Staff Reductions? Maybe, But How Best To Proceed?

I came across a blog entitled "Ignore Your People at Your Own Peril" by a Canadian blogger, Geoff Crane. It dealt with the problems caused by a hospital's reduction of nursing staff as a result of a non-collaborative staffing reduction on the part of management. Anyone can cut costs, and salaries & benefits are generally around 60% of a hospital's costs. No one wants to cut staff if they can help it, although the current fiscal state of many hospitals can make it unavoidable. But I agree with the author, adjustments in staffing must be done carefully. This would seem to be a no-brainer, but ill-conceived staffing cuts are not rare.

So, what's the approach to be taken? Foregive me if I'm preaching to the choir, but you've got to look at processes and responsibilities across all functions. Are there processes that can be streamlined or otherwise improved? What are the likely consequences of reducing staff in a particular department? I'm a big believer in metrics and benchmarks, They can give you a 10,000 foot look at areas of opportunity. So, bear with me as I bore through some numbers.

For example, if a hospital has 6 Full-Time Equivalent employees per adjusted patient day (a ratio of staffing compared to patient volume) and the benchmark for a hospital of equivalent size, geography, acuity, etc. is 4.7, chances are you have an opportunity to reduce staff somewhere in the facility. But where? Let's look at a single department next. Say environmental services expends 3 hours per 1,000 square feet versus a benchmark of 2. OK, maybe this an area for further exploration. Now, we get to the important part. What do the housekeepers do, and how do they do it, compared to the benchmark you're measuring against? For example, if your hospital has housekeepers changing bed linens while another hospital uses nurse aides you're not comparing apples to apples.

I don't want to run on forever here, so let me get to the key points. Involve as many functional area leaders as possible in evaluating opportunities for staff reductions. Start with metrics, benchmarks, key performance indicators or whatever, as a starting point. But examine processes carefully to identify where the reductions should occur.

CFOs and the Business of Quality

Under the Health Care Reform Act, hospitals will be measured, and paid in part, on the basis of quality indicators. Those organizations that have not heretofore focused on quality will need to do so. Those that have will seek to move to the next level of quality. This is good news for consumers of health care, but equally good for the providers. It's been shown that as efficiencies and protocols are developed, quality rises, as does profitability. So, everybody wins. Need I mention this principle applies to every other industry as well?

What does this have to do with CFOs, you ask? We are critical members of the management team's collaborative efforts to improve quality and to measure improvement over time. We're familiar with key performance indicators and benchmark comparisons focused on such areas as liquidity, productivity and profitability. If we haven't already done so, we need to create similar, relevant statistics and meaningful reporting focused on quality indicators as well. There are a number of published statistics and benchmarks regarding numerous quality indicators, from reinfection rates to slips and falls.

I suggest CFOs be at the forefront of their organization's initiatives to improve quality, by teaming with the operations leaders to identify the strategic quality improvement objectives, develop key metrics to measure progress toward those objectives and create timely, meaningful reporting of progress.

So, for those currently involved, congratulations! For those who are not, what are we waiting for?

Hospital CFO Priorities Shift in 2010

According to the finance component of HealthLeaders Media Industry Survey 2010, quality was moved down as a priority in favor of physician recruitment and cost reduction. No surprise, as financial results suffer the effects of the recession, and healthcare reform has raised the specter of further pressures. The survey is robust and quite comprehensive. I recommend it to you, for a detailed view of CFO's concerns and thoughts.

In an April 15th article by the same organization, entitled Moody's: Health Reform Will Drive Consolidation, Hinder Credit for Nonprofit Hospitals, Moody's Investors Services is quoted as saying healthcare reform will have a long-term negative credit effect on not-for-profit hospitals, even though it will reduce bad debt expenses and charity care. "The key longer-term challenge for the not-for-profit hospital sector is the reform's reliance on extracting long-term cost efficiencies from hospitals, probably resulting in diminished hospital revenues," said Moody's Vice President Mark Pascaris, author of the report, Long-term Credit Challenges of Healthcare Reform Outweigh Benefits for Not-for-Profit Hospitals.
In the Media Industry Survey, financial leaders ranked their top three priorities for the next three years as:

• Physician recruitment and retention (37.50%)
• Cost reduction (35.53%)
• Patient experience/patient satisfaction (33.55%)

Last year's ranking was:
• Quality/patient safety (68%)
• Physician recruitment and
  retention (38%)
• Reimbursement (31%)

During a down economy, recruitment and retention is just one avenue to get a hospital’s finances in shape, revenue management is another big area. The big question to me is, what will the hospital of the future look like, given the far-reaching changes contemplated in the Healthcare Reform Act, and what should the resultant long-term strategies be to prepare for that future? That will shape the priorities for CFOs, going forward.