Despite losing staff to the Great Resignation and early retirement, many healthcare organizations are facing higher labor costs. Why? Because of the increased reliance on agencies to bolster remaining staff. Controlling this cost and even weaning off of agencies is possible through a disciplined, evidenced-based approach to staffing. Futura Healthcare is helping its provider clients achieve this with a combination of software and expert service.
Healthcare IT Today recently had the opportunity to sit down with Mike Talerico, Senior Vice President at Futura Healthcare, to discuss the healthcare staffing challenge and to find out more about their unique, disciplined approach to controlling labor costs.
Reliance on Agencies
“Coming out of this pandemic, the industry is experiencing challenges that we haven’t seen ever before,” opened Talerico. “We cannot maintain hospital margins or profitability with the current agency usage. We’re really in a tough spot. It’s something that we have to really focus on.”
Across the healthcare ecosystem, healthcare organizations are feeling the pinch of staff shortages. Physicians, nurses, technicians, and admin staff are all in high demand and in order to maintain service, organizations are turning to agencies to fill the void. The cost of agency resources is typically higher than the cost of hiring someone in-house.
Pittsburgh-based UPMC, for example, shared in this article that they paid an average of $85 per hour for a nurse from an agency before the pandemic, but is now experiencing rates between $225 and $250 an hour – significantly higher than rate of salaried nurses.
“Hospitals are spending more on labor today in terms of average hourly rates than we ever have before,” continued Talerico. “It’s crucial that we focus on the number of staff and where we’re using that staff. Because if there are areas where we can reallocate personnel, we can start to wean ourselves off of the agency costs and get that cost curve back in line with what we expect to see.”
Reducing Labor Costs
Agencies are not the only contributor to increased labor costs. A lassie-fair approach to hiring also has an impact.
When a someone leaves a hospital department, it is almost automatic that a requisition is made to hire a replacement, but is that person needed based on the current and expected demand? According to Talerico, that is not a question that often gets asked: “If you put some discipline and rigor around employee requisitions, if you don’t fill unnecessary positions, you will actually improve your labor cost.”
During the interview, Talerico identified four high-impact ways to reduce labor costs:
- Leveraging attrition
- Career redirection
- Elimination of overtime
- Reduction/elimination of agency hours
The key, to all four, is having a clear understanding what each department’s appropriate level of staffing is – and to do that, you need an evidenced-based approach that established benchmarks that are unique to the realities of each organization.
Staffing Benchmarks
“Many health organizations have some form of productivity measurement, whether it be external benchmarks or internal productivity systems,” said Talerico. “The challenge is that department leaders don’t always have faith or belief in the target that they are being held accountable. Too many times when they’re given a benchmark, they simply go: ‘this is an invalid peer group. Nobody in my peer group is like me. You can’t expect me to run at the same levels they run’.”
To address this, Futura Healthcare developed a modified time and motion study. They will go into a specific department where there is an opportunity for improvement and use their methodology to evaluate all the activities. By doing so, the team is able to identify broken processes, where over-skilled staff could be better utilized, and other areas of improvement.
The Futura Healthcare team is also able to build up a staffing benchmark that is unique to that department. Talerico explained why that was so powerful: “At the conclusion of developing one single department target, we have a manager that says: ‘okay, I can be held accountable to that goal because it was something that I participated in. I believe it’.”
Once these targets are established, Futura Healthcare offers a special dashboard, called Envigorate Productivity Reporting System (EPRS), that gives departmental leaders an easy way to see how they are doing versus their productivity goals.
“There’s a key element to the EPRS that differentiates it from a lot of other productivity systems – transparency,” said Talerico. ”We give that department leader the ability to drill into their payroll detail, to their revenue, to the charges that are being run through their department on a bi-weekly basis, because we want them to be able to see where the data’s coming from. So, if they don’t believe in it or they don’t trust it, they can actually dig in and do their own analysis.”
Does it work?
