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Managing Healthcare Staffing Costs

Elyas Bakhtiari, for HealthLeaders Media, October 13, 2010
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When Michelle Mahan began as the new CFO of Frederick Memorial Healthcare System, one of her first priorities for the acute care hospital and multiple ambulatory facilities based in Maryland was to find a better approach to managing labor expenses. It came up as an area of focus during her interviews for the position, and as the biggest line-item expense in the organization, labor made for a big target.

That was in May 2008. Although she didn't know it at the time, she was taking over just a few months before the beginning of the national financial crisis that finally dispelled the notion that healthcare was a recession-proof industry. Soon, hospitals would begin freezing budgets, laying off workers, and taking other drastic steps to cut costs as both investment portfolios and patient volume dropped. It would make labor management even more important, but also more challenging.

"We really wanted to avoid layoffs," Mahan says of the initial reaction to a month of bad financial results. Frederick Memorial takes pride in being rated among the best employers in Frederick County, MD, and didn't want to cut pay or do anything else that could prove disruptive to the organization's culture.
So leaders formed a labor management team with departmental directors and system executives, and brought in consultants from Premier, the Charlotte, NC-based healthcare alliance, to improve benchmarking data and efficiency. They looked at overtime, benefits, paid time off, and anything else that would allow them to save money while keeping the workforce intact.

The cumulative result was a little over $5 million in savings, says Mahan. Frederick spent exactly the same amount on labor in FY 2010 as FY 2009, but managed to grow admissions by 6% and continue an expansion of outpatient volumes. They essentially did more with the same FTEs.

Although employees didn't receive customary annual pay increases in FY 2010, the system was doing well enough to hand out bonuses when the holidays rolled around, and the latest surveys even showed a jump in employee satisfaction.

Better benchmarking

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