Navigant analysis of HFMA survey data shows providers focusing on labor and supply chain productivity to reduce hospital operating expense
CHICAGO – Hospital and health system executives are facing continued shortages of physicians, nurses, and mental health providers that may be challenging them to reduce labor costs, according to a Navigant (NYSE: NCI) analysis conducted by the Healthcare Financial Management Association (HFMA). Addressing the shortage of these specialized positions is likely causing hospitals to project higher labor budgets in the coming year as administrators anticipate offering increased compensation in order to fill these roles.
The survey of 101 chief financial officers and operations executives also suggests leadership is targeting labor and supply chain productivity improvements to reduce hospital operating expense over the next 12 months.
Staffing Shortage Volatility
Executives offer a volatile view of current staffing shortages, citing nurse and physician shortages as areas of both the largest increases and reductions compared to a year ago:
Mental health provider shortages may represent the most dire situation, with 35% of respondents believing current shortages are worse than last year, while just 10% cite an improvement. In addition, 20% of executives suggest revenue cycle management and coding expert shortages as worsening. Support services, pharmacists, and imaging experts represent the areas with the least shortage issues.
Labor Budget Growth
When asked how their organizations’ labor budgets are likely to change in the next 12 months, 78% of executives predict an increase, with almost one in five projecting surges of 5% or more. Just 14% predict decreases, and none more than 5%. Hospital total employment compensation grew 2.3% in 2016 and 2% in 2017, according to the Bureau of Labor Statistics’ Employment Cost Index.
“The need to more effectively manage labor by staffing to demand will only intensify as operating margins continue to diminish, and as the pressure to enhance care quality and efficiency increases,” said Danielle Dyer, managing director at Navigant. “These results magnify the need for provider leadership to objectively analyze their current practices to better staff departments and meet dynamic patient volumes.”
Targets for Operating Expense Reduction, Labor Management Productivity
When asked about their top target areas for reducing operating expenses over the next year, respondents cite labor (44%) and supply chain including purchased services (38%) as the top priority areas. Combined, labor and supply chain costs represent more than three-fourths of a hospital’s overall operating expense on average, according to industry statistics.
In addition, executives rank productivity improvement and workflow redesign as the main labor management initiatives their organizations will focus on for improvement over the next 12 months.
“Staffing shortages are placing hospital leadership in a paradoxical situation, both due to the economic theory of supply and demand and the tendency to maintain surplus with shortages looming,” said Navigant Director Vamshi Gunukula. “As a result, reducing labor costs has become even more difficult. Leveraging predictive analytics, proactively matching staffing to patient care demand, and more efficient workflows can help providers address these challenges.”
Providers can use analytics, predictive algorithms, and other technology tools to:
Click here to view the full survey results.
Navigant Consulting, Inc. (NYSE: NCI) is a specialized, global professional services firm that helps clients take control of their future. Navigant’s professionals apply deep industry knowledge, substantive technical expertise, and an enterprising approach to help clients build, manage, and/or protect their business interests. With a focus on markets and clients facing transformational change and significant regulatory or legal pressures, the firm primarily serves clients in the healthcare, energy, and financial services industries. Across a range of advisory, consulting, outsourcing, and technology/analytics services, Navigant’s practitioners bring sharp insight that pinpoints opportunities and delivers powerful results. More information about Navigant can be found at navigant.com.