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Controlling Nurse Labor Costs

Karen Minich-Pourshadi, for HealthLeaders Media, January 19, 2012
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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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5 comments on "Controlling Nurse Labor Costs"


Bill (2/10/2012 at 1:22 PM)
The key to this ability to pull together granular data often from multiple sources in away that nursing managers can easily understand what is going on without the need to be technical or spending hours a week in Excel. Our client NYU won a Smithsonian award for building exactly this kind of nursing productivity tool. http://www.informationbuilders.com/applications/nyu_honor

Mary K Freel (2/2/2012 at 1:16 PM)
"A nurse is a nurse is a nurse" no longer works in this day of advanced technologies and care. You cannot expect a pediatric nurse to take care of cardiac patients or an OB nurse to handle the ER. When a nurse is pulled[INVALID]like the author suggests hospitals do[INVALID]to an unfamiliar floor she is expected to work as though she always worked there[INVALID]often taking a team. I would like to see a study of errors with particular attention to whether that was the nurse's usual floor. I bet the rate of errors goes up dramatically with the rate of pulls. Even with orientation to specific floors pulling is a dangerous practice because your skill sets for each floor are entirely different and often the medicines used are entirely different.

Linda Kozak (1/22/2012 at 1:33 PM)
Well, this is no startling revelation to this 45+ years of nursing service and commitment " old nurse" I have made this statement more than once in my career about using agencies for all the incorrect reasons. and have lost jobs over having an educated opinion. You need a nurse with knowledge and experience to save a life and teach the newbies. Sincerely, Linda K