Benchmarking for Beleaguered Budgets
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"Our budget is largely salaries, so it was one of the first areas we looked at," explains Poore, who was actively recruiting for his executive team while trying to get costs under control. "We needed benchmarking, and [Premier] came in and mined our data, cleaned it up, and made it usable."
The data allowed Poore and his finance team to see that they were overstaffing some days and understaffing others based on anticipated volumes. They enacted flexible hours in which team members would be called in based on actual patient volume. Within six months, the hospital saved $3.62 million in labor costs, reducing 85 FTEs—42 as a result of FTE reductions and 43 as a result of volume-based flex staffing.
Not unlike MedWest's experience, Frederick (MD) Memorial Hospital found benchmarking to be a path to deeper savings and, interestingly, greater employee satisfaction. Shortly after the recession took hold, FMH—the flagship of Frederick Memorial Healthcare System, which includes 20 facilities, physician practices, an immediate care and a wellness center—began looking for ways to cut costs without cutting personnel.
"I had been with two companies that did cost cutting, and the layoffs were very disruptive to the organization," explains Frederick Memorial Healthcare System CFO Michelle Mahan, who took the position in the summer of 2008. "Frederick is a sole community provider; we didn't want to introduce Draconian measures to cut costs. We wanted to continue to create a culture of performance."
Not wanting to enact layoffs, FMH shifted attention to forming a labor management committee and brought in a consulting firm. The first order of business was to review vacant positions—44 FTEs in total—and implement a justification process for new hire requests. The types of shifts were reviewed and overtime was reduced to less than four hours per pay period.
FMH also analyzed the need for call back or paying premiums to hire, allowing a poor job market to work in its favor. "The current job market allows us to address shortages and restructure pay practices for specific positions that were lingering from previous job shortages."
As the committee began to track and measure productivity, areas with too many FTEs were adjusted, and team members were moved to other areas or some left through attrition. Interestingly, FMH found the process actually improved employee satisfaction. When asked if the staffing levels within their department were adequate, 80% of the total staff said they were, compared with 67% the previous year, while 51% of nurses were satisfied with staffing, compared with 49% the previous year.
All FMH efforts have been effective thus far; admissions revenue is up 4.7% overall for the first five months of the fiscal year, ending November 30, 2009, outpatient hospital base has increased by 6%; and overall total operating expenses including salaries and contract services are down 1.3%. Through the use of benchmarking, FMH was able to save over $5.1 million in fiscal year 2009, ending June 30.
"We knew we had to get creative on the labor side if we were going to make an impact on the budget," notes Mahan.
Karen Minich-Pourshadi is senior editor for finance for HealthLeaders Media. She may be contacted at email@example.com.
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