CFOs march down contract labor costs

Health systems' labor costs skyrocketed over the last three years as hospitals relied on expensive contract labor during the pandemic, but marching down these expenses remains a top priority for CFOs who are striving to improve their organizations' bottom lines.

According to Kaufman Hall's "2023 State of Healthcare Performance Improvement" report, published Oct. 24, 60 percent of hospitals and health systems are seeing a decrease in the utilization of contract labor. This figure is up from 44 percent in 2022.

Last year's survey indicated that contract utilization was increasing at 27 percent of hospitals and health systems, compared to just 4 percent this year. 

"Like most health systems, most of our expenses are attributed to labor. But I think the market is softening," Jenn Alvey, CFO of Indianapolis-based IU Health, told Becker's. "Travel workers are costing less, and we have been very focused on where we are placing travelers and where we are not. Our new CHRO also has a great recruitment and retention plan, and we are beginning to see some strong results there, too."

Hospital leaders are adopting various tactics to reduce their contract labor costs, such as internal or enterprise float pools or a greater number of per diem or pro re nata employees in lieu of more expensive contract labor, according to Kaufman Hall. Contract labor rates are softening and nurses who left during the pandemic to take agency positions are now returning as full-time employees.

Health systems are also being more strategic with their usage of agency staff and devleoping new ways to recruit and retain talent. 

"The cost of turnover and contract labor is staggering. We are in a 'people caring for people' industry and I am concerned by how many people are disaffected by the calling to healthcare, narrowing the formerly-robust pipeline for new talent," Craig Albanese, MD, CEO of Durham, N.C.-based Duke University Health System, told Becker's. I have asked everyone at Duke to add 'chief retention officer' to their list of responsibilities — and I know our leaders have heard the call as our turnover has decreased by over 25 percent from the last fiscal year."

Dr. Albanese also stressed the importance of decreasing attrition and bringing joy back to the healthcare workforce by tackling staffing shortages, workplace violence and burnout, among other challenges. 

New Orleans-based LCMC Health, which recently acquired three Louisiana hospitals from Nashville, Tenn.-based HCA Healthcare, has been slower to reduce its reliance on contract labor, but CFO JoAnn Kunkel is working through a roadmap to march down those expenses through multiple angles. 

The health system aims to reduce contract costs by expanding partnerships with nearby educational institutions. It has partnered with New Orleans-based Tulane University on a nursing school that will be located on LCMC grounds, bolstering the pipeline of new graduates. The first cohort will begin in the fall of 2025. 

"[Workforce] is definitely our top priority, not only in contract labor, but also in retaining the staff that we have," Ms. Kunkel told Becker's. "Making sure that we give them the tools they have to work at the top of their license, that they have the ability to grow and enhance their careers where they want to."

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