The simple answer is yes. For one of Futura Healthcare’s clients based in the Carolinas, the team was able to save $25 million in annual labor costs, which translated into 3-4% of the total labor for the organization. Plus, there was the added bonus that people were less stressed since departments had the appropriate staffing levels.
Watch the full interview with Mike Talerico to learn:
- The most important factor to improving productivity
- Why “working at the top of license” is so important
- Why we should be looking at cost of hours not just number of hours when evaluating labor
Learn more about Futura Healthcare: https://www.futuraworks.com/
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Transcript
[00:00:10] Hello and welcome to Healthcare IT Today, where we explore the latest healthcare technology trends and discover valuable insights in health IT. I’m Colin Hung and joining me today is Mike Talerico, Senior Vice President at Futura Mobility. Today, we’ll be talking about how healthcare organizations can reduce labor costs without cutting staff. Sound impossible? Well, Mike is going to tell us how. Mike welcome to the program
[00:00:37] Mike Talerico: Thank you, Colin. Thanks for having me today.
[00:00:40] Colin Hung: So Mike, before we dive deep into this topic, let me ask you where we are in healthcare in terms of the staffing challenges.
[00:00:50] Mike Talerico: We are at a very unique time in healthcare. Coming out of this pandemic, the industry is experiencing challenges that we haven’t seen ever before – specifically shortages of staff, key personnel, and the RN shortage. They’re calling it the Great Resignation.
Many key personnel are leaving organizations and it’s causing the healthcare systems to rethink how they use their staff, how they deploy their staff. It is an opportunity to find some creativity and new ways to deliver care. But in the meantime, we still have a pandemic that just doesn’t seem to want to go away. So the patient volumes are still there. The acuity is up. The combination of that plus nursing shortage…it’s challenging healthcare systems tremendously. Not only from a patient care perspective, but also from a financial perspective.
The cost of staff, specifically the use of agency staff, is a challenge from a financial standpoint that at the moment looks to be insurmountable. We cannot maintain hospital margins or profitability with the current agency usage. We’re really in a tough spot. The staffing issue that we’re experiencing in healthcare, needs a solution. It’s something that we have to really focus on.
[00:02:25] Colin Hung: Why is it so important to be looking at your labor costs, especially right now, given that we’re losing staff?
[00:02:37] Mike Talerico: It really goes back to the financial side of the healthcare system. The cost of care, the length of stay due to the nature of the COVID patient population is challenging. We’re not seeing the appropriate use of staff. We use the term “working at the top of your license”…but when it’s all hands on deck, people occupy roles and activities that are not normally part of their normal day to day job.
As a result, we’re seeing burnout, where people leave. When you have burnout and you’ve got people leaving, now I have to rely on agencies which are extraordinarily expensive. It really changes the cost curve. Hospitals are spending more on labor today in terms of average hourly rates than we ever have before.
It’s crucial that as healthcare leaders that we focus on the number of staff and where we’re using that staff. Because if there are areas where we can reallocate certain personnel and we can start to wean ourselves off of the agency costs, we’ll get that cost curve back in line with what we expect to see.
[00:03:49] Colin Hung: It’s interesting that you say that Mike, because what I’m interpreting is, even though we are in a staffing challenge here in healthcare – where people are leaving – in order to make up for that, we’re spending more on staff, which is really perverse if you think about
[00:04:04] Mike Talerico: It is. I mean, you can imagine if you’re a chief financial officer and you’re looking at the monthly financials and you go, my FTE count is down, but my labor spend when I brought an agency into it is actually way above budget.
We look at it in terms of salary costs per year. If I’m looking at an emergency room visit or an inpatient day or even a radiology procedure…it’s not only about the hours worked to complete a specific activity, but it’s the cost of those hours. I have to make sure I have the appropriate amount of staff, first and foremost, but then the cost of that staff has to be part of the equation as well.
So now if you think about the Great Resignation and people leaving the industry, it is so important that we have plans to retain the staff that we have and to attract new personnel to come work for us as employees, not as agency staff and that costs money.
The easiest and quickest solution to recruit and retain staff is to offer bonuses and to increase that average hourly rate.
