Hospital CEOs get serious about cutting labor costs

Labor costs have spun out of control in the last few years as inflation set in and hospitals relied on contracted travel nurses to combat nationwide workforce shortages.

The secret to lowering labor costs now, hospital CEOs say, is putting a modern spin on a tried-and-true strategy: retention.

Dan Woods, CEO of El Camino Health in Mountain View, Calif., estimates the cost of recruiting a single nurse as being nearly $60,000, which drove his team's decision to focus on reducing labor costs by decreasing turnover. The nurse turnover rate is around 22 percent nationally, but El Camino has achieved just 8 percent nurse turnover rate through a variety of retention efforts.

"We continue to chip away at our turnover rate by fostering a positive practice environment for our nurses," said Mr. Woods. "We achieve this by creating structures and enabling processes so our staff are engaged in assisting with making changes within their practice environments. Also, our staffing and scheduling processes promote efficiency while meeting the needs of our staff, which is essential for retention."

El Camino does have guardrails to ensure nurses don't self-schedule overtime or other premium pay. Mr. Woods also mentioned positive labor relations as a retention tool.

"We just completed a new three-year agreement with our nursing union prior to the existing contract expiring and without strikes or the acrimony often associated with labor relations," he said.

David Callendar, MD, president and CEO of Memorial Hermann Health System in Houston also recently told Becker's the system is relying less on contract labor and increasing retention through its Well Together employee experience model, which allows employees to personalize programs and benefits to meet their individual needs.

"At Memorial Hermann, we believe that investing in our workforce is the most effective approach to managing labor costs," said Dr. Callendar. "We accomplish this in three ways: one, creating a workplace where all feel valued and welcomed, and diversity is celebrated; two, investing in employee health and wellness programs; and three, providing professional development and career growth opportunities."

Rochester (N.Y.) Regional Health is transforming its operating model and workforce strategy to offer more flexibility and build a culture valuing team members for retention.

"We've created a new in-house agency to significantly reduce our reliance on third-party contracts and improve staff integration within the health system to foster a more robust culture of collaboration, interdependency, alignment and system-ness," said Richard Davis, PhD, CEO Of Rochester Regional.

Jeffrey P. Gold, chancellor of the University of Nebraska Medical Center in Omaha, said the academic medical center is focused on reducing the cost per unit of labor and lowering the number of units. The hospital is considering several tactics including additional training and mentorship, evaluating its benefits program and productivity across the organization.

The University of Nebraska Medical Center is also evaluating fixed labor cost departments and roles, and slowing or eliminating full-time employee growth to force innovation, organizational redesign, use of technology and productivity gains with staff retained.

Many hospitals are seeing wages increase within their markets, and increasing pay for existing team members is often less expensive than recruiting and onboarding new ones.

"Obviously, compensation is a key element of staffing, and we are working diligently to ensure that we are competitive within our market," said R. Kyle Kramer, CEO of Day Kimball Health in Putnam, Conn. "Concurrently, we are evaluating how we staff our clinical areas and the mix of professionals we utilize to create a stronger level of team support and patient engagement. Ultimately we see stabilizing our workforce and reducing turnover through retaining strong members of our clinical and operational team as the key to effectively managing labor costs in this new era."

Paula Ellis, DNP, interim CEO of F.W. Huston Medical Center in Winchester, Kan., said the critical access hospital has salaries in line with competitors but found benefits lagging. The hospital increased 401K match, provided better health insurance rates, improved tuition assistance and added competitive scholarships to keep employees engaged. The hospital also combined four positions into two.

"Staff were willing and able to take on new duties in exchange for a better schedule," said Dr. Ellis. "We believe the best method to manage labor costs is to retain staff."

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