Temporary Workers, Permanent Problem

Leverage is of no use unless you know you have it. Experts say many hospitals remain in the dark about their ability to influence the rates they pay for temporary and contract labor. Instead of using the high volume hospitals can provide to influence staffing companies, most general acute-care hospitals operate as a loose confederation of fiefdoms contracting with sometimes hundreds of boutique staffing providers to fill temporary or contract labor jobs.

Think it’s not a big deal? As shortages of certain specialties persist in nursing and other mid-level clinical positions, a medium-size hospital can spend more than $15 million per year on temporary and contract labor. When a hospital contracts for that labor in drips and drabs, it negotiates from a position of weakness. The hourly cost in efficiency, payroll administration and general headaches can grow astronomically, yet many remain unaware of how much waste occurs from staffing decisions made in a decentralized fashion. Still, many chief financial officers say they have a tough time convincing department managers to give up a measure of control over “their” staffing needs.

Centralized contracting

Staffing decisions at hospitals need to be made on a departmental basis, CFOs have been told, because temp staffing and contract labor at a hospital ranges from the highly skilled (nursing, IT) to the low-skilled (housekeeping, other light industrial), and each should be filled by a different specialty vendor. But getting good value for temporary and contract labor is “not going to work if you have conflicting viewpoints interacting on the inside,” says Mark Trowbridge, a principal at Strategic Procurement Solutions, a consulting firm based in Ione, Calif. “You can’t manage that in a strategic manner.”

Back in 2002, Jennifer Mitzner was working on a broad value-improvement initiative at Hoag Memorial Hospital Presbyterian, where she is CFO. But staffing defied an easy answer for the 511-staffed-bed, Newport Beach, Calif., hospital. “The lack of a centralized function cost us a lot of waste and money,” she says.

Since completing an overhaul of staffing protocols and procurement in 2002 that put one firm in charge of staffing requests, Mitzner’s team has reduced Hoag’s staffing suppliers from 95 to 15, while invoices have also dropped from about 2,800 per year to 52—one per week from the company hired to manage all the other staffing suppliers, Woodbury, N.Y.-based Comforce Corp.

The decision to put all staffing requests under one vendor was executed with difficulty. “It took the clinical areas giving up a certain degree of control,” she says.

An inside sales job

Mitzner and her chief deputies found themselves selling the centralization idea to department managers who were reluctant to give up control over their staffing needs and relationships built over years with specialty staffing vendors.

“CFOs have to step out of the financial box and build the case that this isn’t just for the bottom line,” Mitzner says. “The savings we generate go to the employee bonus program in addition to the latest and greatest clinical technology.”

The switch allowed Hoag to promise more business to vendors that performed better, as the number of staffing suppliers was winnowed down by choosing the best and most cost-effective performers.

“We were paying $15 an hour for some secretaries and $20 for others. Nobody was minding that store,” says Diane C. Griffiths, Hoag’s employment director.

Although Trowbridge, who assisted Hoag with the project, says top management fought some tough battles and getting buy-in was difficult, department managers now say there’s no way they’d go back to the old way of doing things.

‘Dark green’ dollars

Comforce, itself a staffing company, was chosen from a group of five bidders to manage Hoag’s staffing needs. The move has saved the hospital nearly $5.8 million since Comforce took over that function in mid-2002. Mitzner calls those savings “dark green dollars,” meaning they fall straight to the bottom line. By contrast, “you have to increase patient billing by $27 million to increase the bottom line by $1 million,” says Trowbridge.

Mitzner says putting staffing management under one roof not only created greater efficiency and better negotiating leverage, but it also allowed hospital staff, from department managers to clerks, to spend more time on their core competencies. “All of a sudden we accessed data we didn’t have before, and we’re billing as one organization instead of a department,” says Mitzner.

That data allowed Hoag to monitor pay rates across departments and notice when one particular contract worker was called in more often than others, helping the hospital identify top-performing permanent employee candidates. To date, some 145 former temporary workers have been converted to permanent status at the more than 4,000-employee hospital.

“At certain points people were wondering whether it was worth it,” says Trowbridge, “but when it starts clicking, it’s just an incredible weight off the organization.”

—Philip Betbeze