7 Essential Labor Cost Reduction Strategies in Healthcare

7 Essential Labor Cost Reduction Strategies in Healthcare

Labor costs have always taken a large share of any healthcare organization’s budget. And since Covid-19, that portion has only grown — and it shows every sign of continuing to do so. Amid an ongoing shortage of healthcare staff and rising turnover rates, what labor cost reduction strategies in healthcare can leaders use to meet this challenge?

Labor Cost Reduction Strategies in Healthcare

There’s no question that labor costs are top of mind for most healthcare leaders — and with good reason. Reports show that labor now takes up more than 50% of total hospital costs. And as the shortage of workers grows, the need to use more costly contract labor only raises that figure.

What solutions are available for leaders looking to reign in these costs? And how can they do so while maintaining quality of care and compliance with today’s strict reimbursement rules? Here are a few ways to use contingency workers, technology, and flexible staffing solutions to achieve key labor cost reductions strategies in healthcare delivery.

#1: Embrace the Potential of New Technology

Technology has evolved by leaps and bounds in recent years. Most leaders are familiar with many of these innovations, such as telehealth and electronic health record (EHR) interoperability. This tech can help cut the costs associated with readmissions and in-hospital care.

However, fewer leaders have embraced the full potential of technology to provide labor cost reduction strategies in healthcare. For instance, shifting the job of scheduling from a manual to an electronic process offers a number of benefits. It can make the process faster and more efficient, for example. And this can free up room in the budget by reducing the amount of hours required by administrative or management staff.

Automation can also improve the scheduling process to better align not just with operational needs but the lives of workers. This can result in higher morale and retention and lower rates of absenteeism. It can also reduce overtime and the need to bring in more highly paid contract workers.

> Related: 8 Healthcare Staff Scheduling Issues & How to Solve Them

#2: Implement Data Tracking and Analysis

Data tracking is another way technology can help reduce the cost of labor. By keeping close watch over a few key metrics, leaders can better understand just when and where they need to source new workers. And this can help keep departments fully staffed, which could boost morale and retention.

For instance, what departments or units tend to drive the highest healthcare labor costs? What time of the year is a specific facility more in need of contingency staff? Knowing the answers helps leaders make better decisions — the kind that help keep labor costs under control. As an added bonus, it also helps each department run more smoothly and maintain quality of care.

> Take a deeper dive into this topic with our guide to workforce metrics

#3: Make Use of Vendor Management Software (VMS)

Appealing as its benefits may be, some leaders remain hesitant to embrace technology. And they have some good reasons for this. After all, each new healthcare technology solution does come with a cost. And there’s also the need to manage it all in a way that achieves the best possible results. That can be a hard job with just a single new technology, not to mention a whole suite of tech services.

With vendor management services (VMS), however, all of these services are easily managed from a single source. This helps ensure that leaders get the most from the technology they’re paying for. And it does so under a single line item, which helps to ensure the ease of use of all the tech solutions. It also helps maintain the safety and security of sensitive data by applying a single standard to every process.

#4: Improve Hiring with Healthcare MSP

Healthcare leaders can further seize the benefits of technology with the help of a managed service provider (MSP). Among other benefits, an MSP partner can apply solutions through every part of the hiring process. This can improve acquisition and the quality of new hires and reduce the costs it takes to fill a position. It can also free up time for managers to focus on other tasks.  

Using an MSP can also improve other aspects of workforce management like invoicing and compliance with labor regulations. It not only speeds up the sourcing of new candidates, but it also ensures that each new hire is licensed and credentialed, and clears any background checks. In addition, MSPs can serve as a source of contingency workers, and help set an effective strategy for using them.

#5: Set a Contingency Staffing Strategy

A way to support regular staff with per-diem, temp, travel and/or contract workers, contingency staffing helps employers meet patient demand and maintain quality of care not only during times of high utilization, but all throughout the year. However, many leaders try not to rely too heavily on contract workers because they come at a slightly higher price.

The challenge, then, is to use contingency staff in the most cost-effective way possible. A staffing and recruitment partner can help meet this goal by ensuring that these workers are used only when and where it’s necessary. Doing so doesn’t just help ensure continuity of care, but also helps curb budgetary expenses by reducing the time it takes to backfill important healthcare positions, cutting overtime costs, and more.

> Need contingency workers? Request staff now

#6: Reduce Healthcare Turnover Costs

Even before the pandemic, vacancies were skyrocketing for nurses and other clinical workers. According to the American Hospital Association (AHA), vacancies for nursing professionals and respiratory therapists grew by about 30-31% between 2019 and 2020. That same report pointed out that the annual turnover rate for hospital CNAs was 27.7%, or nearly double the turnover rate of other nurses.

There’s no magic bullet for solving this problem. Pay raises always help, of course. But that’s not the only solution. Employers can also offer a more positive culture. And contingency workers can be used to give permanent staff more time off. The boost in retention that results from these efforts can help justify the expense of contingency staffing. And it can improve morale in a way that drives better care.

> Don’t miss these 5 methods to increase retention in healthcare

#7: Reduce Healthcare Overtime Costs

Federal law requires employers to pay healthcare professionals time and a half for overtime hours. And the current shortage of workers makes that overtime hard to avoid, as most employers know all too well. Even well before the pandemic, about 40% of all nursing shifts included overtime hours.

Technology can help by enabling employers to track overtime and correct the factors causing it. And contingency staffing can provide temp workers to take over those hours. The cost savings that come with cutting overtime can also help justify the cost of contingency staffing or the investment in technology. And reducing overtime can also help improve morale and lower turnover, further reducing the cost of healthcare labor.

Reduce Costs with Flexible Healthcare Staffing Solutions

For most organizations, achieving these goals means implementing flexible staffing strategies. Utilizing solutions like technology and the strategic use of workforce management can be key tools to achieve labor cost reduction strategies in healthcare.

That’s where we come in. In addition to providing premium contingency workers, CareerStaff also offers workforce solutions designed to help organizations like yours make the best possible use of them. From VMS and MSP to a nationwide roster of healthcare professionals, we’re standing by to help you achieve the labor cost savings you need to stay competitive in a challenging environment.

Learn more about how our award-winning, Joint Commission-Certified solutions can help you meet your most urgent workforce needs: Contact us today for more info or to set up a consultation, or request contingency staff now.

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