Strike or no strike, labor disputes can take a toll on hospital finances

Many times, hospitals and unions are able to reach labor deals without a walkout.

However, union members sometimes decide to strike due to disputes over staffing, benefits and other contract terms.

When that happens, hospitals are left with a myriad of costs. These costs can vary, depending on the duration of the strike and the number of workers affected, among other factors.

Minneapolis-based Allina Health's bottom line took a $104.8 million hit in the first nine months of 2016 from strikes called by the Minnesota Nurses Association, including $84.68 million of strike expenses in the three months that ended Sept. 30.

The nurses association authorized a strike in June after Allina nurses overwhelmingly rejected an offer by the health system that would have eliminated union-backed health insurance and moved the workers to its corporate plans. During the seven-day strike, Allina brought in more than 1,000 replacement nurses.

Health benefits were again the sticking point when more than 4,000 Allina nurses went back on strike in September. The six-week strike ran from Sept. 5 to mid-October.

Salinas (Calif.) Valley Memorial Healthcare System faced a strike in May by the National Union of Healthcare Workers, which represents roughly 700 employees at SVMH, ranging from housekeeping and food service workers to radiology technicians. The health system incurred approximately $1.6 million in costs associated with the one-day strike, $1.4 million of which was due to hiring replacement workers.

Sometimes preparing for a planned strike can be costly, even if it doesn't take place.

In fiscal year 2016, Boston-based Partners HealthCare took an $8 million hit from spending on strike preparations at Brigham and Women's Hospital in Boston. Nurses planned to stage a one-day strike beginning June 27. The week before the planned strike, the hospital dialed down operations, transferred hundreds of patients and canceled procedures and appointments, causing the hospital to lose another $16 million in revenue. However, the strike was averted when the Massachusetts Nurses Association, which represents 3,300 nurses at Brigham, and hospital officials reached a three-year agreement.

Although bringing in replacement workers is often a primary cost associated with a strike, there are also lesser-known costs involved.

Advertising costs

When a strike is planned, some hospitals will advertise those plans or use advertising to counter an argument made by a union.

From an overarching marketing or branding perspective, the area of marketing that would be related to a strike is referred to as crisis management, according to David Neff, president and CEO of Philadelphia-based advertising and public relations firm Neff Associates. While some might view crisis management as a public relations function, part of that function is getting the message out to constituent groups that will further a particular message.

From a marketing perspective, there are many variables that affect what action a hospital takes regarding a strike, including how adverse the situation is, how many employees would be affected, how the local strike would affect the community and the cost of advertising in a market where a strike is planned, says Mr. Neff.

For instance, he noted a hospital will spend significantly less to do an advertising campaign in Omaha, Neb., than it would to do an advertising campaign with the same goals and objectives in New York City, Miami or Boston.

"By virtue the higher the out-of-pocket costs, the more people are going to be exposed to the messaging," says Mr. Neff. "That's why a lot of unions get involved in these labor fights. Unions will have their own ad campaign trying to garner constituent support among their peers like the hospital will. Both sides will spend money to try to further their position."

Legal, administrative and other costs

Tim Garrett, a lawyer with Nashville, Tenn.-based Bass, Berry & Sims, said anytime there is a strike or disruption in work activity, a hospital will see an added layer of legal and administrative costs as well.

He specifically noted costs that can come when physicians decide to postpone non-emergency surgeries during the strike.

"They [the physicians] may not want to have to rely on replacement workers in the midst of a walkout, so they may decide not to proceed with a certain surgery if it's not an urgent situation or may seek other options," he says.

Still, he acknowledged that some costs associated with a strike are speculative, and it's difficult to give a fair assessment, since so much depends on the reactions of the constituencies, the patients and the physicians.

And, as far as the cost of bringing in replacement staff, Mr. Garrett noted that some hospital workers may decide to cross the picket line and not strike, or may decide to cross the picket line during the walkout, so the cost of replacement workers may fluctuate based on the length of the strike and how long staff stays away from their job. Additionally, another possible cost involved with a strike is overtime, as some workers do cross the picket line and are willing to take on added shifts.

Mr. Garrett also noted hospitals often must pay replacement workers for a specified minimum amount of time as part of their agreement, regardless of whether they are needed for that entire time.

Salinas Valley Memorial Healthcare System

After bargaining with the California Nurses Association for more than 15 months and avoiding a strike, Salinas Valley Memorial Healthcare System almost immediately began negotiating a contract for members of the National Union of Healthcare Workers. The hospital was hopeful that a strike could be averted. However, after nearly a year of talks, both sides reached an impasse.

NUHW called a one-day strike last May. The hospital was prepared and many of the aforementioned costs played a role in the strike. Michelle Childs, chief human resources officer at Salinas Valley Memorial Healthcare System, says the hospital has a contingency plan and keeps it updated in the event a walkout should occur.

"You are looking to see where you need replacement workers within the organization, and where your current staff can augment in the staffing schedule," she says. "While the strike was technically only one day, our replacement worker agency required a three-day contract. Many agencies require an even longer commitment. The first priority is and always will be patient safety. You need to have the trained staff on hand to meet your quality and patient satisfaction goals. It is not easy."

Ms. Childs says there is also typically a need to augment security because a strike situation can be disruptive, so hospitals may incur expenses with that. Additionally, she says, there may be costs for off-site parking and shuttle service for contingency workers and staff during the strike. During the strike last May at Salinas Valley Memorial Hospital, the hospital asked staff to park off-site and provided 24/7 shuttle service to and from the hospital to the off-site parking.

The hospital also chose to provide free meals in the cafeteria for all staff during the strike — both replacement workers and all team members. Ms. Childs says those food costs for Salinas Valley Memorial Healthcare System amounted to about $50,000. While it is not a required strike expense, it is one Ms. Childs says made a difference in the work environment during the labor action. She says it was also a strategic decision in terms of system flow — ensuring everyone was well fed during longer than normal shifts and ensuring the check out process in the cafeteria didn't impact people getting back to their units in a timely fashion.

"Planning was key for our organization," Ms. Childs says. "For us, during the strike, we attempted to maintain business as usual as best we could. No once likes to face the prospect of a strike, but having a thoughtful plan in the event of a strike can actually save you money in the long run. Most importantly, it offers the best chance to reduce any negative impact on patients and your other staff."


More articles on healthcare finance:

A state-by-state breakdown of 80 rural hospital closures
10 hospital bankruptcies in 2016
Trinity Health gets $299M revenue boost from acquisitions

Copyright © 2023 Becker's Healthcare. All Rights Reserved. Privacy Policy. Cookie Policy. Linking and Reprinting Policy.


Featured Whitepapers

Featured Webinars