Community hospitals are facing a considerable margin management challenge. Rapidly growing expenses—largely from rising labor costs—and declining revenue from reimbursement cuts and other market pressures are threatening financial health. In 2016, expense growth outpaced revenue growth at standalone hospitals. At the current pace, many community hospitals are rapidly approaching negative operating margins. Growth of labor expenses, which already account for over half of a community hospital’s operating costs, must be minimized to maintain future sustainability.

This research report diagnoses the key drivers behind rising labor expense at community hospitals and provides both tactics to control near-term labor spend and strategies for long-term financial sustainability.

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Deploying a sustainable workforce at community hospitals requires a two-part strategy: refining current labor strategies and facilitating long-term sustainability.

Refining current labor strategies

Organizations must first modify and enhance current labor strategy to maximize existing resources at minimal cost.

Staffing models must align with patient volumes and adapt to fluctuating patient needs across time. All community hospitals, regardless of labor spend, should implement these tactics to ensure the organization remains sustainable in the long term as margin pressure continues.

• 1. Increase frequency of data monitoring (p. 14)

  2. Flex staff to match fluctuating volumes (p. 17)

  3. Build a float pool to avoid premium labor (p. 18)

  4. Off-load less complex tasks from nurses(p. 19)

  5. Shift overtime responsibilities to frontline managers (p. 20)

  6. Revisit manager span of control (p. 21)

  7. Invest in long term to reduce turnover (p. 21)

Facilitating long-term sustainability

The second component of developing a sustainable workforce contains tactics that are more challenging to implement, but also have the potential to yield great savings.

Ensuring long-term sustainability requires leaders to examine the current clinical offerings and evaluate the effects of the hospital’s workforce on the organization’s strategic plan. This means revisiting the role of the hospital in the local market and rationalizing clinical services that negatively affect the viability of the broader organization.

• 8. Adopt principles of team-based care (p. 27)

  9. Expand specialist access through telehealth (p. 30)

  10. Evaluate partnerships for coverage support (p. 31)

  11. Integrate labor strategy into broader hospital strategy (p. 33)

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