staff member reduces overtime or other costs.
- Adjust Staffing to Volume: Develop a staffing matrix to align staffing with workload. The staffing matrix should include the number and type of staff required for the volume. Staffing should be reviewed and adjusted at least twice per shift in most departments. If there is a minimum staffing level, make sure that is identified in the staffing matrix.
- Provide Accurate, Timely and Actionable Data: In order to manage staffing, data must be available to managers who are making decisions about staffing. Ideally, staffing data is available on a daily basis, but at a minimum, it should be available every pay period. Set expectations that every manager follow-up and report on variances.
HealthTechS3 offers productivity consulting as well as a cloud-based product for monitoring productivity. We utilize a collaborative approach to help each hospital we work improve and manage their labor costs.
If you would like more information, please contact.
Author: Carolyn St.Charles, RN, BSN, MBA, Regional Chief Clinical Officer