8 Ways to Cut Labor Costs in Your Hospital

Posted by RiAnn Bradshaw on 10/13/20 12:14 PM

Topics: Health Care Staffing, Well-Being


Labor costs are one of the largest expenses for most hospitals, so tight management of staffing and contract labor spend is essential to maintaining financial health. Dennis Patterson, chairman of The Collaborative for Healthcare Leadership, discusses eight ways hospital CEOs can cut labor costs and staff appropriately.

1. Use IT to track labor costs.

CEOs who waste the most money on labor are those who have no way of tracking and benchmarking labor data. "There are several labor systems out there — I'm not a proponent of one over the other — to really track how you are using your labor in order to adjust to volume and patient acuity," he says. "The people who are in the most trouble are people who had no information technology to say, 'How many people did I use yesterday or last year to deliver the same level of service to my patients?'"

Hospital leaders should invest in a software system that tracks and benchmarks labor costs to let the hospital know which months are particularly volume-heavy and which departments are overstaffed, among other factors. He recommends the data be analyzed on a daily, weekly and monthly basis depending on the level of supervisor.

Vendor management software is a great tool for these types of reporting needs. When you standardize the software where your vendors input data, you receive higher quality reporting at the minimum.

"The first line managers should be looking at the data daily and using it to know whether they have to call in more staff or not have staff come in because it's not necessary," he says. "Department supervisors should look at the data weekly, and the executive team should look at it monthly."

While executive oversight of labor data can inform better policies and processes, executive attention can also simply help enforce labor oversight down the line. "If the executive team doesn't look at it, the people on the front line will know that and they won't look at it either," he says.


BlueSky offers the industry's most comprehensive reporting. With our technology, you find real-time analytics on each portion of your healthcare workforce management software system when you need it. Customize your dashboards, reports, user views and more within the system. Consolidating your workforce management reduces gray hair, mitigates churn and keeps your hospital running at an optimal standard.

2. Establish labor expectations.

Smart CEOs will sit down with medical staff, nursing staff and department heads and establish how many FTEs per patient acuity level the hospital will allow. This gives staff a benchmark to work from, and it helps department supervisors analyze data. If no one knows how many FTEs should be staffed, they also won't know when the level of staff is too high or too low. "If everybody has that standard, they know what they're going to be held accountable for," he says.

The next time a colleague asks for data you simply don't have, consider why you don't have it. If it's a result of process, your facility has some technology to look into.

3. Recognize trends and adjust staffing accordingly.

If a good portion of your surgeons takes vacation in August every year, you should plan for case volume to drop and for nurses and OR technicians to be less useful, Mr. Patterson says. "I think the hardest thing is that people don't like telling people not to come to work." If you recognize that once a year, your patient volume drops due to external forces, you should inform your staff of that trend and let them know they can and should take vacation during that time.

People do this in many industries. It's not unique and the expectation of your employees should be what you set for them. If there isn't a current process for managing employee expectations, here is room for growth and improvement.

The same rule applies for the reverse situation. Over the holidays, a lot of people come home from school or get time off work and use that time for elective surgery, Mr. Patterson says. "That's when the hospital is letting people go off on vacation for Christmas and New Year, and now they'll need to use an agency because they need people," he says. Using an outside agency to staff your hospital can cost 3-4 times the salary you would pay to regular employees, costing your hospital money because of poor planning.

We know exactly what the bill rate should be, we know the crisis pay rate, and we see the normal pay rate. Why is your hospital footing the bill for inefficient processes? Turns out, it is not more affordable to outsource this type of management.

4. Assign staff to duties that fit their credentials.

Don't waste money by staffing a nurse to do the job of a secretary, Mr. Patterson says.

Can we get a 'hallelujah' from our nurse readers out there? You're not a filing cabinet and don't need to be treated as one.

