Inflation. Reduced reimbursement rates. Aging infrastructure. Staffing crises.
Does this sound familiar?
If it does, there is the very real possibility you’ve had to make some hard choices when it comes to running your healthcare organization. They’re businesses, after all. With the U.S. model of care and reimbursement, health systems are faced with a high-fixed, low-variable cost structure that translates to a market not always impacted by volume alone. Leaders lose half the equation in economies of scale, leaving nothing but cost reduction to consistently impact their bottom line.
With labor accounting for 60% of an organization’s expense, it’s typically at the top of the list for reduction when budget season rolls around.
Although some industries have finally started to recover from the pandemic lows, healthcare is still sitting as the third highest-cutting industry despite the constant demand for patient-facing roles. In this case, the two factors are parallels and not inverse proportions, placing administrative staff squarely in the line of fire.
The effect is undeniable—countless systems have seen positive gains over the past few years by cutting up to 65% of their administrative staff or transitioning them to a vendor partner’s books. What’s harder to measure outside of a profit and loss margin, however, is the intangible cost that can accompany layoffs. When facing large cuts, systems will undoubtedly also experience a drop in morale, potential loss of skilled workers seeking stable environments, and mountains of negative publicity.
All in a day’s work, right?
A wise leader will be able to weigh these risks and will know to emphasize the humanity in human capital. Any decision-maker worth their salt will make layoffs a last result, but how does one tackle them if cuts are inevitable?
Here are a few tips to help reduce your labor costs the right way.
Create a Solid Staffing Model
Without realistic productivity and performance measurements, how will you know if you’re staffed appropriately? The best way to cut labor costs is to avoid overspending in the first place. While this sounds obvious, your first look at labor expenses shouldn’t be when it’s time to find juice to squeeze; it should be a constant measurement to balance revenue ins against labor outs. Ensure you don’t inflate leadership roles when more front-line staff could make the biggest impact.
And above all else, cut overtime long before you decide to cut staff. Using a math and consistency, there should be no need for continued overtime use, which can instantly trim extra spending.
Target Micro Areas for a Macro Effect
No, it’s not a lesson in economics, just a simple analysis of what your organization truly needs. Not all teams and not all functions are created equally, and each one requires constant review of where “fluff” might be hiding. Use industry standards for workflows where you can, and look to other organizations to see what they’re doing when you can’t. What processes are being handled manually that could potentially be automated? Where do you have redundancies? Where are you burning through the most expendable supplies, like paper and ink? Small realignments are more meaningful and easier to digest to your staff than blanketed reductions.
Simplify Your Book of Business
When was the last time you took a good look at all of your purchased services? If you’re the senior leader of an area, your junior leaders should be empowered to know exactly what services and subscriptions they’re using and how much they cost. They can also offer insight on what can be eliminated and what can be enhanced because they’re the closest ones to the day-to-day operations.
Review each vendor contract, each subscription, and anywhere else you might be losing money. Remote employment is a great alternative to expensive leases, utilities, and maintenance.
Renegotiate vendor rates periodically and consolidate where you can achieve a better deal. Don’t shy away from a vendor who offers tech and automation, either. Although software can look like a large expense, it can often be an investment that leads to significant performance improvement, and can eliminate the need for disparate, aging tech in many places.
Evaluate the cost of doing business compared to revenue generated. Typically, outsourcing touts unbeatable rates, but a lagging performance might not justify them. In some cases, you may need to consider cutting a vendor or service entirely to bring more complex challenges to an internal team. Not only does this foster loyalty, both to your team and to the process they’re entrusted with, but it can also help cut superfluous jobs when you find new purpose for those team members. Although your labor expense will increase, you can offset it with the reduction in purchased services while also increasing revenue. It’s a win-win!
Manage Up and Manage Out
By adopting realistic, equitable, and measurable productivity and quality measures, you can provide your team with a clear success plan. Unfortunately, not all members of your team might achieve this. The path of least resistance is often the most tempting—avoiding coaching moments, crucial conversations, and additional HR paperwork—but they’ll pay off in dividends. Leverage your HR team to let the underperforming employees go when the time comes. These members not only hurt your bottom line, they can also poison the well around them by negatively affecting their peers. You can reduce a position and increase surrounding productivity simply by having a process and following through.
Use Natural Attrition
If you are projecting your costs effectively, it shouldn’t come as a surprise that downsizing is on the horizon. Instead of waiting for the call, proactively eliminate positions through natural attrition. Depending on the size of your staff, you will have some degree of turnover. Be transparent about your initiative so you can encourage your leaders to identify roles that don’t require backfill and potential employees to make a lateral move. Not only does this keep high-performers employed and builds confidence that their work is recognized, it can grow their resume.
Titrate to Effect
In the Army, we had a term to respond with an appropriate escalation of force—loosely translating to only fighting back with the minimum force necessary. Any cut to your staffing should be viewed in the same manner. Though you may get a top-down directive that asks for a 5-10% reduction by the end of the year, you can achieve that through many different avenues. They see the bottom line but you see the faces of your team, and you will know the true costs of these decisions.
Studies performed during COVID indicated employees would rather accept a salary reduction than a full layoff. The job market has stagnated as jobseekers have flooded sites like Indeed and LinkedIn, and for many, a layoff is a growing fear in healthcare. If you’ve exhausted everything else on this list, opt for the gentlest reduction if at all possible.
Furloughs, extended vacations, suspension of bonuses or 401(k) matches, and voluntary separation should be considered first. Ideally, your HR team will have already explored these routes and will guide this effort on your behalf, but it never hurts to start the conversation. If you’re considering outsourcing your operation, ask your vendor if they will hire displaced employees. This is very common in revenue cycle!
It’s no secret that people are the biggest factor in organizational culture, productivity, and performance. By leading with empathy, and a little creativity, it is possible to navigate these times effectively.
Revenue Cycle specialists at Healthrise can help to assess your needs and answer any questions you have along the way. Contact us to get started.
Author: Pamela (Ashley) Kucinsky, Sr. Director Revenue Cycle Management, Healthrise
