Labor costs – these are two words that the healthcare industry dreads. All healthcare organizations are under enormous stress to reduce costs and improve efficiency. In conjunction with competition, healthcare organizations are battling a decrease in insurance reimbursement amounts. This is in-turn causing consolidations and a forceful decrease in labor costs. According to LaPointe (2019), "Labors costs are currently about 59 percent of net operating revenue." In other words, labor costs are the driving forces of operating expenses.
Based on my research, the three main drivers of labor costs, within healthcare, are: decrease in productivity despite high labor costs (including the costs associated with employing physicians), innovative technology expenditures, and costs related to poor patient workflows (Brown & Hansmann, 2019). In the more recent past, a lot of the focus has shifted to the overall expense structure. Efforts are being put in using the available resources, to their maximum capacity, and increasing productivity to match the associated costs.
Now that the labor-cost drivers are identified, let's assess ways to address, and reduce, labor costs. Some basic ways to control costs include observing hours of operation when patient flow is the highest and staff based on the need, monitor full-time employee (FTE) activities and try to utilize the current staff to its highest capabilities instead of hiring additional consultants who charge three-to-four times more, evaluate differences between putting a physician on payroll versus renting out space for their specialty services, and lastly, properly evaluate the needs of an electronic medical record (EMR) and carefully choose one that meets the needs – rather than getting a fancy EMR that creates more problems than solutions. For example, if a newly purchased, very expensive EMR, can limit its users and force them to use multiple systems, that transition is completely unwarranted (Brown & Hansmann, 2019).
A very important factor in cutting costs is determining the exact needs of a department, staff based on those predicted needs, assign jobs based on employee credentials and knowledge levels, and lastly, divide the labor costs by unit ("8 Ways To Cut Labor Costs In Your Hospital", 2019). Appropriate levels of management should also be expected to be involved in curbing the costs and analyzing individual needs and situations. Eventually, employees of all levels, within an organization, need to realize that it is a team effort.
Lastly, an efficient process, for increasing patient flow, needs to be put in place. With the increase in competition, focusing on this point has to become a priority (Brown & Hansmann, 2019). The simple idea is that today, if a patient is dissatisfied, they have plenty to options to choose from. Instead of letting poorly-managed processes get the better of any organization, it is imperative to optimize the streamlining, provide higher quality care, and appropriately focus on marketing.
I think the biggest cost-burden today, from a payment perspective, is the reimbursement structure. A lot of efforts were placed on patient-care, which, unfortunately, didn’t transition into a better payment model for healthcare systems. Instead, payments are now being pushed into population-based payments or bundled payments, etc., which decreases reimbursement. According to Brown & Hansmann (2019), "Payers compare competing hospitals on utilization and reward the better performers. It is in their interest to reduce utilization, thereby reducing claims. Medicare reimbursements generally fall short of actual costs, so health systems and providers struggle to better match their costs with reimbursement. Medicare has never increased its reimbursement rates to match inflation." If services provided are of higher quality, but reimbursement is bundled, then payments received are decreased. This means that the organization has to find other ways to recoup this loss.
If future changes were to be predicted, I would say that individual organizational policies will play a big role in cutting costs and optimizing resources. The recent trend shows an increase in expense and a decrease in payment (Brown & Hansmann, 2019). Revenue can-and-will be seen if smart, efficient processes are put in place, and executed. A continuous monitoring of the needs of an organization should be given priority – if assessments are made sporadically, chances are, a huge gap will ensue and costs will never decrease.
In conclusion, evaluating organizational needs, monitoring activities, and determining the workforce expense are the first few steps any organization should be taking. The workforce is an organizational asset and should be treated as such (Jarousse, 2017). However, to limit costs, appropriate evaluations and measurements should be taken and implemented. And, lastly, productivity should be increased and waste should be curbed – this can be the driving force for sustainability, for any organization.
