Why dramatic labor cost cuts are not sustainable
November 22, 2011
The reprieve granted during the recession as nurses delayed or even came out of retirement is unlikely to persist. Between 2010 and 2020, the national shortage of nursing labor is expected to increase considerably. This scarcity will continue to drive nursing wages upward. At the same time, hospitals will need to attract skilled nurses to care for older, sicker patients. And as ever, organized labor (or the threat of labor union organizations) is likely to remain a powerful force advocating for more generous benefits and higher staffing levels.
Achieving sustained cost improvement, not just one-time savings
Providers have little influence on the long-term price of inputs like labor, but they have substantially more control over the utilization of those inputs. By focusing on utilization rather than price, providers can transform their cost reduction paradigm from a short-term “campaign” mentality into one of sustainable improvement.
For example, short-term strategies for cutting labor expenses involve wage freezes or reductions in force, while sustainable reductions in cost growth tend to involve the development of flexible staffing models that enable providers to more efficiently staff to demand. A detailed analysis of individual positions can help determine appropriate staff.
Similar opportunities exist when considering health benefits expense. Health Care Advisory Board research has shown that sustainable employee benefits spending results less from increased cost-shifting to employees, and more from a sustained focus on benefit utilization. Health plans that foster proactive management of chronic conditions, or improve overall employee health, tend to incur lower costs than traditional benefit plans.
Learn effective strategies for curbing growth in labor spending
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