Hidden opportunities to reduce healthcare labor cost

Hidden opportunities to reduce healthcare labor cost

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In January, KaufmanHall reported that 2022 was the worst financial year for hospitals and health systems since the start of the COVID-19 pandemic. December saw an increase in provider productivity, but it simply wasn’t enough to outweigh cost increases. 


Expenses likely to remain high


Our clients tell us that the biggest expense increases they’ve experienced in recent years have been workforce related. Their experience is reflected in KaufmanHall’s data. Their report cites a 2% increase in hospital labor expenses from November to December 2022 alone and a 5% increase in expense per provider in Q4 2022 compared to Q4 2021. What’s more, the firm doesn’t believe these expenses are likely to subside in 2023. 


Erik Swanson, KaufmanHall’s senior vice president of data and analytics, told Becker’s Hospital Review that, “...hospitals will be in a tough spot financially for the foreseeable future.” 


Competition for staff is driving cost increases


Perhaps this forecast should come as no surprise given that the growing demand for a limited supply of physicians and nurses continues to put pressure on facilities to offer more competitive compensation packages to recruit and retain staff members. 


This pressure is intensified by heightened scrutiny on staffing numbers as we learn more about the correlation between patient outcomes and patient-provider ratios. 


Remain competitive while lowering costs


In order to meet the desired patient-provider ratios, healthcare organizations will need to continue to offer competitive compensation and benefits. However, they should routinely re-evaluate these offerings in their efforts to find opportunities to reduce cost and increase efficiency. 


Routine benefit plan reviews help keep plans compliant, up-to-date, and in line with health care providers’ needs, which ultimately makes them more powerful tools in staff recruitment and retention. They also keep plans aligned with an organization’s most pressing objectives, which are likely to change over time. Perhaps most importantly, plan reviews also uncover opportunities for cost reduction. 


Service providers have improved efficiency


One often overlooked opportunity for reducing cost lies in taking a closer look at your benefit plan service providers. Changes in regulations, as well as increased competition, has led many service providers to make improvements in several areas–including pricing. Through routine benefit plan evaluations, many healthcare organizations have been able to find ways to reduce the cost of providing attractive benefits by opting to work with service providers who have made these improvements. Finding the right service provider can result in lower asset fees and administration costs, and it can decrease other administrative burdens.


The right funding strategy makes an impact


During a plan review, it’s important to examine your funding strategy. Some strategies are more cost-effective than others, and there are even ways to fund a plan that allows you to recoup some of your expenses over time. This helps increase a plan’s sustainability. Finding ways to increase sustainability is especially important for health leaders given the volatility of their industry. Additionally, when plans are properly communicated to participants, measures to ensure sustainability help increase providers’ confidence in the long-term reliability of their organizations' offerings. This confidence can translate into appreciation and even loyalty.


MaxWorth can help


If you want to review your current benefit plan offerings, we’re here to help. During our plan reviews, we evaluate the following:


  • Plan design
  • Plan funding 
  • Plan communication
  • Plan support services


When a plan is kept up-to-date in these areas, it can continue to serve an organization well, supporting its recruitment and retention goals in a cost-effective manner. At a time when labor costs are contributing to historic financial strain across the industry, it’s important to uncover hidden opportunities to save.



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