At the Margins

3 tips to minimize labor expense growth at community hospitals

by Robin Brand and Andrea Martin

Hospitals of all types are experiencing margin pressure. Downward reimbursement pressure from payers, shifting patient demographics, and growing out-of-pocket responsibilities are cutting into provider revenues—all while operating expenses continue to climb.

Minimizing labor expense growth at community hospitals: 11 tactics to build a sustainable workforce

Community hospitals are in an especially tough spot. Small, rural hospitals are highly exposed to market fluctuations from limited service offerings and undiversified revenue streams. Geographic barriers limit their opportunities for growth, and many rural towns are experiencing an outmigration of young people—leaving an older and sicker patient population. This patient population has complex health conditions and requires an increase in staff time. To add to the challenge, it seems that few clinicians want to practice in community hospitals, and it's increasingly expensive to recruit providers.

Labor expenses are increasing—but there are opportunities to limit labor expense growth

Advisory Board research indicates the average growth rate of salaries, wages, and benefits at community hospitals is over 8%, up from 3.3% in 2013. However, the good news is that there are three significant opportunities to limit labor expense growth in community hospitals:

  1. Implement a data-driven staffing strategy to deploy the right labor at the right time.

    Having accurate staffing levels is hard. The number of patients in any given unit on any given day fluctuates. Monitoring staffing data highlights the exact staff needed to treat the hospital's patient population. Without this information, leaders risk not having enough staff to match patient needs, or operating overstaffed and paying for unnecessary labor. Both situations have costly consequences.

  2. Pay attention to related factors that could drive up labor spending—such as turnover.

    It seems many community hospitals have initiatives in place to limit the number of excess staff to control labor expenses. But there are many factors outside of staffing levels that contribute to labor expense growth. Turnover is a big one for small and rural hospitals—who have higher turnover rates than their system counterparts—forcing them to pay higher recruiting costs and staff inefficiencies.

  3. Execute day-to-day staffing, but don't forget to look at the big picture and think about how a hospital's labor strategy aligns with its broader strategic plan.

    In the long term, a community hospital will remain sustainable if its labor strategy is integrated with the hospital's strategic plan. This means that leaders need to re-evaluate their workforce with the role of the hospital in the local market, the services the hospital offers, and how the organization offers services.

Discover your community hospital advantage

Many community hospitals are questioning whether they can survive the transition to value, but they actually have many potential competitive advantages—such as modest cost structure, strategic agility, and proximity to consumers—that can provide superior value to the market. Check out the infographic to learn more about those advantages and how to use them to secure your hospital's future sustainability and success.

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