How to navigate—and budget for—a new frontier of hospital staffing

There was a time when hospital departments, from the operating room (OR) to intensive care, could follow some basic rules to staff effectively according to industry benchmarks.

But hospitals that have been on workforce “autopilot” these past few years are finding that benchmarks have become more aggressive. Moreover, hospitals are faced with a new set of clinical and administrative roles that simply don’t fit the old model of “worked hours per unit of service.” All of this adds up to new challenges for maintaining a sustainable cost level for a hospital’s biggest expense and most valuable asset.

To get that discipline back and design a labor strategy that accounts for a changing workforce, hospitals should consider the following recommendations.

Plug the operational holes

The majority of hospitals have a system in place to achieve labor productivity and revenue targets. Yet a review of any one of these systems all too often will find that benchmarks have not been updated in two years or longer, which means they are no longer aggressive enough to keep up with industry median standards. Often, routine monitoring is lax and managers are not held accountable for meeting their targets.

In such circumstances, a comprehensive review of the workforce infrastructure is needed, consisting of four important steps.

Evaluate current labor targets: Across departments and roles, how far off is the hospital from the current industry top quartile, and where are its biggest opportunities to become more efficient?

Assess management infrastructure: How are managers being held accountable to those targets, and how often is performance relative to the targets reviewed with those managers?

Audit correction process: When targets are shown to be off, how effectively and rapidly do managers adjust their staffing levels to return to optimal productivity?

Commit to ongoing review: Who has long-term responsibility for ensuring that productivity benchmarks are continually updated and in line with industry standards?

Improving this infrastructure has a direct impact on staff efficiency and hospital margin. One hospital actually improved its operating margin by 5% by taking these steps. This discipline also sheds light on three important areas:

• The evolving skill mix needed across departments
• The best approach for maximizing direct patient time
• The extent to which staff are truly performing at their top of license

Account for emerging changes in workforce composition

The big caveat to the above is that an updated set of targets can take a hospital system only so far in today’s new world order. With the shift to population health management, hospitals are investing heavily in labor resources that don’t fit within traditional workforce models, such as care management staff and new resources dedicated to IT and analytics.

For example, findings of recent Advisory Board research indicate that the majority of high-risk care managers coordinate care for 200 patients or less. That number is not a hard and fast target, given that every organization has different goals and patient needs when it comes to care management. But it is quite unlike current standards for staffing nurses in the OR, for example, based on the projected number and severity of cases. Also, because these emerging roles are not tied directly to volume metrics, many hospitals are unsure of how to set staffing levels.

To navigate this uncharted territory, pioneer hospitals are establishing their own targets based on overall revenue. They’re doing so by looking at select non-revenue producing resources and examining how similar organizations—in size, strategy, and market dynamics—are allocating budget to each of them in a revenue-conscious way.

As an example, one community hospital in a suburban market expanded its care management program beyond hospital-based resources to improve post-acute care coordination, achieve reduced avoidable readmissions, and continue to perform at a high level in key value-based care metrics. Hospital administration designed a staffing model that allocates approximately 0.5% of the organization’s quarterly total operating revenues to fund care management resources. However, because the hospital’s care management positions are staffed across multiple cost centers both in the hospital and in physician offices, staffing decisions must be considered across a broader span of departments.

This is a departure from the traditional model, where the focus is on each cost center singularly. Thus, in this broader context, if one area needs to add a position, another area is required to give up a position. Although this approach adds to the burden of managing workforce productivity, it is effective for controlling expenses, and it is forcing the hospital to be more coordinated across cost centers.

It’s truly a new frontier for labor strategists. But as we wait for the industry to define benchmarks for a rapidly evolving workforce, the hospitals that get their house in order and then develop a sound budgeting strategy for emerging roles will have a distinct market advantage.

Published in HFMA's hfm Healthcare Finance Blog.