Labor Efficiency Emerges as Cost Containment Measure

Process variation and process efficiency

"On a year-after-year basis," says Selden, "I find the efficient use of labor to be the No. 1 contributor to cost containment. Expense reductions via purchasing and supply-chain efficiencies are opportunistic." Speaking about the dependence on the labor force to deliver the organization's core service, he says, "The number of people who come to work every day to deliver care, that's bedrock. But if you are not controlling it, you have lost control of the whole operation." Among the principal tools Selden and Southwest General are using to pursue efficiency are benchmarking, identification of variances, and process engineering.

Near-term, the industry shift to value-based purchasing is affecting reimbursement rates, which causes administrators to approach cost containment with new vigor. Long-term, healthcare organizations increasingly will add clinical labor efficiency to classic accounting tactics such as budget edicts and purchasing efficiencies. Making efficiency work will require new work methods, new work collaborators, and new systems for monitoring and reporting. It will require some precision to make sure that the required infrastructure investments do not gobble up all of the potential savings.  


Reprint HLR1012-3

This article appears in the October 2012 issue of HealthLeaders magazine.

---