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3 Creative Ways to Cut Nurse Labor Costs

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   January 17, 2012

Because nurses comprise a huge chunk of labor costs, they often fall under the financial microscope. Reducing these caregivers, however, can truly be detrimental to your hospital's quality of care and the patient's overall experience—two areas that CFOs should strive to bolster, not undercut. That puts nurse labor costs somewhat in limbo. Though financial leaders want to reduce costs, they grapple with how to do so without the negative ramifications.

Well, there are ways to control and potentially reduce your nurse labor costs without hurting patient quality—it just requires creative staff management. In the January edition of HealthLeaders magazine I examine how financial leaders can address nurse labor costs. Here are some excerpts and observations from that article:

Though there may be excess cost in your nursing line item, it doesn't always rest within the wage, says Mary Nash, PhD, RN, chief nurse executive for the 932-bed Ohio State University Medical Center in Columbus, OH. The total cost of a full-time registered nurse averages $98,000 per year, or approximately $45 per hour, according to the 2011 U.S. Hospital Nurse Labor Cost Study produced by KPMG Healthcare & Pharmaceutical Institute. But base wages account for only about 57% of the total before factoring in premium pay and benefits.   

My reporting turned up three main strategies for trimming the cost of nurse labor without gutting their ranks.

1. Reduce Overtime
Nash, a 38-year nursing veteran, was charged with the task of reducing overall nursing costs at her hospital. After some data analysis, it became clear that the excess use of overtime was inflating costs beyond the budgeted registered nurse average pay rate.

Getting the right staff at the right time was critical to controlling payroll costs, she told me.

At OSUMC, there are union requirements, such as giving overtime to senior nurses first. Although the organization couldn't change the nurse's union contract, managers could reduce the necessity for overtime.

This required a new staffing and scheduling system. In addition, Nash established a staffing pool to supplement staffing needs. She found immediate labor savings.

2. Use Supplemental Labor More Effectively
Pamela Hunt, MSN, RN, vice president of patient services and chief nursing executive at the Indiana Heart Hospital, told me that many healthcare leaders routinely budget for traveling or per diem nurses, but that much of that may be unnecessary. Although there are reasons to use supplemental nurse labor, daily census demands shouldn't be one of them, she says.

Supplemental labor is costly, and should be used to address seasonal volume increases, medical leaves, or to fill in during large training initiatives such as ICD-10, she told me.

Hunt explains that hospitals and health systems that rely on supplemental nurses may be overlooking a greater issue—miscalculated productivity that is masking a full-time staff shortage.

3. Stop Nursing Staff Turnover
Nash told me that it's important to calculate the cost of the nursing search but also the subsequent training the nurse will need as part of the cost. Additionally, during the transition, a hospital may need to resort to using agency nurses.

"If you lose a nurse, you're talking huge premiums. And, interestingly, we know where there is turnover in our organization. But we know how to recruit, we're good at it," says Nash. OSUMC is not as good at retention, she says. "What we find is professional nurses are looking for more than a job, they're looking for ongoing learning, extensive in-service meetings, nursing grand rounds and they want to be treated well."

What other innovative tactics are you using to address labor costs without gutting quality?

Karen Minich-Pourshadi is a Senior Editor with HealthLeaders Media.

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