Innovation, Partnerships Are RX for Pain of Rising Labor Costs

Hospitals are increasing salaries to maintain their workforce but paying for it means making other cuts or finding creative new revenue streams.

Hospitals and health systems have been affected by the Great Resignation, and an estimated 30% of all healthcare workers are considering leaving the industry entirely, with many citing pandemic-related stress as the cause.

To help stem this tide, healthcare CFOs are reassessing payroll strategies, enhancing their employee benefits packages, and increasing base salaries to entice the healthcare workforce to stay on board. These strategies can be tough to maintain for many facilities, especially smaller or rural hospitals.

The financial effects of increasing salaries mean that a hospital needs to either cut costs elsewhere or come up with creative ways to generate new revenues. David Usher, CFO at Ray County Memorial Hospital—a Richmond, Missouri–based critical access hospital—shares ways that a hospital can do both.

"The Great Resignation has impacted almost all hospital and healthcare providers," Usher says. "Over multiple facilities, I have seen nurses either quit the profession or move to become agency nurses, where they can work the same hours for a great deal more money or much fewer hours for the same take-home pay."

"I have seen nurse practitioners step away from primary care clinics and head back to nursing, where the pay—especially for agency work—is much better," Usher continues. "We have also seen staffing shortages of lab techs and radiology techs that have driven their wage demands higher and created major problems for smaller hospitals in retaining and replacing them."

The trauma the hospital labor force has undergone over the last two years has resulted in greater instances of healthcare worker burnout and has resulted in more employees exiting the industry, Usher says.  

In response, the first step for a hospital or health system is to assess what can be done with payroll and benefits programs, and then take steps to generate the needed funding. "There has been active discussion about this between hospital-employed managers from all disciplines," Usher says of his local market. "Solutions that have been floated and tested have included retention bonuses—to encourage staff to stay; increased signing bonuses—to attract candidates and fill jobs; increases to pay rates in key areas; and direct contracting with individual nurses instead of filling openings using an agency. I have seen organizations offering enhanced benefits packages such as free health insurance in some places."

Rural hospitals face tough choices in cutting costs

Hospitals have many options to generate additional revenues, but hospitals in rural America such as Ray County Memorial Hospital, and especially critical access–designated facilities, must be careful to "stay within the rules," Usher says.

"In truth, we have to better understand what drives our revenues and seek to invest our resources in improvements there," Usher explains. "That, however, is unlikely to be enough. So, we must start to think more entrepreneurially about our business."

There are "significant opportunities" available to hospitals and vendors when they engage in business partnerships, Usher says. But CFOs will also need to look at the kinds of services patients are demanding and make an effort to satisfy those needs.

A good example of this would be when one small rural hospital shares a valuable resource with another. Perhaps a physician that would be too expensive at one facility can be shared with another. Or an occupational therapist (a rare commodity in rural areas) could be employed by one but contracted out to others as needed.

"This bolsters the rural facility's ability to provide the additional services to patients in a more fiscally responsible way," Usher says.

Success requires a new way of thinking about delivering care

Usher has some specific advice for other CFOs on how to ease the financial pain of boosting worker salaries. It starts with thinking more like a for-profit hospital.

"Far too often, small hospitals seem to miss the point that financially-based decision-making means that there will be a hospital there to service patients in the longer term. That makes financially-based decisions as valuable as patient care-driven decisions. We are ultimately a business, and must operate like a business," Usher stresses.

Healthcare finance execs— especially critical access hospital CFOs—also need to think outside of their comfort zone.

"Go back to your cost report and squeeze out whatever might be left on the table. Go to your revenue cycle and see what can be squeezed out of that," Usher says. "Small improvements in reimbursement might be the difference between staying open and closing."

One thing Usher says he has seen tested over the years is the effective concept of 'grow your own.' What this entails is the delivery of results over much longer periods of time and has been effective in nursing. Through this concept, small rural facilities can work with local schools, and with their communities, to bring in those that have a desire to work in a healthcare facility and train them to be healthcare workers. They can be supported through school and college, and then go to work at the facility.

"I can't speak specifically about either my past or current facilities, but all of the things I have mentioned are being tried," he continues. "Unfortunately, it is too early to tell how effective any of the changes will be."