[00:05:13] Colin Hung: So Mike, let’s get to the title question. Futura offers a solution that you say can help healthcare organizations to significantly reduce their labor costs without actually making deep cuts to staff. I mean, how is this possible?
[00:05:29] Mike Talerico: Well in a traditional world, a pre-pandemic world, we would work with financially healthy hospitals and health systems, and we would focus on where their FTEs were being utilized and more importantly understand where were those opportunities for improvement are.
If we were looking at a hospital in whole, there are departments that are going to be running appropriately in terms of productivity metrics. Some departments will be overstaffed. Some departments will be understaffed. If you can identify the departments where there’s opportunities to improve your labor costs, to improve the number of hours or FTEs that you’re using, and you pay attention and you put some discipline and rigor around employee requisitions and how you fill open positions. If you get creative in terms of bringing on PRN personnel, so that I’ve got staff working at the appropriate times of the day, when the activity and the volume peaks…that is something that I won’t say it’s new to healthcare, but it’s something that many organizations need to focus on.
So leveraging attrition, career redirection, elimination of overtime and agency hours, those are all ways to reduce your labor spend without implementing a reduction in force or some kind of layoff. So we always want to work with health systems that have the foresight, the planning, the discipline, to manage productivity proactively. We want to understand how they can leverage new technologies to improve workflows and as a result, if I don’t fill unnecessary positions, I will actually improve my labor cost. I can reduce my staff without making a deep cut.
[00:07:14] Colin Hung: I gotta be honest. I’ve never really thought about how not hiring somebody is actually a labor savings. What you’re saying is that you really have to look at whether or not you need that person, or could you direct someone else from a different part of the organization or through other means,, not have to hire that individual. That could be a significant savings…not to mention all the difficulty today around even trying to find somebody to fill the position.
[00:07:39] Mike Talerico: Absolutely. We’re at an interesting time because organizations are so lean, but a lot of the volume, especially the outpatient volume, the surgical activity, it has all decreased. As that starts to come back, we’re in a unique spot. We can start to bring volume back into the organization with lean staffing, If we add staff appropriately, as the volume returns, we can become super efficient. The more efficient healthcare organization is, the more productive, the more financially profitable they will be.
[00:08:12] Colin Hung: So can you share some use cases or some examples of where you’ve done this Mike, with some of your clients?
[00:08:21] Mike Talerico: So I won’t name a specific client, but we’ve worked with hospitals and health systems throughout the country. There was a hospital in the Carolinas that we worked with. We actually worked in one of the larger organizations initially – one of their regional medical centers – and then we spread out to other outlying facilities and smaller hospitals.
Over time we were able to save them an excess of $25 million in their annual labor.
[00:08:52] Colin Hung: Wow.
[00:08:53] Mike Talerico: That’s a big number, right? So people usually do exactly what you did. They go, wow. Twenty-five million hours, but you have to keep in mind, these are large health systems, so that twenty-five million dollars that may only represent about 3% to 4% of their total labor spend.
But if you can find 3-4%, that goes almost straight to the bottom line because I’m still getting the same level of activity. That’s the same level of volume. But if I can do it with a little less staff, a little less cost, it’s going to improve my margins.
[00:09:24] Colin Hung: At that organization, did you apply some of these techniques of helping them understand they didn’t have to hire people or fixing their hiring practices? What were some of the individual tactics that really moved the needle for them?
[00:09:38] Mike Talerico: That’s a great question. Colin and I will tell you, it’s not just hiring practices. It’s really about developing staffing models, staffing targets. So our organization, we have a unique approach to building a staffing target.
We have databases. We have peer group comparisons. Many health organizations have some form of productivity measurement, whether it be external benchmarks or internal productivity systems. The challenge is that department leaders don’t always have faith or belief in the target that they are being held accountable.
We have developed a modified time and motion study approach. We’ll go into specific departments where there is opportunity for improvement when you do a peer group comparison or a database comparison, but we’ll build the target from the ground up. So we’re actually going to look at all of the activities throughout the department their direct, their indirect or constant activities. And in evaluating these activities, we start to see where the processes are broken. We start to see if they’re not working at the top of their license.
