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The Key to Effective Labor Cost Management for Hospital CFOs

In the fifth installment of our “10 in 12” series, we examine how, through labor cost management, hospitals can accomplish a 10% strategic reduction of operating cost over a period of 12 months. Labor cost is the single largest portion of total operating expenses for hospitals and acute-care clinics. Hospital CFOs must be able to precisely measure and manage labor costs as part of an effective cost management strategy.

Capturing time values is a major feature of most clinical process management systems. However, capturing, defining and being able to interpret the time details of the labor associated with clinical care goes beyond the capabilities of most source systems.

In an effort to optimize resources and better manage labor costs, how can you improve if you don’t have accurate data that encompasses all elements of labor costs?

Typically, nursing labor costs are calculated as part of the total room charge. However, the room charge doesn’t reflect the granular costs of the labor that take into account the type of patient and complexity of care needed as well as the number of nurses or services required to support certain patient demographics and procedures.

Fundamentally, managing labor cost boils down to being able to accurately measure all elements of labor throughout the continuum of care; it goes well beyond a generic room charge. Having a decision support system that can properly provide the data in a comprehensive, digestible format is necessary for CFOs to identify key areas for cost savings..

How Visualizing Labor Costs Can Help

In another example, we report on and analyze the labor costs associated with patient radiology services. Most reports simply provide the total labor cost for a radiology technician. With access to a more detailed breakdown into more specific components (see below), you’re able to get a clearer picture of what that labor is actually costing your facility. Time components in this example include:

  • Patient service – time associated with direct patient care and services
  • Idle – time a technician spends time waiting between patients
  • Maintenance– time spent calibrating and cleaning equipment
  • Document -time spent entering results and clinical information for medical records and data that is required for billing

Labor costs broken down by time components can provide insights into specific areas where process improvement concepts can be applied to increase efficiency and reduce waste. The result leads to cost savings, quality improvement and an overall positive increase to the patient experience.

Interested in improving your labor cost management? Join us on Wednesday, July 28 at 1 p.m. EDT for a free lunch and learn; click below to register.

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About the Author

Penny Weeks, Vice President, Professional Services

As a senior executive experienced in successfully leading complex operations and long-term projects in multiple sectors, especially healthcare, Penny is a recognized thought leader who fosters client engagement to provide innovation and advancement of healthcare information management throughout the healthcare system. She has also provided strategic direction and leadership for the development and implementation of Ontario’s provincial case costing initiative. Penny earned her MBA from the University of Toronto.