Holding the Line on Labor Costs

Best Practices for Unlocking Principled Labor Savings

Ten best practices for leveraging the current economic climate to make difficult changes to reduce labor expenses.

Executive Summary

Whether due to further economic decline, more stringent reimbursement requirements, or complete care delivery overhaul, it is clear the health care industry must migrate to a more cost-effective labor model in order to sustain healthy margins and facilitate needed capital investment. Ironically, perhaps the one silver lining to the economic crisis is that it provides a platform from which hospitals and health systems can carry out difficult but necessary changes to reduce labor expenses.

Health care human resources executives at a small but growing number of progressive institutions are finding they now have the political capital to revisit legacy labor practices, implemented in times of growth and workforce shortage, that are no longer in line with today’s reality. Amending these costly practices would be desirable even during times of great prosperity, but have only become acceptable with the type of extreme margin pressure now being experienced industry-wide.

To this end, Center researchers searched for labor savings tactics that member institutions have a unique and limited opportunity to implement amid the downturn. Researchers used three screens to isolate best practices. First, the practice must provide significant savings. Second, it must represent a sustainable solution, rather than a stop-gap measure. Finally, and most importantly, it must require significant political capital to implement.

Opportunities to leverage the recession to achieve labor savings fall into three major categories— rationalizing heath benefits utilization patterns, rightsizing administrative overhead, and enhancing frontline productivity. Across these categories, the Center has identified ten best practices that merit consideration for immediate implementation by every institution.

Please note, however, that this selection of practices is not intended to represent the full complement of labor savings options available to member institutions. Rather, these practices have been highlighted as the most leveraged with respect to capitalizing on the economic downturn.

Not only do these practices provide sustainable cost savings, but they also require significant political capital to implement. Put another way, the window of opportunity to take advantage of these practices may soon close with the hopeful resurgence of the economy.

This study provides member executives with an overview of each of the ten best practices as well as guidance for selecting the most salient options for their individual institutions.

Hospitals are more focused on cutting expenses to offset dropping patient volumes and reimbursement rates than at any other time in recent history. This downward pressure on expenses has presented an opportunity for HR leaders to make changes to institutions’ strategy and operations that were less popular in better economic times.

After reading this study, members will be able to:

  • Identify sustainable strategies that offer large savings and require significant political capital to implement
  • Distinguish between the various strategies to select the most advantageous best practice(s) for your organization

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