A 7 minute read
control hospital labor costs
February 5, 2019

*updated January 2020

It's no secret that the U.S. is facing a shortage of full-time healthcare providers and facility staff. The increasing demand for clinicians across the country is driving higher salaries and even higher turnover rates. At the same time, pressure from CMS and facility leaders to improve clinical quality without increasing care costs is leading to physician burnout in a variety of specialties.

With decreasing numbers of available staff, physician burnout is largely fueled by increased reporting demands and widespread adoption of electronic health record (EHR) systems. New technology implementations also require more user training—pulling staff away from patients and requiring facilities to hire locum tenens staff to combat lapses in staff coverage.

Locum tenens providers are placed at facilities that are short-staffed or in need of specialists, usually for 1-3 months at a time. Locums providers are considered "contract labor," and are usually hired through a third-party agency. Below, we've listed the hospitals that spent the most on contract labor in 2018.

Top 10 hospitals by contract labor spend

Rank Hospital Name Definitive ID State Total Contract Labor Spend Staffed Beds Bed Utilization Rate
1.  Saint Mary's Hospital  2191 MN $272,713,537    1,115 73.4%
2.  Fontana Medical Center 526 CA  $154,123,720    626 58.0%
3.  Los Angeles Medical Center 366 CA $151,975,787    460 72.8%
4.  Zion Medical Center 535 CA $125,922,696    536 49.5% 
5.  South Sacramento Medical Center 513 CA $116,152,778    209 67.0%
6.  Oakland Medical Center 303 CA $114,364,927    365 64.3%
7.  Roseville Medical Center 553293 CA $109,537,131    340 67.4%
8.  Sacramento Medical Center 510 CA $109,119,796    287 47.5%
9.  Santa Clara Medical Center 593 CA $103,513,584    327 62.9%
10.  Orange County Anaheim Medical Center 482 CA $101,135,331    219 52.1%

Fig 1 Data from Definitive Healthcare’s Hospitals platform based on reported clinical, financial, and quality metrics as of January 2020.

All but one of the hospitals above are members of the California-based Kaiser Permanente health system. In recent years, Kaiser has seen dramatic growth in member hospitals—the total number of medical office buildings in their system is 694, in addition to 39 hospitals. This surge in network volume is, potentially, a significant contributing factor in rising labor expenses. With a membership increase as well as expansion to providing services to non-members, the health system likely hired locum tenens staff while holding training for new full-time hires.

According to Definitive Healthcare’s news and intelligence data, Kaiser also invested in telemedicine software in July of 2017, creating additional demand for contract providers while full-time staff were trained on the new systems. 

Contract labor challenges

Contract labor offers flexibility for facilities in need of independent contractors — especially nurses. However, contracting with a third party has its own challenges. Facilities have to be sure that contracted staff members are appropriately qualified, including up-to-date certifications and immunizations. The difficulty here lies in working with the right staffing firm. Not all firms provide comprehensive checks to ensure that credentialing requirements are met—particularly those that do not specialize in healthcare.

Another common stumbling block for facilities is that they cannot get qualified candidates in fast enough. Top-tier candidates get scooped up quickly, and research shows that nurses are most likely to accept a position if interviewed and offered a position within 48 hours of applying. Quick turnaround in the hiring process also ensures a care facility can get new staff acclimated and working at full capacity in less time, reducing the impacts of being understaffed.

Innovating to cut labor costs

One way to increase access to services while potentially lowering costs is for hospitals to extend their networks to include new types of service providers. Telemedicine  offers delivery of healthcare services through remote consultation, including the use of video chat or other telecommunications. Proponents of telemedicine say it can improve the value and efficiency of healthcare—particularly by monitoring the chronic conditions of at-home patients, or by triaging and managing non-emergency situations.

Telehealth enables health systems to better distribute staff throughout their healthcare facilities and load-balance resources across entire systems – reaching more patients with less strain on specialist resources. Telehealth platforms can also relieve some of the strain from healthcare staffing shortages by connecting patients to remote providers and keeping patients in network. Additionally, telehealth improves provider-to-provider communication, which can result in improved patient care and, as a result, cost savings.

Essential staffing data

Healthcare facilities and staffing firms can leverage quality and procedure data to better understand staffing needs. Hospital quality performance, particularly HCAHPS scores, is a key indicator of whether a hospital is short-staffed. One popular metric in the HCAHPS scoring system is the percentage of patients who received assistance when they wanted. The lower this score, the more likely it is that a hospital didn't have the necessary staff to attend to patients quickly.

Clinical metrics are also valuable in assessing staffing needs. If a hospital's bed utilization rate is much lower than the regional or national average, the facility would likely benefit from hiring additional staff in order to receive and treat more patients in less time, thereby increasing revenue. Additionally, hospitals with very high bed utilization rates are likely very busy, and run the risk of increasing the rates of physician burnout and turnover.

Learn more

Looking to solve healthcare staffing woes? Check out our on-demand webinar: Staffing and Recruiting in a Physician Shortage. This webinar covers how staffing and recruiting firms can stay ahead of the curve by understanding and reacting to the needs and desires of candidates as well as the hospitals looking to hire them. Watch this webinar to learn how to:

  • Develop a recruiting strategy based on the needs and trends of the patient population by leveraging procedure and diagnostic claims
  • Identify which Hospitals are likely to have a need based off quality and staffing levels against contract labor spend
  • Access all potential viable candidates, not just those actively seeking opportunities

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