References
8 Ways to cut labor costs in your hospital (2019). Retrieved from 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.
Brown, B. & Hansmann, J. (2019). Five solutions to controlling healthcare's cost problem. Retrieved from The Healthcare Cost Problem and How to Control It
Jarousse, L. A. (2017). Managing workforce costs. Retrieved from Managing Workforce Costs - Hospitals and Health Networks
LaPointe, J. (2019). Hospitals target labor costs, layoffs to reduce healthcare costs. Retrieved from Hospitals Target Labor Costs, Layoffs to Reduce Healthcare Costs
Based on my research, the three main drivers of labor costs, within healthcare, are: decrease in productivity despite high labor costs (including the costs associated with employing physicians), innovative technology expenditures, and costs related to poor patient workflows (Brown & Hansmann, 2019). In the more recent past, a lot of the focus has shifted to the overall expense structure. Efforts are being put in using the available resources, to their maximum capacity, and increasing productivity to match the associated costs.
Now that the labor-cost drivers are identified, let's assess ways to address, and reduce, labor costs. Some basic ways to control costs include observing hours of operation when patient flow is the highest and staff based on the need, monitor full-time employee (FTE) activities and try to utilize the current staff to its highest capabilities instead of hiring additional consultants who charge three-to-four times more, evaluate differences between putting a physician on payroll versus renting out space for their specialty services, and lastly, properly evaluate the needs of an electronic medical record (EMR) and carefully choose one that meets the needs – rather than getting a fancy EMR that creates more problems than solutions. For example, if a newly purchased, very expensive EMR, can limit its users and force them to use multiple systems, that transition is completely unwarranted (Brown & Hansmann, 2019).
A very important factor in cutting costs is determining the exact needs of a department, staff based on those predicted needs, assign jobs based on employee credentials and knowledge levels, and lastly, divide the labor costs by unit ("8 Ways To Cut Labor Costs In Your Hospital", 2019). Appropriate levels of management should also be expected to be involved in curbing the costs and analyzing individual needs and situations. Eventually, employees of all levels, within an organization, need to realize that it is a team effort.
Lastly, an efficient process, for increasing patient flow, needs to be put in place. With the increase in competition, focusing on this point has to become a priority (Brown & Hansmann, 2019). The simple idea is that today, if a patient is dissatisfied, they have plenty to options to choose from. Instead of letting poorly-managed processes get the better of any organization, it is imperative to optimize the streamlining, provide higher quality care, and appropriately focus on marketing.
I think the biggest cost-burden today, from a payment perspective, is the reimbursement structure. A lot of efforts were placed on patient-care, which, unfortunately, didn’t transition into a better payment model for healthcare systems. Instead, payments are now being pushed into population-based payments or bundled payments, etc., which decreases reimbursement. According to Brown & Hansmann (2019), "Payers compare competing hospitals on utilization and reward the better performers. It is in their interest to reduce utilization, thereby reducing claims. Medicare reimbursements generally fall short of actual costs, so health systems and providers struggle to better match their costs with reimbursement. Medicare has never increased its reimbursement rates to match inflation." If services provided are of higher quality, but reimbursement is bundled, then payments received are decreased. This means that the organization has to find other ways to recoup this loss.
If future changes were to be predicted, I would say that individual organizational policies will play a big role in cutting costs and optimizing resources. The recent trend shows an increase in expense and a decrease in payment (Brown & Hansmann, 2019). Revenue can-and-will be seen if smart, efficient processes are put in place, and executed. A continuous monitoring of the needs of an organization should be given priority – if assessments are made sporadically, chances are, a huge gap will ensue and costs will never decrease.
In conclusion, evaluating organizational needs, monitoring activities, and determining the workforce expense are the first few steps any organization should be taking. The workforce is an organizational asset and should be treated as such (Jarousse, 2017). However, to limit costs, appropriate evaluations and measurements should be taken and implemented. And, lastly, productivity should be increased and waste should be curbed – this can be the driving force for sustainability, for any organization.
References
8 Ways to cut labor costs in your hospital (2019). Retrieved from 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.
Brown, B. & Hansmann, J. (2019). Five solutions to controlling healthcare's cost problem. Retrieved from The Healthcare Cost Problem and How to Control It
Jarousse, L. A. (2017). Managing workforce costs. Retrieved from Managing Workforce Costs - Hospitals and Health Networks
LaPointe, J. (2019). Hospitals target labor costs, layoffs to reduce healthcare costs. Retrieved from Hospitals Target Labor Costs, Layoffs to Reduce Healthcare Costs