Healthcare Staffing Costs: Essential Insights and Best Practices

Key Summary:

Healthcare staffing costs have been on the rise, with challenges like nursing shortages, high turnover, and growing patient demand straining hospital budgets. To manage these expenses, hospitals can focus on reducing overtime, improving staff retention, and streamlining workflows. Adopting technology like telehealth and automated scheduling can also cut costs while improving efficiency.

Labor costs have always been a major part of the budget for hospitals and other healthcare organizations and this cost has only grown since the pandemic. According to the American Hospital Association (AHA), labor costs accounted for almost 60 percent of the total budget for the average hospital in 2023. Factors that have affected the healthcare industry since the pandemic, including nursing shortages, higher turnover rates, and increased demand for quality healthcare, have all contributed to rising staffing costs.

As healthcare staffing costs continue to increase, it is crucial for hospitals and healthcare facilities to maintain an effective staff to provide quality patient care. Maintaining a full healthcare staff improves patient care by decreasing mortality rates and hospital readmissions while preventing burnout among nurses and other healthcare staff. However, the exorbitant cost of healthcare staffing is preventing many hospitals and healthcare organizations from being able to build and retain a full staff.

The challenges that hospitals and healthcare organizations face include finding ways to reduce labor costs while retaining a strong staff and upholding the quality of patient care. In this guide, we discuss the factors contributing to rising healthcare staffing costs and their impact on hospitals and healthcare organizations, as well as strategies to help reduce labor costs without compromising patient care.

Factors Contributing to Healthcare Staffing Costs

For hospitals and healthcare organizations to reduce healthcare staffing costs, it is important to identify and understand the main contributors to these costs. Staffing costs consist of salaries and benefits given to employees as well as the cost to train, recruit, and retain staff. The following are the main contributors to rising healthcare staffing costs:

• Increased demand for healthcare: The demand for healthcare is increasing as a large percentage of the general population is aging. This increase in demand for healthcare also means a higher demand for physicians, nurses, and other healthcare staff. Hospitals and healthcare organizations struggling to meet this demand may have to hire travel nurses and temporary staff, which is more costly than hiring permanent employees.
• Nursing shortages: The nursing shortage in the U.S. is causing hospitals and healthcare organizations to offer higher salaries and benefits to compete with other organizations and increase their chances of hiring and retaining skilled nurses. The increase in compensation is driving up the cost of labor and hospitals and healthcare organizations that are having difficulty hiring full-time nurses often resort to the more expensive option of hiring traveling nurses and temporary staff.
• Contract labor: Nursing shortages are also causing hospitals and healthcare organizations to turn to contract staffing agencies for contract nurses. Contract labor comes at a higher cost as staffing agencies charge higher rates per employee compared to hiring permanent employees. The higher agency fees, hourly rates, and demand for healthcare labor due to the nursing shortage has driven up labor costs, making contract labor unsustainable.
• Increased turnover: Hospitals and healthcare organizations invest a significant amount of time and money into recruiting and training new employees. The high turnover rate among nurses drastically increases these costs as the 2024 NSI National Health Care Retention & RN Staffing Report estimates that the average cost of turnover for a registered nurse is $56,300.
• Compliance and regulation: Hospitals and healthcare organizations must comply with regulations and standards that include patient safety standards and staffing ratios. To comply with these regulations, healthcare employers must increase their staff which raises the cost of labor.

Impact of Increasing Healthcare Staffing Costs

High healthcare staffing costs affect the financial health and operation of hospitals and healthcare organizations. Devoting so much of the budget to staffing results in having to make difficult financial choices in other areas such as decreasing investment into patient care technology, administrative staffing, and upgrading the facility.

The following are the main impacts of high labor costs:

• Reduced profits: High labor costs can reduce the profitability of hospitals and healthcare organizations.
• Quality of care: The high cost of staffing may cause some hospitals and healthcare organizations to avoid hiring new employees, resulting in longer hours and burnout among the existing staff. This leads to a decline in the quality of patient care.
• Operational efficiency: Relying on temporary staff to reduce labor costs can decrease the operational efficiency of hospitals and healthcare facilities as these staff members never become fully integrated into the operations like full-time staff.

Tips to Reduce Healthcare Staffing Costs

While it is in the best interests of hospitals and healthcare facilities to reduce healthcare staffing costs, it is important to find ways to do this without compromising patient care or overworking the current staff.

The following are strategies that can help effectively reduce healthcare staffing costs while ensuring quality patient care:

Reduce or Eliminate Overtime

Hospitals and healthcare facilities are required by federal law to pay their staff time and a half if they work more than 40 hours within a 7-day workweek. It is also quite common for healthcare staff to work beyond their scheduled shifts, which can significantly raise overtime expenses for hospitals and healthcare organizations. Limiting or eliminating overtime can effectively reduce labor costs.

Hospitals and healthcare organizations can do the following to reduce overtime:

• Track hours: Using software to track hours can help hospitals better manage the hours of their staff and these programs can provide alerts before an employee goes over their scheduled hours.
• Cap hours: Creating a new overtime policy that puts a cap on hours will help prevent staff from going over.
• Implement overtime rotation: If overtime is needed to ensure effective patient care, using a rotation for overtime can cover this need without causing burnout amongst the staff.

Improve Retention and Reduce Turnover

As mentioned above, it costs a hospital an average of $56,300 when a registered nurse leaves their position. With the amount of time and money hospitals and healthcare organizations put into the hiring and onboarding process, it is crucial to reduce turnover and improve retention. One effective way to increase retention is to implement a hiring process that includes guidelines for identifying the best qualified candidates, a recruitment plan, effective interviewing, and behavioral assessments.

