6 ways to save money on labor costs without sacrificing care

Success is all about finding balance: balancing work and family, balancing staying in your comfort zone and pushing the limits, balancing creativity and productivity, and balancing budgets. And for healthcare administrators, the balancing act includes striving for that elusive balance between the high costs of labor and supplies and the high expectations of patient care.

Too often, the pressures to slash costs and improve the quality of care have forced hospital administrators to cut hours, staff and programs in an attempt to make ends meet. Rather than combing through departmental budgets to meet an organization-wide goal, you need only turn to the data being gathered within your facility every day.

The balancing act of healthcare

In the past decade, the healthcare industry added 2.7 million jobs — more than any other sector — and accounted for half of all net job growth. In 2015, the healthcare sector is expected to grow faster than ever before. What’s more, factors like the Patient Protection and Affordable Care Act, a decline in uninsured patients and improvements in medicine and technology are expected to fuel a healthcare job surge for years to come.

Yet job growth in hospitals remains moderate. Most healthcare organizations are so hindered by rising labor and supply costs that administrators have been forced to reduce their workforces in an attempt to find a balance. Others comb through budgets, department by department, searching for ways to eliminate services, reallocate resources, increase prices or cut back staff hours. But none of these actions offers a sustainable solution to a persistent problem.  

These two competing forces — rising healthcare costs and industry growth — are creating a major budgeting dilemma for healthcare executives. Administrators want to deliver the highest quality of patient care possible, especially because it affects how hospitals are reimbursed. At the same time, they need to maintain expenses and drive revenue for their hospitals. A tip in either direction could be disastrous for both hospital organizations and the populations they serve.

Balancing out this healthcare situation and achieving a substantial reduction in costs will require healthcare administrators to turn to what economists call "labor-saving technology." If administrators utilize the massive amounts of data their facilities collect every day and analyze that data in an organization-wide infrastructure, they'll paint a clearer picture of the entire organization, including ways to cut costs without sacrificing care.

Expanding healthcare data organization-wide

As it stands now, many healthcare organizations analyze data within each department, which provides useful feedback for that area. However, it isn’t reliable when viewed for the organization as a whole. After all, your HR department will generate a very different data report than your IT or surgical departments. And combining disconnected data sets is not an accurate way to make budgetary decisions for the entire organization.

To properly examine labor costs, you need to establish an infrastructure that measures everything in a consistent, accessible manner across all departments. Essentially, everyone needs to get on the same page. Once data is aligned and in one location, you’ll have a wider view of your organization’s financials and be able to confidently make decisions regarding budgets, costs, personnel and care practices.

A single data infrastructure not only benefits administrators, but it also offers considerable advantages to staff. For example, misaligned data might tell you that the ICU nursing department is overstaffed, which will likely result in layoffs. But aligned data might reveal that while the ICU nursing department is overstaffed, the pediatric nursing department is understaffed. This way, you can properly reallocate personnel rather than make sweeping cuts.
Some hospitals are already taking the lead on this. Knowing that salaries and benefits account for about 35-45 percent of hospital costs nationwide and 70-80 percent in certain units, administrators at Texas Children’s Hospital developed a methodology to help them balance labor resources and the demand for services.

After establishing a unit of measurement for the entire organization, they compared labor volume to the number of hours worked to get an accurate measurement of productivity. In doing so, they were able to flex staffing levels with volume fluctuations, improve productivity and minimize excess costs from overtime and agency work.

Unfortunately, cases like Texas Children’s Hospital aren’t common. The vast majority of healthcare organizations are still underutilizing the information they have because they don’t know how to turn data into actionable information — a situation described as “data rich, information poor” by industry experts. To turn this around, hospital administrators need to make changes that expand and unify data analysis and put information in the right hands at the right time.

Putting data to work for you

To start using data to define labor costs and make educated decisions about resources, you need to:

  1. Look at the available data. Lay a foundation for a data infrastructure by examining what data is currently being collected in compliance with regulations and where it’s being reported. How is current data being managed and used throughout your hospital? Once you get an idea of current data collection, you can build upon that.
  2. Identify major costs. If your hospital follows the trend, one of its largest expenses will be labor and supplies. Based on the foundational information you have, zero in on financial weaknesses and build an infrastructure around making improvements in those areas. Identify any other major budget busters that could be tweaked.
  3. Define metrics for improvements. To improve labor costs, you have to set clear goals. Identify areas that are draining money from your budget, and decide how you’d like to improve upon or eliminate them. Consider things like caregiver-to-patient ratios, overtime standards, and paid time off. Define optimal numbers on all goals, and set metrics to show that.
  4. Look at your physicians. Another major cost for hospitals is physician compensation. Instead of focusing solely on your nursing or support staff, look at how productive your physicians are. Is there someone with an alarming number of readmissions? Is anyone not meeting optimal performance standards on finance, mortality rates, complications, etc.? Eliminating some weak links may solve problems and free up some of your budget.
  5. Form a data analysis team. Whether you start from scratch, recruit in-house, or contract the work out, make sure there’s a data analysis team in place to handle the incoming and outgoing data in a timely manner. The only way for data analysis to effectively cut your labor costs is if real-time data is accurate and in the hands of the right people, so put experts in charge of that duty.
  6. Utilize dashboards. Dashboard and visualization tools are important when putting data to work. Easy-to-read images give all personnel an instant story of how the hospital is performing in the moment, not last week or even yesterday. Tools like Tableau and QlikView are two examples of popular, easy-to-use platforms that organize healthcare data into intuitive dashboards.

Cutting down on labor and supply costs doesn’t have to mean sacrificing staff, resources, and services. Instead, the implementation of an organization-wide data infrastructure can provide you with valuable real-time insight that makes identifying weaknesses, restructuring resources, and balancing your budget a reality.

Asha Saxena is the president and CEO of Future Technologies Inc., a data management and analytics firm. FTI’s Center for Analytics Services provides data management and analytics solutions through business strategy and technology development. Its healthcare analytics dashboard, FTI CATALYST, helps create operational efficiency for executive management through a pre-built data model.

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