More on Strategic Planning

Labor budget increases, staffing shortages loom large for healthcare executives in 2019

Majority of execs said they face increases in their labor budgets and staffing shortages are worse this year than last.

Beth Jones Sanborn, Managing Editor

According to a joint survey from the Healthcare Financial Management Association and Navigant, healthcare executives are predicting labor budget increases and continued shortages of physicians, nurses and mental health providers. As such, reducing hospital operating expense will be a primary focus over the next year.

HFMA and Navigant surveyed 101 CFOs and operations executives and 78 percent of them said their labor budget would be increasing. Of those, 18 percent are expecting increases of more than 18 percent. A significantly lesser share, 14 percent, are predicting a decrease in their labor budget, but none more than 5 percent.

With widespread labor cost increases on the horizon, it's logical that when it comes to the top priority areas for reducing operating expenses, labor expenses take the top slot with 44 percent of CFOs and executives surveyed saying it's their top priority.

Focus on Health Equity

Expanding access, ending disparities, empowering communities. See our coverage >>

Purchased services and supply chain were the next two areas, with 21 percent and 17 percent of respondents naming them their top priorities respectively.

Crucial to cutting expenses is diligent labor management, and three labor management initiatives won out as guiding organizations' focus for the next year: productivity improvement, workflow design and reducing skilled staffing shortages.

""The need to more effectively manage labor by staffing to demand will only intensify as operating margins continue to diminish, and as the pressure to enhance care quality and efficiency increases. These results magnify the need for provider leadership to objectively analyze their current practices to better staff departments and meet dynamic patient volumes," said Danielle Dyer, managing director of Navigant.

"It's not surprising that labor expense and efficiency continue to be top of mind for CFOs. However, the survey highlights the need for innovation in terms of transforming the cost structure of care delivery. This is a complex challenge that requires a multidisciplinary approach to support high-quality patient care and financial sustainability," said Chuck Alsdurf, director of healthcare finance policy and operational initiatives with HFMA.

Continued staffing shortages including nurses, physicians and mental health providers. Physician and nurse shortages are the most onerous, with 35 percent of executives saying their physician shortages are worse compared to last year and 43 percent saying their nursing shortages are worse than last year.

Some did say they'd seen improvements, 20 percent with shrinking physician shortages and 27 percent with improved nursing shortages, but the larger shares were facing increased clinician challenges. Mental health providers will also be in short supply, with 35 percent of execs surveyed saying their shortages in his area are worse as well.

"Staffing shortages are placing hospital leadership in a paradoxical situation, both due to the economic theory of supply and demand and the tendency to maintain surplus with shortages looming. As a result, reducing labor costs has become even more difficult. Leveraging predictive analytics, proactively matching staffing to patient care demand, and more efficient workflows can help providers address these challenges," said Vamshi Gunukula, director of Navigant.

As labor costs increase and shortages persist, staff retention efforts will become increasingly important to minimize costs associated with turnover. So in addition to focusing on labor expenses, practice and hospital leaders would do well to focus on physician, nurse and staff retention as high turnover breeds high turnover costs associated with hiring and training. 

Offering flexible schedules, wellness programs and other innovative perks may be worth the investment if the return is less turnover fueling labor costs.

Such efforts could also help retain clinical staff and attract additional talent, helping to close or at least narrow clinician staff gaps.

Twitter: @BethJSanborn
Email the writer: