Workforce Planning in the Healthcare Industry Post-Reform

Healthcare reform has hit the hospital industry on two fronts. For most hospitals, the primary concern has been the impact on the industry's business model and the need to reinvent that model as the focus of care shifts from volume to quality, efficiency and population health, with corresponding shifts in metrics, reimbursement levels and the payer mix. But hospitals also have to contend with the Patient Protection and Affordable Care Act's impact on them as employers — and the complex decisions required about healthcare delivery (e.g., playing or paying) — as well as how to avoid the excise tax on high-cost health plans that will take effect in 2018.

While few, if any, hospitals are likely to opt out of providing healthcare broadly — it is, after all, their core business — virtually all need to consider ways to lower their costs. In general, the industry's labor costs are high — typically about 50 percent of revenues — and employee healthcare costs, generally in the same range as operating margins, are big-ticket items in the face of the new pressures on reimbursement revenue.

Between now and 2018, there are significant reasons — and opportunities — for hospitals to take a fresh look at their workforce structure and composition, evaluate how their needs are going to change in the future, and determine ways to optimize their benefit programs to reduce costs while attracting and retaining the talent they need to adapt to the new world of healthcare. Although many hospitals may not yet be ready to make major changes in the structure and composition of their workforce, it's not too soon to begin the evaluation process and consider care delivery alternatives for different segments of their population.

Most hospitals have a very diverse workforce structure that typically includes a large group of part-time and per-diem workers, many of whom have traditionally opted out of benefits in exchange for flexible hours and higher pay. Under the PPACA, opting out will no longer be possible since the law requires coverage for all employees working 30 or more hours per week. Hospitals also have a large contingent of low-skilled, low-wage workers who provide 24/7 maintenance and food service, and various categories of union workers with separate benefit contracts. Adding to the complexity, many hospitals are also acquiring other types of healthcare providers along the continuum of care — from physician groups, to nursing homes, to rehabilitation centers — bringing a range of new employees into the mix, from highly paid clinicians to low-paid healthcare aides, many of whom had more modest benefit packages from their legacy employers. Extending benefits to all of these groups will not only add significant cost for many hospitals, but will also require them to track actual hours worked in a far more rigorous and complex way than most are equipped to do right now.

What are the alternatives?
Today's sophisticated workforce planning and modeling tools can help you understand the relative costs, advantages and potential drawbacks of maintaining or changing current employment arrangements, especially in light of your organization's evolving strategic and financial goals. The tools draw on comprehensive data and assumptions that include embedded labor costs, overtime, regular pay, incentive pay, training costs and contract versus direct employment models. Working from those and related inputs, you can identify a range of specific scenarios — for instance, converting per-diem or part-time clinicians to full-time status, or moving full-time staff to part time — and understand exactly how each approach will affect overall labor costs as well as productivity or staffing levels.

Take part-time and per-diem workers, for example. Some years back, when hospitals were struggling to attract full-time nurses, offering part-time positions without benefits made strategic sense. But today's labor force dynamic is quite different, and we often see nurses cobbling together two part-time jobs to make a living, often at competing institutions. Does this type of employment arrangement continue to serve the organization's needs? What are the relative costs of maintaining part-time versus full-time labor? And what are the implications for the quality and efficiency with which care is delivered? Would the organization benefit from offering various part-timers full-time positions so they could leave their other jobs?

Similar questions arise regarding low-wage workers. Does it make sense to continue providing benefits to this segment? Or would it be more advantageous to the organization to outsource functions like food services or housekeeping? Would outsourcing also enable these workers to qualify for federal subsidies if their new employer doesn't provide benefits? By reviewing your current situation, and how well it aligns with your business strategy and the factors that drive value for your organization, you can model the effect of healthcare reform on your programs and policies for all segments of your population.

You can also evaluate each scenario against your organization's employee value proposition and total rewards philosophy. Will it deliver the kind of work experience required to engage employees and retain them during this period of industry upheaval? Is your value proposition competitive with local norms and standards? Will it give your organization an edge in recruiting individuals with new or different skills, such as IT professionals, hospitalists or physician assistants?

As the healthcare industry becomes increasingly competitive, hospitals need to make sure they have the right people in the right roles and invest their limited budgets in the kind of talent needed to achieve desired quality outcomes. Historically, the healthcare industry has been slow to respond to some of these important employment issues — largely because it didn't have to. Now, under growing financial and regulatory pressure, hospitals will have to decide whether they want to lead or lag behind the competition for the best people and programs that will ultimately drive the best outcomes.

Jane Jensen is a senior health and group benefits consultant at Towers Watson. She can be reached at jane.jensen@towerswatson.com.