Value-based care initiatives mean productivity is even more crucial to hospital's financial well-being.

Value-based Care and Improving Hospital Labor Productivity

Productivity Efficient Solutions

The U.S. Centers for Medicare and Medicaid Services’ value-based care programs mean a need for a deeper focus on productivity labor.

Improving labor productivity in healthcare is a major concern, especially for organizations like the U.S. Centers for Medicare and Medicaid Services (CMS). At the heart of CMS’ value-based care programs is a focus on improving how healthcare is delivered. This means that improving the quality of care and lowering costs must be central to any healthcare leader’s strategic goals.

Neither of those can be accomplished without paying particular attention to the productivity of the hospital labor force. While value-based care is definitely a noble goal for the entire healthcare industry, it’s also a concrete initiative that should be taken seriously. Medicare reimbursement rates are now tied to patient satisfaction (such as through HCAHPS) and clinical outcomes, giving providers definite incentives to prioritize the effectiveness of their labor force.

Labor in the healthcare space, hospitals specifically, is known for being difficult to gauge. The Bureau of Labor Statistics, for example, notes that while private community hospital employment increased 28 percent between 1993 and 2012, total hours worked by private community hospital employees increased 34 percent during that same period. Buried within that number is the diverse mix of services provided to an array of patients at any given hospital.

Even with that level of complexity, hospital labor productivity can be approached in a way that encourages progress toward value-based care goals.

The Importance of Appropriate Benchmarking

Most hospitals could benefit greatly from setting benchmarks around key metrics in their facilities and systems.

Take, for example, the question of salaries, which typically eat up a solid 50 percent of a hospital’s expenses. It’s been recommended by Steven Berger, chairman of Health Insights, that hospitals use a compensation ratio benchmark of 55 percent. This means that if at any time, the cost of salaries, benefits and contract labor makes up more than 55 percent of net revenue, that hospital leadership should take action.

In comparison to traditional productivity metrics (such as FTEs/occupied beds), this method includes outpatient revenue as a factor, an important point as the industry changes in ways that older methods of benchmarking might have not taken into consideration. In this example, the change is especially significant as outpatient revenue has been trending upward as a percentage of net patient revenue over the last few years.

Key Metrics

Once the relationship between output and input (the definition of productivity) is more clearly understood, hospital leadership may stand a much better chance of taking meaningful action. For example, if a hospital is tracking its productivity ratios across time (a feature many reporting systems provide) it won’t be difficult to identify gaps between the actual hours required in a given situation and those that were actually worked.

Periods where large gaps are identified can signal issues with quality and risks of unnecessary stress on staff (which in turn impacts burnout, dissatisfaction and turnover). Because of the high cost of staff replacement alone (the average cost to replace a bedside RN ranges between $36,900 and $57,300), keeping employees functioning at optimal and comfortable levels should be a top priority.

Another example of a critical benchmark is premium pay. An organization that prioritizes productivity will likely establish a benchmark for overtime percentage (such as 5 percent). Once that benchmark is exceeded, action can be taken.

Another factor that must be navigated as the industry turns more heavily toward value-based care, is the increased use of outsourcing — it’s become important to track these (or similar) benchmarks as they pertain to outside labor. These workers can be a challenge and a direct drain on productivity, since they’re not as familiar with systems or existing workflows, and can drag down productivity along with quality.

Prioritizing productivity metrics that are founded in the reality of a chancing healthcare environment will be crucial in a time of value-based care. Thankfully, leadership that understands the complexities of their individual facilities are already well-positioned to take the foundational steps needed to see improvement.

Megan Williams
Megan Williams

Megan is a B2B healthcare writer with 10 years experience in hospital consulting, over a decade's work in online content creation, and an MBA.