By Chuck Taylor, David Murdock and Theresa Brandon
A healthcare organization’s workforce can consume as much as 50% of net operating revenue. Optimizing workforce efficiency is a major priority for finance leaders. However, identifying effective workforce development and cost control strategies is complex. As any hospital CFO knows, there is a big difference between potential gains and true hard-dollar improvements.
Consider the following scenario: A hospital finance team identifies an opportunity to reduce excessive premium pay in the nursing division, potentially saving $20 million per year. They invest in a series of initiatives aimed at improving flexible staffing strategies. However, for a variety of reasons, the organization is unable to hire key roles in a timely manner or consistently retain staff. This forces unit managers to increase agency nurse utilization, overtime pay and shift bonuses, undercutting projected savings. At year end, cost per unit of service has actually increased.
Labor cost reduction can be like squeezing a balloon — applying pressure to one area can make weaknesses in another area expand. In the example above, the flexible staffing initiative faltered because recruiting and retention did not meet the organization’s needs. But these shortfalls are often driven by a series of complex interactions between factors like compensation, professional development, staffing and management structures.
A healthcare workforce is a complex system. It has multiple components, and each component drives costs and outcomes throughout the organization. To manage human capital effectively, finance leaders need a conceptual, integrated model to balance workforce investments and labor cost savings.[Read more…] about A New Model for Managing Human Capital