The daily news is destroying the myth that hospitals are recession-proof. Yes, there is job growth, even during tough times. The Bureau of Labor Statistics reports that 372,000 healthcare jobs were created in 2008.
If your hospital has recently undergone layoffs, don't expect "surviving" employees to work harder or pick up the slack out of sheer gratitude for not getting canned. Washington, DC-based consultants Leadership IQ found in a new survey that 74% of 4,172 surviving workers at 318 companies that had undergone layoffs in the last six months reported a drop in productivity. In addition, 69% of those surveyed survivors say the quality of their company's product or service has slipped since the layoffs; 87% say they are less likely to recommend their organization as a good place to work; 64% say the productivity of their colleagues has declined; 81% say customer service has declined; 77% say they see more errors; and 61% say they believe their company's prospects will worsen.
When asked to describe their feelings following the layoffs, the LIQ survey found that "guilt," "anxiety," and "anger," were the most commonly used nouns. "This study shatters a few myths," says Mark Murphy, chairman of LIQ. "Most CEOs and organizations have operated under the idea that if you lay some people off the people who remain would be grateful that they still had a job and would double their efforts."
Murphy says most organizations do a pretty good job of softening the landing for laid-off employees, but they're not so quick to assuage the fears of the employees who remain. "What gets missed is that when an organization does a layoff there is a huge impact on the folks who remain," he says. "They are feeling anxiety and anger and wondering 'if my good friend got laid off do I believe that this is the end or am I a couple months away from being in the same boat?'"
That's particularly true of hospitals because most hospital administrators have no experience with the agonizing process. A botched layoff, however, can have tremendous impact on a hospital, where quality and productivity lapses are measured in lost lives and other potentially catastrophic health outcomes.
"Hospital employees have unbelievably long memories," Murphy says. "A one-time mistake where they believe the organization's priorities are not in the right place, and they will harbor resentment for decades to come."
So, what do you do?
1. Be honest, accessible, candid, compassionate, and as transparent as possible with surviving employees, especially in the anxious days immediately after the layoffs. "The biggest thing leaders have to do after a layoff is engage," he says. "Too many feel shamed or embarrassed or nervous, and they hide out in the executive suite. You can't pretend the layoffs didn't take place."
2. The LIQ survey found that workers who gave their managers high scores for visibility, approachability, and candor, also were 72% less likely to report a decline in their own productivity, and 65% less likely to report a decline in the quality of their company's product or services.
That means that front-line managers must be briefed before the layoffs are announced, so they can address the barrage of questions they will face from the workers they supervise. "Otherwise you will waste any potential cost savings from the layoff on lost productivity, quality problems and service breakdowns," Murphy says.
3. In the days immediately after the layoffs, schedule group meetings with your employees. Let them vent, but structure the meeting for more than a carping session. Employees aren't necessarily looking for the feel-good answer. They're looking for the truth. "Everybody recognizes now that these are tough times," Murphy says. "What has always bugged them is transparency. They want to know how the leaders made the decision. How did they come up with that particular plan? What are the metrics they are going to use to determine if another layoff is necessary? Help them understand."
Schedule meetings every month or two to update employees, depending upon the pace of developments at your hospital.
4. Don't leave 100% of the workload for 90% of the surviving staff. "That's really where quality suffers," Murphy says. "You have to get rid of the waste and efficiencies, even if it's only something symbolic like getting rid of a particularly inefficient meeting."
Solicit employee suggestions about "dehassling" their jobs and eliminating waste. "We're not talking about throwing out insurance forms or government regulations, but it may be the 20 minutes they spend looking for an IV pole," Murphy says. "When employees are engaged in helping solve the problems it gets them through this survivor guilt."
5. Finally, if you're planning capital improvements in the midst of layoffs, you'd better be ready to either justify them, or cancel them if you can't. "If you can make the case that you have to upgrade the surgical suite because it will have a direct impact on the patient experience and safety, you're in great shape," Murphy says. "But if the argument is 'we want a new atrium or fish tanks in the lobby," that's a little dicier."
John Commins is the human resources and community and rural hospitals editor with HealthLeaders Media. He can be reached at jcommins@healthleadersmedia.com.
