Labor Efficiency Emerges as Cost Containment Measure

Labor costs and labor efficiency

In most hospitals, labor is the largest single expense, but labor is not an attractive target for cost cutting, at least via layoffs or reductions in force. Few groups on the clinical team correlate to patient volume as closely as nurses, so administrators are loath to trim nurse positions. Nearly one-fifth (18%) of respondents expect to eliminate administrative staff at the VP-level and up in the next fiscal year, and more than half (51%) expect to reduce the numbers of other nonclinical personnel, but only 11% will be reducing nursing FTEs.

Thomas Selden, FACHE, president and CEO of Southwest General Health Center in Middleburg Heights, Ohio—a 354-bed organization with 2011 total revenue of $285 million—looks at just about every cost-saving effort as a nurse-saving effort: "I do that calculation in my head: How many nursing jobs can I save if we save on some process?" 

Labor reductions and efficient use of labor are related, of course. The proportion of respondents who expect that their top cost-containment savings for the current fiscal year will come from labor reductions—21%—is exactly the same as the number who expect top savings from labor efficiency. "Those two really go hand in hand," says Vitale. "You can't really capture reductions until you are using the labor you have more efficiently."