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Payroll May Be Healthcare's Biggest Cost Driver

John Commins, for HealthLeaders Media, April 25, 2011

In his report last week, Blitzer noted that "while growth in hospital wages has remained relatively stable over the past year, in the range of 3% - 4%, hospital employment growth has slowed significantly. Between 2008 and early 2009, annual hospital employment growth rate was in the 2%- 3% range; however, since the middle of 2009, the rate has been consistently below 1%."

Blitzer explains that some of the slowing growth in healthcare costs reflects "a long-term undercurrent of trying to do more with less, and to push any particular task down to a less expensive and presumable less-skilled person."

"In some places this is very successful. Physician assistants (are) doing things that previously only doctors did. There are things that licensed practical nurses do compared with what registered nurses used to do as an effort to move tasks to less-expensive people," Blitzer says. "There are a lot of cases where this is perfectly fine. In fact you may have improvements because people are better utilized. The highly skilled surgeon just does the things that require his skill. One could argue that computerizing medical offices is a big step in that direction."

From a common sense perspective, Blitzer's points are valid.

There are some minor sticking points, however. For example, healthcare grew 280,000 new jobs over the 12-month period that ended in February, 2011, compared with 229,000 new healthcare jobs in the 12-month period that ended in February, 2010. How much will the addition of 50,000 healthcare jobs bend a curve in a $2.5 trillion industry? If you look at BLS data, the trending slower growth of healthcare costs that started last May does not necessarily match monthly trends in overall healthcare employment growth.

However, it'd be a mistake to draw too fine a linkage between specific healthcare employment data on any given month and the relative growth of healthcare inflation. There is a lot of fluidity in the healthcare industry. What's important is that Blitzer appears to be right on a key point: healthcare employment growth is a driver in healthcare inflation.

For healthcare human resources executives, the challenges now will be to address staffing needs in an era of chronic workforce shortages, while simultaneously reconciling the impact of rising labor costs on shrinking budgets. Let me know how that works out for you.  

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1 comments on "Payroll May Be Healthcare's Biggest Cost Driver"


Fred Donini-Lenhoff (4/27/2011 at 12:19 PM)
Is it pay, or what they're paid for? If we move the system from one based on quantity of services provided towards quality of care received, maybe costs will go down (and health indicators will go up).