All too often, over-staffed hospitals give nurses non-clinical duties that could easily be performed by a non-clinical staff member who costs the hospital less money. "When you do a turnaround, you'll find that because the CEO was so concerned that the medical staff would react [poorly] to laid off nurses, the hospital would lay off a unit clerk instead," he says. The nurse would then have to perform the duties of the unit clerk for a much higher wage than was previously paid to the clerk. This also leads to rampant demoralization since these providers got into the industry to provide healthcare

Appropriate staffing can be improved by setting standards for which staff members perform which duties. Each unit should look at its necessary tasks and decide which credentials are necessary for each one. This might mean using one nurse, two aids, one tech and one secretary for a particular unit, a much less costly staffing model than using five nurses.

With the right clinical workforce management software, you can set standards per unit and predetermine the necessary staff and their credentials. Set it once, have it ready for seasonal volume changes and if you choose BlueSky, you will also be able to handle float pool scheduling instead of outsourcing for a contract provider.

5. Divide labor costs by unit. 

Different units will have different labor costs, and your hospital must know which costs apply to which unit before you can start saving money. If a certain unit needs extra staff and calls in staff from an outside agency, that unit's staffing costs will be higher. But if those hours are sent to a central pool, rather than allocated to the department that used them, your hospital will just see an increased cost in overall labor rather than an increased cost for the specific department.

"It's very important that if you are using staffing as an outside resource, you make sure those resources are allocated back to the proper cost center," Mr. Patterson says.

You may also want to make sure they're hiring credentialed and compliant providers, aren't shipping you travel nurses from across the country when there are nurses looking for work down the road and are providing them with a positive experience since their demeanor will impact your permanent employees and the patients.

6. Develop a central staffing pool. 

Using outside agencies to staff your hospital during high-volume or high-acuity periods can be expensive. Instead, Mr. Patterson recommends setting up your own central agency pool, so you're hiring nurses or techs that are assigned to a pool you created. The pool basically functions in the same way as an outside agency, but instead of paying 3-4 times your normal wage, you're paying the usual salary without benefits.

He says your hospital should set up a call center that contacts nurses when the hospital is short-staffed. If you keep an eye on your staffing trends, you should be able to predict when you will need more staff and plan in advance.

Yes, the float pool... Many hospitals and facilities barely bother to maintain one. This is essentially what an outsource staffing agency is, why don't you handle this in-house with your human resources and the technology built for it? Ask us how today.

7. Implement layoffs one at a time, not en masse. 

Mr. Patterson says troubled hospitals often ignore the need for layoffs because they value employee morale. In doing so, though, they experience greater financial difficulty and eventually have to lay off hundreds of employees, causing embarrassing publicity and employee outrage. If volumes are dropping and nurse-patient ratios are becoming smaller, your hospital should consider laying off some employees to save money. If you start cutting positions when financial difficulty becomes apparent, you will avoid the problem of staffing too many nurses for too few patients and losing even more money.

8. Incorporate labor control into staff evaluations. 

Because labor costs are a significant expense for hospitals, Mr. Patterson believes labor control should be built into employee evaluations, especially for department supervisors. "The two things I would put very high on any evaluation are appropriate staffing and patient satisfaction," he says. Employees who fail to meet staffing expectations for their unit should be monitored more closely. 

If being able to adhere to a budget in other industries is considered in performance reviews, why wouldn't a unit and shift management team be held to the same standard? Budgets are budgets and it would be best to plan ahead with the predictive analysis offered by granular and real-time data. Otherwise, you're leaving your finances open to predatory business models.


Your facility or hospital network already has a human resources team. You already employ hiring managers. You already have shift leadership and unit managers that know what their staff should be credentialed to do.

Why spend that time explaining this to a vendor? Why outsource work you already have full time employees to manage? Why choose to have financial information hidden from your CFO and COO?

These pieces of the puzzle have been at play for decades, effectively disabling healthcare systems from providing the actual healthcare they are meant to. Disrupt the status quo by bringing that back to those you hire to do it. Hospitals and health systems can be their own managed service provider by leveraging technology they do: the vendor management software. BlueSky offers a VMS system built specifically for the complexities of healthcare workforce management. Ask us how it can save you millions annually. Reach out today.


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