If we can reallocate certain activities to a lesser skill. But we build that target with the managers participation and buy-in. So at the conclusion of developing one single department target, we have a manager that says “okay, I can be held accountable to that goal because it was something that I participated in. I believe it.”
Too many times when they’re given a benchmark, they simply go: “this is an invalid peer group. Nobody in my peer group is like me. You can’t expect me to run at the same levels they run.” We want to overcome that hurdle and the way we do that is by, by working closely with that frontline department.
[00:11:15] Colin Hung: Amazing. One of the components I was reading on your website, one of the components of your solution is a dashboard. I think you call it a E P R S. Can you explain what that is and why? It’s so helpful.
[00:11:32] Mike Talerico: So EPRS one point through acquisition was Envigorate Productivity Reporting System. Envigorate Healthcare Solutions was acquired by Futura. So the EPRS moniker still remains.
The EPRS is a biweekly productivity reporting system. It’s also a daily, but the foundation is in a bi-weekly report. What it does is it gives information to that frontline department leader and tells them how they’re doing versus their productivity goal.
But there’s a key element to the EPRS that differentiates it from a lot of other productivity systems. The first is transparency. We give that department leader the ability to drill into their payroll detail, to their revenue, to the charges that are being run through their department on a bi-weekly basis, because we want them to be able to see where the data’s coming from.
So if they don’t believe in it or they don’t trust it, they can actually dig in and do their own analysis. It’s also a great teaching opportunity for finance or decision support or operations improvement departments to sit with department leaders and talk through the data. U
Many of our department leaders are excellent caregivers. They don’t necessarily always have the same financial background that somebody like myself who went to school with a finance degree, focused on it. But the system itself, provides that communication platform, the visibility to see how they’re doing versus their goal.
And the one other element that makes the EPRS special or unique is we do factor in the cost of that labor.
So there’s two elements inside of the system that a leader must focus on. It’s how am I doing versus my productivity target, but also, how am I doing in terms of my average hourly rate versus what was budgeted or planned?
[00:13:20] Colin Hung: Mike, if I was a healthcare leader at a healthcare organization, and you were speaking to me…other than hiring you and Futura Mobility, what are some of the other things I could start doing or stop doing that that might help me reduce my labor costs?
[00:13:38] Mike Talerico: Well, that’s a good question. There’s a lot of different strategies in place, but most organizations, they just have to have open communication.
They have to meet regularly and talk about this. From the C level, all the way down to the department leader level, and then the department leader needs to speak with their staff. They need to understand that they’re stewards of a finite resource that is really important because the cost of healthcare continues to rise over time and it doesn’t seem like the rate of reimbursement is keeping pace with that. So we have to continue to get leaner and more efficient in how we use those limited resources.
Colin the most important element is open communication. When leaders talk about productivity improvement people just inherently do better. It doesn’t need to be a conversation that’s painful or difficult. It shouldn’t be used to belittle or to embarrass an individual. If you’re struggling, we, as executive leaders want to work with those department leaders to overcome the hurdle and to see if we can help them to become more efficient.
[00:14:50] Colin Hung: Mike, where can people go to find out more information about Futura?
[00:14:55] Well the first and easiest places to go to our website. The address is Futuraworks.com. We’ve got a wealth of information – whitepapers and case studies – that can all be downloaded and shared. We’ve got a large presence on LinkedIn. We attend a lot of different professional affiliations, such as the American College of Healthcare Executives and the Healthcare Financial Management Association. We will actually be at Becker’s at the end of this month in Chicago for the annual meeting. The easiest way to find us is to come to the website, which is Futuraworks.com.
[00:15:32] Awesome. Mike, you’ve shared a ton of great information today. Really appreciate it. I learned a little bit more about, the hiring and the staffing side of things, which is always interesting in healthcare. Thank you so much,
[00:15:46] Mike Talerico: Colin, thank you. I appreciate the time today.
