Helping Clinical Leadership Manage and Control Nurse Staffing Costs

In a time of uncertainty regarding healthcare policy in the United States, most experts agree that the current nurse shortage is likely to continue to worsen. If that happens, nurse compensation rates most likely will keep increasing, at least for the foreseeable future.

In this environment, it is critical for CFOs and other finance leaders to take an active role in developing effective nurse staffing strategies for their organizations. Nurse staffing is one of the largest line items in a healthcare organization’s budget, and out-of-control staffing costs can result in missed financial goals, or worse.

A Strategy for Success

Finance leaders should work with clinical leadership to develop a staffing strategy that is responsive both to clinical needs and the organization’s financial goals.

Ensure financial reporting systems are effectively communicating actual versus budgeted results, including staffing costs, to nursing leadership. It is difficult to hold managers accountable for cost control if they do not have adequate visibility of those costs. It may be worthwhile to schedule quarterly, or even monthly, cost reviews to be attended by both clinical management and financial personnel to review nurse staffing costs.

Help clinical leadership understand the true costs of nurse turnover. These include the costs of recruiting replacement staff, training and orienting new staff, and coping with reduced productivity while a new clinician is getting up to speed. Another factor to consider is the “burnout” effect on other nurses caused by high turnover. It may be useful to develop at least a rough computation of the “cost per attrition event” for specific departments, as shown in the exhibit.

Example of Cost Per Attrition Event and Financial Impact

The costs estimated in the exhibit are on the conservative side: An organization’s actual cost may be significantly higher. A study published in the June 2012 issue of American Nurse Today put the cost per attrition event involving a new graduate nurse at $82,000 or more for a nurse.

Work with clinical management to develop, monitor, and report key metrics related to staffing. If an organization is heavily dependent on travelers or per diem staff, it should consider monitoring a key metric related to the incremental cost of contract staff compared with permanent staff. The organization also should challenge whether it is pushing out that key metric as broadly as it could be. Awareness and visibility of cost challenges are needed for controlling them—the more eyes that are focused on a known problem, the better.

Help clinical departments develop staffing strategies that address optimal staffing ratios, attrition/turnover targets, and the right mix of permanent versus contract employees. Some ways to develop these strategies are outlined below.

Optimal Nurse Staffing Ratios

Studies show that many nurses leave their jobs because they become burned out or feel under-appreciated. When one nurse leaves, other nurses must absorb additional responsibilities, at least temporarily. Even a short-term vacancy adds to stress and burnout. It therefore is important for healthcare organization leaders to calculate and consistently achieve the organization’s optimal nurse staffing ratios.

Historically, these targets have been based on patient volume or percentage of total staff. But this approach does not account for recent trends in the healthcare industry. It’s important for healthcare organizations to ask the following questions:

• Does our nurse staffing consider patient acuity?
• Is our staffing flexible enough to help us make the transition from a facility that treats illness to one that supports lifetime health and wellness?
• Does our strategy consider compensation based on patient satisfaction scores and outcomes?

Setting nurse turnover targets is extremely important, as is understanding the groups of nurses that are at highest risk for turnover.

New hires. These nurses are at greatest risk for turnover. A study by NSI Nursing Solutions Inc. notes that more than half (50.6 percent) of registered nurses (RNs) who left their organizations did so in the first two years of employment. And when a newly hired nurse leaves in such a short time, the organization’s initial investment in orientation, training, and onboarding is lost.

Newly licensed RNs. About half of these employees also will leave within the first two years of employment, according to the NSI survey. Although experienced nurses are a safer investment, they are more difficult to find, recruit, and hire.

Travel and per diem nurses. Organizations using travel or per diem nurses to fill gaps may be paying excessive travel expenses and agency fees. Utilizing long-term international nurses can be an alternative to fill these gaps in a more cost effective manner.

A Proactive Strategy

The next few years will bring a variety of challenges to the healthcare industry, not the least of which will be a shortage of experienced nurses. Every strategically minded CFO should be thinking about how to take a proactive role in developing his or her organization’s plan to deal with this shortage in the context of its clinical and financial goals.

Spence Lloyd, CPA is CFO, Avant Healthcare Professionals, Orlando, Fla.

Brian Hudson is senior vice president, Avant Healthcare Professionals, Orlando, Fla., and the membership co-chair for HFMA’s Florida Chapter.