Productivity Readings for 3/3/06



Productivity Readings for 3/3/06

HS 6200

Aaron Kanne

HCAB - Nursing Cost Advantage - Essay (2000)

• A difficult financial environment forces hospitals to focus on internal opportunities for profit margin improvement - downgrading of hospital bonds, tight labor markets, rising drug and supply costs. Hospitals must focus on improving revenue capture and expanding profitable service lines.

• Historically, cost-reduction strategies have primarily been dependent on reducing length of stay and wage levels - this places the hospital in a precarious position of depending solely on continued reduction in length of stay and wages in an attempt to maintain profit margins.

• HCAB advises hospitals to instead target 3 leveraged areas: administrative and support staff, purchased services, and premium nursing labor.

• Nursing shortages have caused hospitals to revisit nursing costs - in 2000 alone there were 50 strikes or unionization attempts by hospital nurses.

• Instituting wage reductions may spur defection of nurses to other market hospitals, and cause premium labor usage to rise.

• There exists a gap of more than 20% between median and low-cost performers for total nursing cost per day, which reveals significant overall cost savings opportunity.

• Skill mix changes are a surprisingly small driver of savings opportunity - low cost performers have essentially the same skill mix as high cost performers.

• Two most important drivers of nursing costs are number of FTE’s and cost per FTE.

• An overreliance on premium labor (contracted labor) underlies both excessive numbers of FTE’s and high cost per FTE. Higher hourly wages commanded by agency nurses up the cost per FTE, and since agency nurses are often unfamiliar with a given hospital’s facilities, protocols, etc, more agency nurses are required to handle the same workload as staffed nurses.

• Fluctuating patient demand causes nurse managers to constantly adjust staffing either up or down, which includes such practices as calling part-time, float pool, or agency staff for help. Nurse managers all too often turn to the most expensive source of labor, agency staffing.

• HCAB identifies two main strategies for reducing premium labor use: matching staffing to patient demand and allocating patients to smooth demand.

HCAB - CODA - Rationalizing Agency Purchasing

• Even with better matching of staffing and demand, most hospitals will likely need to rely somewhat on agency nurses - this means that improving purchasing and contracting practices with agencies will be a necessary cost savings practice.

• Predicting the need for agency labor allows hospitals to purchase in advance at a more favorable rate. Aggregating agency purchasing volume to negotiate favorable pricing is also a good practice.

HCAB - Centralized Nurse Allocation

• Nurse managers often turn to most expensive, and most convenient, nurses first in order to meet supplemental labor needs - time consuming calls to float pool nurses and PT staff are bypassed in favor of expensive agency nurses with one convenient phone call. Nurse managers can spend up to two days finalizing each monthly nursing unit schedule, as well as two hours each day making necessary staffing adjustments.

• A centralized staffing office is proposed - they receive the nurse schedules one month in advance and begin filling gaps immediately and in real-time.

• These allocation offices set guidelines to fill gaps, working from the least expensive to most expensive staffing options. The order is: Regular Staff, Float Pool, Dedicated RN pool, Overtime, Agency (as a last resort!).

• This practice can free up nurse manager time and holds agency and overtime use to a minimum.

HCAB - Next-Day Productivity Profiling

• Imprecise staffing standards and infrequent monitoring can hider flexing of staff and leave managers unaccountable for productivity.

• Standards such as patient days are insufficient to measure unit activity, thus ME’s and department managers work together to select the key measurable output or service unit of each department more accurately based on work performed by the department. These productivity standards should be adjusted annually to reflect changes in practice and to raise performance expectations.

• Department managers then base annual budgets and monthly staffing plans on these customized standards. For each department, the full-time staff level is set at the level required for the lowest-volume month. The gap between the highest and lowest volume months is then used to determine the maximum need for flexible staff.

• Department managers are profiled daily on performance against productivity targets.

• This practice thus enables real-time tracking of manager performance, which helps managers to more closely match staffing levels to patient demand.

HCAB - Management Audit

• Ample opportunity exists for most hospitals to reduce administrative overhead by trimming management positions. There is a large discrepancy between the leanest hospitals and those with the largest administrative staffs.

• Overspecialization drives redundancy of positions - this has been prompted by the increasing complexity of the health care business. For example, more than one third of all departments maintain fewer than five employees - a sign of overspecialization and an indication that opportunities for consolidation may be present (Sonnetville Hospital, 400-bed facility).

• First step is to evaluate the existing management positions to determine scope of responsibilities and effectiveness of managers, starting at the top with the CEO and COO. Evaluation should assess the breadth of each individual’s duties and activities as well as his or her effectiveness as a manger to identify poor performers and positions that are too specialized.

• Analyze the management structure to identify overlaps in responsibilities and superfluous administrative layers. Largest opportunities for management reduction often exist in support and ancillary departments such as laboratory, radiology, and environmental services.

• Responsibilities must then be reallocated and functions consolidated in order to eliminate unnecessary positions.

• The management audit practice leads to wider spans of control and fewer management FTEs.

HCAB - Support Staff Cross-Training

• Overspecialization of support staff limits efficient assignment of tasks and leads to excessive staff downtime.

• A logistics department can be implemented to consolidate support functions such as Linen, Supply Distribution, and Patient Transport. This creates standard skill sets and positions for maximum support flexibility.

• A centralized dispatcher coordinates all support activities, and provides clinical staff with “one-stop” access to a variety of services. They assign tasks to the logistics staff based on task priority, worker location, and skill level. Workers then check in upon task completion and receive a new work assignment, minimizing down time and one-way trips. This also enhances clinical staff satisfaction by providing a single point of contact for all support service requests.

Time Is Money - Labor Analysis Toolkit

• Hospitals can improve profitability through informed strategic and front-line labor management.

• The industry faces workforce shortages, particularly in nursing, imaging, and pharmacy. The current nurse vacancy rate is 10%, and that is expected to worsen.

• At the same time, hospital admissions are steadily increasing at a 3 to 5 % clip per year.

• Salaries and wages currently constitute 39 to 45 percent of a hospital’s operating expense. Direct benefits add another 8 to 11 percent, pushing total labor costs to more than half of total operating expenses. Healthcare leaders NEED to tightly manage this resource.

• Comparable hospitals report a substantial difference in labor costs per discharge. This means that some hospitals may be able to significantly decrease their labor dollars.

• Manageable labor variance can be derived from two control points: wage variance and efficiency variance. Simply put, did we pay too much for the labor we used, and did we use too much labor or not enough?

• Productivity targets for variable staff assist front-line leadership in making smart staffing decisions. The agile organization uses measured thresholds or decision points to quickly react to volume changes.

• Short-term, supplemental labor options allow organizations to incorporate flexibility into their staffing solutions. Labor pools, float-in/float out protocols, and an increase in part-time hours are preferred because they offer the same pay rate as regular hours.

• Assessing staff skill mix presents another opportunity to maximize resource utilization and minimize labor costs.

• Executive level support and buy-in from financial and operational areas is essential for defining accountabilities and goals. Chief Nursing Executive and CFO must take the lead in defining and addressing the accountability loop.

• Labor management software and tools facilitate financial analysis, reporting, and real-time decision making, in addition to consolidating productivity and cost metrics into set decision points for frontline managers.

• Process improvement is essential for long-term viability of an organization. Areas in need of improvement can be identified by performance metric trends.

• Productivity benchmarking is a key step in identifying opportunities for labor savings.

• Organizations can improve profitability through informed labor management.

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