The healthcare industry has a high turnover rate mainly because staff experience burnout and fatigue from working long hours. Large workloads, chaotic work environments, lack of work-life balance, and poor culture within the healthcare organization also contribute to high turnover. Hospitals and healthcare organizations can help improve retention by creating a working environment that supports staff. Encourage staff to talk about challenges they face, implement flexible schedules, and provide training opportunities to support career development. It is also important to evaluate employees to ensure their performance meets expectations and reassign staff to jobs that better fit their skills and abilities.

Streamline Workflows

It is crucial for nurses, physicians, and technicians to spend as much time caring for patients as possible instead of getting slowed by administrative tasks. When the duties pile up, it is more likely for healthcare staff to feel overwhelmed and fatigued, which increases turnover. Streamlining workflows by ensuring employees are in positions that best suit their skills and investing in technology that improves efficiency can help reduce turnover.

Implementing the following steps can help streamline workflow:

• Hold a team meeting at the start of each shift to discuss short-term and long-term expectations for the staff.
• Provide up to date technology and other resources that can make the work more efficient.
• Implement standardized order sheets for intake and discharge processes, patient information and instruction sheets, and common procedures.
• Assign duties based on the skill and credentials of each member of the staff. For example, specialists should not be doing simple procedures that can be handled by someone else.
• Identify any issues that may be causing delays or inefficiencies and address these issues.

Implement Health Information Technology

Adopting new technology comes with an upfront cost that may be off putting to hospitals and healthcare organizations, but implementing new technology can reduce costs, increase efficiency, and allow doctors and nurses to spend more time caring for their patients. The following are some of the technologies that can help reduce labor costs:

• Scheduling software: Implementing scheduling software can automate the scheduling which saves the time it takes to make the schedule manually. Automated scheduling can help reduce absentees and cut down on overtime.
• Predictive analytics tools: These tools can help improve care coordination and early disease detection with accurate diagnosis and treatment.
• Automated monitoring and documentation of vital signs: This technology automatically transfers vital sign information into the electronic medical records and detects changes in patient vital signs. This is more accurate than manual entry and frees up nurses to focus on other aspects of a patient’s care.
• Fall prevention and detection technology: Automated fall prevention technology effectively detects fall risks and reduces the risk of falls which shortens hospital stays and the costs that go along with longer stays.
• Bar code medication administration (BCMA) systems: These systems help prevent medication errors by ensuring the patient is given the correct medication.
• Cloud-based electronic health records (EHR): Using a cloud-based system to store and access electronic health records allows for easier access while eliminating the need for internal servers.
• Hospital at Home: Hospital at Home is a care model in which a patient receives hospital-level care at their home. With this care model, physicians and nurses visit the home of the patient to administer care including medications, monitoring, diagnostics, and nursing services for a limited period of time. Providing Hospital at Home care can reduce the length of stay, readmissions, and the number of lab and diagnostic tests needed which lowers costs while enhancing the patient experience.
• Clinical command center: Clinical command centers help streamline care delivery and communication between caregivers and patients which helps improve patient outcomes. These command centers gather and analyze real-time data on patient care to identify areas of improvement and make the best decisions regarding patient care. The ability of these command centers to streamline and coordinate care across a health system results in more efficient and effective care at a lower cost.
• Telehealth: Advances in telehealth have made it possible for people to visit with healthcare providers using electronic communication including video calls and audio calls. Healthcare providers can also use digital devices for remote monitoring, including blood pressure monitors and weight scales. Telehealth visits cost less than in-person visits while allowing patients to have more communication with their healthcare provider.
• Digital medical devices: There is a wide variety of digital medical devices available, including both hardware and software tools that allow healthcare providers to diagnose, monitor, and treat patients. These devices include wearable devices that can monitor heart rate, blood pressure devices, inhaler machines, and software as a medical device (SaMD) that can monitor, store, and analyze data. Using digital medical devices helps lower labor costs by automating repetitive tasks, streamlining data collection and analysis, and allowing remote patient monitoring and care so healthcare providers can accommodate complex patient needs and provide care efficiently for a larger number of patients.

Manage Healthcare Staffing Costs by Working with JobGraze

Recruiting, hiring, and onboarding nurses and other healthcare staff can be a complex and expensive process that can increase labor costs. Hospitals and healthcare agencies can reduce staffing costs by working with JobGraze to recruit and hire new talent. Our platform gives healthcare employers access to qualified, pre-screened nursing candidates best suited to meet your requirements.

Recruiting and hiring nurses with JobGraze can benefit hospitals and healthcare organizations in the following ways:

• Direct-hire solutions: You can recruit and hire qualified nurses and healthcare staff that fulfill your long-term staffing needs. This helps reduce turnover and dependence on costly temporary staff.
• Cost-effective hiring: Our platform already includes more than 70,000 registered nurses holding BSN degrees. You can use our platform to refine your search for candidates that meet your specific requirements and make informed hiring decisions with less of an upfront investment.
• Employment guarantee: We help you find nurses who not only meet the credentials for the position but also align with the culture and values of your organization. You can expect a 99% retention rate and more than $10.5 million in savings per hospital. We also offer an employment guarantee in which we will replace nurses at no extra charge.

If you want to find qualified nursing talent while reducing your staffing costs, book a consultation meeting to learn more about how JobGraze can help.