5 Keys to Improving Hospital Labor Productivity

Five Keys to Improving Hospital
Labor Productivity

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Improving Hospital Labor Productivity
Reimbursement rates, now
tied to clinical outcomes and
patient satisfaction, are
driving hospitals and
healthcare systems to seek
new ways to improve labor
productivity, work more
efficiently and place greater
emphasis on cost reduction.

Improving Hospital Labor Productivity
At the 2015 HFMA ANI conference a
presentation titled, Using Labor Product-
ivity and Labor Management Best
Practices To Improve the Bottom Line,
was particularly insightful and intriguing.

Benchmarking Hospital Labor Productivity
During the presentation, two
data points stood out regarding
labor costs and productivity –
Salaries and benefits.

With salaries and benefits
representing 50% of hospital
expense, it’s recommended
that a ratio benchmark of
55% is used—calculated by
adding up salaries and
benefits (including contract
labor) and dividing the total
by net revenue.

The 55 percent ratio offers the
advantage over the traditional
productivity measure of
dividing the number of full-
time equivalents (FTEs) by
occupied bed, by using
financial metrics that reflect
the outpatient revenue.

With outpatient treatments and
other changes to the traditional
model, it can be difficult to define
what a hospital is or where the
occupied beds are.
The financial metrics reduce the
number of variables and remove
the concern over uncertainty over
whether beds are truly “occupied.”

Monitoring Hospital Productivity
Productivity is the relationship between
the quantity of output and the quantity
of input used to generate that output.
It is the effectiveness and efficiency of
the organization in generating output.
PRODUCTIVITY = OUTPUT/INPUT

For example, if a hospital has determined that six nursing hours
are required per patient day, and there are 100 patient days in
the time period, then 600 nursing hours are required.
The actual hours worked were 575 so the unit is below the ratio.
Many reporting systems shows this relationship in a graph.
In this case the result is positive, as the ratio is less than one.

If there is a large gap between
the required and actual hours
worked quality could be
negatively impacted.

Improper staffing levels can cause
undue stress on staff, leading to
dissatisfaction, burnout, and turnover.
With the average cost to replace a
bedside RN costing between $36,900
and $57,300, it is critical for healthcare
organizations to understand
productivity and its impact on patient
satisfaction and the bottom line.

Measuring Hospital Productivity
Another important area health systems
should be monitoring is skill mix and
dollars for premium pay.

Organizations should monitor
the overtime percentage very
closely and have a set standard
that will not allow the ratio to
exceed a certain percentage.
If the number eclipses the
threshold, organizations should
investigate the cause and take
steps to address the issue.

Productivity measures also apply to
outside labor. Temporary workers,
unfamiliar with hospital systems and
workflows, can have a negative
impact on productivity and quality.

Improving Labor Productivity
Getting overtime and labor
productivity under control isn’t an
easy task, but it’s not impossible.
Best practices can shorten an
organization’s learning curve and
ensure faster time-to-value include:
• Secure Leadership Commitment
• Implement Data Governance
• Ensure Financial Targets Are Defined
• Create Transparency
• Keep Productivity Metrics Balanced
with Quality Goals

Secure Leadership Commitment
It is essential the organization’s
leadership team link the vision and
values of the organization to its
strategy for improving productivity
by educating, mentoring, and
holding all levels of management
accountable for positive results.

Secure Leadership Commitment
For the organization to keep the
compensation ratio at 55% or lower,
it must have the proper tools (EDW,
analytics and reporting tools) to
capture and report the data.
Leaders must be held accountable
for taking action on the data.

Implement Data Governance
The data cost-center managers receive
must be timely, accurate and relevant.
To ensure all team members are
working and reporting from a single
source of truth, a data governance
team is critical.

Ensure Financial Targets Are Defined
The data cost-center managers receive
must be timely, accurate, and relevant.
To ensure all team members are
working and reporting from a
single source of truth,
a data governance
team is critical.

Create Transparency
Create an open environment where
managers are comfortable learning
from, and sharing with, their peers.

Create Transparency
Texas Children’s Hospital is one
example of a healthcare system
that has developed and put in
place a labor productivity tool to
improve the cost structure and
create a learning environment.

Keep the Productivity Metrics Balanced with Quality Goals
Lowering costs without maintaining
quality will ultimately do more
harm than good.
Managers need to balance
productivity, patient engagement,
quality, and cost data in order to
deliver the best results.

Quality Is More Than a Metric
Quality is an area where no one,
single metric can measure success.
Organizations can look at mortality
rate, infections, or patient safety, and
each area will have different metrics.
Leaders must consider all relevant
factors, such as the staffing levels
required to deliver optimum care, to
make a final determination on how
best to deliver superior care.

Start small
Finding the right balance between
productivity and staffing levels is
crucial in the new world of value-
based payments.
Data captured in an EDW can be
used to identify the areas most in
need of improvement.
That knowledge will help teams set
clear expectations, create tactical
plans and develop metrics for
success and provide quality care
while managing costs.

More about this topic
How Texas Children’s Hospital Reduced Their Healthcare Labor Costs
Anne Marie Bickmore – Health Catalyst
Why You Need to Understand Value-Based Reimbursement and How to Survive It
Bobbi Brown – Vice President of Financial Engagement
The Key to Transitioning from Fee-for-Service to Value-Based Reimbursement
Bobbi Brown – Vice President of Financial Engagement, Jared Crapo – Vice President
Value-based Healthcare and Effective Analytics Outlined in New Gartner Report
Paul Horstmeier – Senior Vice President
Improving Healthcare Provider Productivity with Advanced Analytics
Customer Success Story
Link to original article for a more in-depth discussion.
5 Keys to Improving Hospital Labor Productivity

For more information:
Download Healthcare: A Better Way.
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“This is a knowledge source for clinical and
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– John Haughom, MD, Senior Advisor, Health Catalyst

Bobbi Brown is the Vice President of Financial Engagement for Health Catalyst. Ms.
Brown started her healthcare career at Intermountain Healthcare supporting clinical
integration efforts before moving to Sutter Health and, later, Kaiser Permanente,
where she served as Vice President of Financial Planning and Performance. Ms.
Brown holds an MBA from the Thunderbird School of Global Management as well as a
BA in Spanish and Education from Misericordia University. She regularly writes and
teaches on finance-related healthcare topics.
Other Clinical Quality Improvement Resources
Click to read additional information at www.healthcatalyst.com

5 Keys to Improving Hospital Labor Productivity

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5 Keys to Improving Hospital Labor Productivity