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While many hospitals have long operated with slim margins and careful expense management, today's worldwide financial crisis raises the pressures to unprecedented levels. In the long term, hospitals may need to restructure their financing mechanisms and capital plans, but new and creative ways to manage expenses can help to weather the storm. Short-term measures to reduce discretionary and supply spending and closely monitor labor productivity can bring more money to the bottom line, and counteract some of the effects of the tempest brewing around us all.
Approaching the high-water mark
Hospitals already face limited access to and increased costs of capital, along with decreased returns on investments. One of our hospital clients has seen its interest rate on short-term demand notes quadruple, moving from less than 2% to almost 8% in fewer than three weeks. This challenge to financing comes at a time when many hospitals have significant building and renovation projects in process. Acute-care projects, including new hospitals, expansions, and renovations, exceeded $251 billion nationwide last year.
Healthcare providers must also deal with the same declines in investment income that all of us face in our individual portfolios. But given the "trickle down" payment structure of healthcare, many providers must also brace for payment delays from state-funded programs and from insurers seeking to retain short-term cash.
Providers are also concerned about patients delaying treatments and thereby increasing their severity of illness and cost of care. A recent survey of 112 hospitals by Citi Investment Research found September 2008 inpatient hospital admissions to be down by 2% to 3% from 2007. Suppliers are also passing on cost increases, and many hospitals are bracing for a reduction in charitable giving as philanthropies also struggle with a decreased return on investment. But the biggest impact may stem from debt financing bonds, which require that certain performance targets be met. Decreases in revenues and increases in costs may call into play these debt covenant ratios and trigger potentially draconian measures by bondholders to assure financial viability.
Seek new sources of savings, with an eye on productivity
While one obvious solution is to reduce the financial burden by holding off on major capital projects, you might try a creative look at expense and productivity management. In times of struggle, labor costs often take top priority. But a recent analysis of expense data found new and surprising opportunities to save.
We performed a detailed analysis of three years of expense data from recent client engagements to uncover the real trouble spots in expense management. Our analysis showed that salaries, benefits, and supplies, as a proportion of total expenses, decreased or remained steady, while discretionary spending crept upward. When each expense category is reviewed against the number of patient discharges, the compound annual growth rate (CAGR) puts the spotlight again on discretionary spending.
Discretionary spending can represent a "black hole" for hospitals, as data is limited on the exact nature of some expenses. But hospitals that clarify program-specific costs by category find themselves better equipped to determine the strategic importance of each program and their related costs.
Hospitals should trend spending by account over time, determining which accounts have experienced the greatest increases and targeting the understanding of the decisions that drove those increases. In addition, hospitals can review comparative data from hospitals of similar size and complexity, and use this analysis to trigger discussions about the changes needed to reduce costs further.
Supply costs should not be overlooked, even though our analyses showed them to be a steady cost. A client recently achieved $300,000 in savings by eliminating one-time use disposable supplies. While savings was the goal, the staff also appreciated the reduction of the facility's environmental impact.
In addition to expense management, many hospitals have benefited from increased attention to productivity. By monitoring the variable workload standard of each department on a bi-weekly basis, leadership can get a better grasp on demand.
Department managers should be accountable for flexing staffing to meet the variable workload demand, and senior leadership should review all vacant positions with an eye toward eliminating or redistributing the workload.
While the upheaval in the financial markets has created a crisis for hospitals by limiting access to capital, decreasing investment income, and increasing operating costs, hospitals can be equipped to weather the storm. By addressing the full array of operating expenses on the income statements—and looking beyond the usual saving suspects—hospitals can better prepare the bottom line for changes that they cannot control.
Mary Ann Holt, RN, MSN, is a senior partner at IMA Consulting with more than 25 years experience in healthcare management and consulting. She can be reached at maholt@ima-consulting.com.
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A big pay boost proposal for Salinas, CA-based Natividad Medical Center's top administrator received a thumbs-up from the hospital's trustees during a special meeting. The hospital board unanimously approved a recommendation to increase the annual salary range of the Natividad Chief Executive Officer by nearly two-thirds, not counting benefits, to between $283,500 and $387,000. The recommendation seeks smaller pay boosts for other top hospital administrators, and would cost the hospital nearly $490,000 more this fiscal year alone. Supervisors will have the final say on the proposed pay boost.
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