Staff Retention May Be Key to Stronger Hospital Margins | Deloitte US has been saved
By Brian Deck, managing director, and Denise Hartung, managing director, Deloitte Consulting, LLP
Driven by rising costs, fewer elective procedures, and changes in reimbursement, health system transformation initiatives have become increasingly common. The ongoing, and often relentless, financial pressure is leading many health system leaders to take a close look at the largest item on their balance sheet—their workforce.
In 2022, about 75% of health system CFOs said they were working to reduce their operating spend—up significantly from just 21% a year earlier.1 While simply reducing headcount continues to be one way to quickly contain or reduce costs, unprecedented clinician turnover and staffing shortages—paired with evolving employee experience expectations—can make this approach difficult and risky for health systems.
Consider this: The average turnover rate for registered nurses (RNs) in hospitals topped 27% in 2022—up 8.4% from the prior year. That could translate to a loss of between $5.2 million and $9.0 million a year, according to a 2022 survey of US hospitals.2 To offset turnover, many hospitals increase their dependence on travel nurses and clinicians. But this strategy could compound the problem. A hospital might spend more than $154,000 a year for travel nurses to fill a single full-time position.3
Health system leaders understand that workforce reductions can have negative impacts on an organization’s culture and employee engagement. Many leaders have also determined that this strategy can be challenging to maintain without significant investment in process/workflow redesign, automation, AI/machine learning, and a strong governance model, according to our research.
Making incremental cost cuts, while retaining existing talent and operating models, may not be a sustainable solution. We urge our health system clients to consider a strategy that shifts their focus and investments to the retention of existing talent. For the average hospital, each percent improvement in RN turnover will save $262,300 per year.4 Deloitte research and experience suggests that health systems should consider focusing on the following drivers of talent retention:
1. Work intensity: The COVID-19 pandemic intensified the physical and emotional demands on clinicians.5 A number of studies have linked physician and clinician burnout to less satisfied patients and more expensive care overall. There is also evidence that emotional exhaustion among physicians can impact the mortality rate among their patients.6 In addition, there is often a link between employees who feel burned out and employees who leave their employer or, in some cases, abandon their profession entirely. (see our new report, Addressing health care's talent emergency).
Potential solutions: Establishing new roles and new types of care teams could help make the job less intense. Experience Coordinators, for example, could be used to help manage non-clinical patient needs like setting up family video calls. In addition, predictive analytics could be used to help managers know when to flex staffing ahead of high-intensity periods.
2. Work-life value proposition: Health care industry staffing shortages, paired with margin pressures, mean that hospitals often need to do more with less. Despite a sometimes grueling work environment over the last few years (e.g., spikes in COVID-19 infections, influenza, and RSV), declining margins have forced some hospitals to cut salaries, reduce benefits, and cancel raises.7 This has pushed an already fragile work-life out of balance as clinicians sacrifice more of their personal time for a physically and emotionally challenging profession.
Potential solutions: In an unpredictable environment, there may be opportunities for health systems to incorporate more flexibility and predictability into their staffing models. Flexibility can be enhanced by fostering an environment that promotes talent mobility and employee choice. New staffing pools and streamlined processes, for example, could allow for greater mobility between jobs, functions, and sites. This could also empower employees to chart new career paths that align with their personal and professional goals. Predictability can be enhanced through the adoption of automated scheduling technologies, allowing physicians and nurses to balance patient volume, individual preferences, and hospital operations to help create a more sensible and equitable schedule. Health system leaders should also consider ways to differentiate total rewards for critical work segments and create a broader clinician relationship that could prioritize each employee’s physical condition, emotional resilience, social connections, and financial health.
3. Job design: The growing number of administrative tasks imposed on clinicians, their practices, and their patients can add unnecessary costs to an organization and to the patients.8 In addition, requiring highly trained and skilled clinicians to perform administrative tasks can be frustrating and demotivating.
Potential Solutions: Administrative tasks (and the skills needed to perform them) should be identified and inventoried. This could make it easier to align the work with the intended roles on care teams. Those tasks can then be redeployed into the appropriate roles and allow clinicians to operate closer to the top of their license. Additionally, core and supplementary technologies, including cloud storage, process automation, AI, and machine learning, can likely increase efficiency and reduce administrative burdens.
4. Culture, leadership, and team effectiveness: According to our research and experience, leaders and their teams often need to spend time onboarding, training, coaching, and mentoring new employees on foundational concepts rather than developing strategies to improve staff performance and improve patient care. Pre-existing cultural norms, combined with a challenging leadership and teaming environment, can lead to challenges with quality, safety, and patient experience, which can directly impact a health system’s top and bottom line.
Potential solutions: Organizations that create a culture where beliefs, values, and behaviors are aligned across the health system outperform their competition by 20%.9 To achieve this, leaders should consider focusing on creating space for open and transparent communication on preferred working styles. Culture and organizational values should be reinforced at all levels of leadership. Space created for training programs could help embed these principles into the way care-delivery teams work.
The vast majority of health system leaders (85%) expect that staffing challenges will have a major impact on their 2023 strategy, according to a survey conducted by the Deloitte Center for Health Solutions (see our colleague Tina Wheeler's 2023 Outlook for Health Care.) For these strategies to be effective, they should consider work intensity, the employee work-life value proposition, job design and culture, leadership, and teaming effectiveness. The strategy should also outline how leadership will take steps to retain and reengage the existing workforce in the near-term while also considering longer-term investments in reimagining how (and by whom) work is done. Health systems can take meaningful steps to improve retention and adopt a workforce-centric strategy by:
Thoughtful and targeted workforce investments to increase talent retention can both reduce costs in the short-term and improve/sustain operating margins in the longer term. Now should be the time to invest in talent retention.
1 How health systems can cut costs, drive revenue, and ensure sustainability, Healthcare Business Today, August 19, 2022
2 NSI National Health Care Retention Report, NSI Nursing Solutions, Inc.
5 Pandemic pushes U.S. doctor burnout to all-time high of 63%, American Medical Association, September 15, 2022
6 Emotional exhaustion and workload predict clinician-rated and objective patient safety, National Library of Medicine, January 22, 2015
7 Why health care workers are quitting in droves, The Atlantic, November 16, 2022
8 Putting patients first by reducing administrative tasks in health care, Annals of Internal Medicine, May 2, 2017
9 It really pays to have a rich company culture, Entrepreneur, October 21, 2014
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