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Controlling Nurse Labor Costs

Karen Minich-Pourshadi, for HealthLeaders Media, January 19, 2012

This article appears in the January 2012 issue of HealthLeaders magazine.

Controlling labor costs is essential for a strong bottom line and, increasingly, healthcare finance leaders are looking to reduce personnel costs, particularly for the nursing staff. By taking a new approach to nurse overtime, the use of supplemental labor, and retention efforts, organizations can save money without sacrificing jobs.

Though there may be excess cost in your nursing line item, it doesn't always rest within the wage, says Mary Nash, PhD, RN, chief nurse executive for the 932-licensed-bed Ohio State University Medical Center in Columbus, OH. The total cost of a full-time registered nurse averages $98,000 per year, or approximately $45 per hour, according to the 2011 U.S. Hospital Nurse Labor Cost Study produced by KPMG Healthcare & Pharmaceutical Institute. But base wages account for only about 57% of the total before factoring in premium pay and benefits.  

"We know that cutting nurses at hospitals reduces patient volumes, and volumes are already flattening for other reasons," says Linda H. Aiken, PhD, FAAN, FRCN, RN, the Claire M. Fagin Leadership Professor of Nursing and director for the Center for Health Outcomes and Policy Research at the University of Pennsylvania in Philadelphia. Aiken is considered by many in healthcare to be a pioneer in the nursing and healthcare research for the statistical data she collected linking nurse-to-patient ratios and patient safety. "I don't think I've ever seen a staff nurse that isn't busy. You see nurses being used inefficiently everywhere, however, and that's costly," Aiken says.

Reduce overtime
One area to control costs is overtime, says Nash, a 38-year nursing veteran who was charged with the task of reducing overall nursing costs. After some data analysis, it became clear that the excess use of overtime was inflating costs beyond the budgeted registered nurse average pay rate.

Getting the right staff at the right time was critical to controlling payroll costs, she explains.

"If it's not managed with precision, you end up spending more money than is necessary, and you wear out your staff. There are always staff willing to work overtime, and they build that into their lifestyle, so the economic balance is what has to be the goal," she says.

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