Strategic Cost Management: A Best Practice for Reducing Runaway Labor Costs

With numerous reports of declining operating margins in hospitals across the country, many institutions are struggling to maintain financial stability.

Hospitals have been facing surging labor and overhead expenses, driven in part by:

• A highly competitive labor market with increased salaries and benefits.
• Accelerated inflation rates.
• A staffing crisis that forced hospitals to rely on expensive contract labor.

That’s a lot of headwinds, so how might healthcare leaders respond?

Healthcare leaders must find ways to respond to these challenges. In the past, the typical solution was to implement a reduction in force. However, this approach may not be the best option. For example:

• Reducing labor costs, which account for around 50% of operating costs, could have a short-term impact on the bottom line, but these savings are not long-lasting.
• Across-the-board reductions could result in staff losses in vital departments, affecting the organization's ability to operate effectively.
• Reductions in force typically do not result in long-lasting financial improvements as departments gradually return to their previous operating structure.

Why endure widespread organizational disruption when there is a better alternative? With Futura Healthcare's Strategic Cost Management solution, hospitals can achieve profitability through improved productivity with their existing staff.

Get Your Labor Costs Under Control

Strategic Cost Management (SCM) focused on workforce optimization enables your hospital to address labor and overhead expenses by:

• Providing managers with proven techniques that enable them to better utilize the time and skills of the people working with them.
• Improving employee participation in meeting goals by eliminating barriers that prevent completing their assignments in a timely manner.
• Deploying effective systems and procedures to monitor the use of required and actual resources, combined with the use of sound behavioral techniques by management, to assure an improved organization.
• Developing department-specific goals and targets in collaboration with your management team, using proprietary tools that managers learn and continue to use, ensuring the durability of SCM benefits for years to come.

Plus, long-term financial benefits:

• Proven savings ratio of 10 to 1.
• Rapid ROI: recoup the initial investment in six months.
• Sustainable savings year after year.

“I’ve been in healthcare for 20 years, and every productivity analysis group we worked with felt like hand-to-hand combat until we partnered with Futura Healthcare. They built a positive rapport with our managers, focused on factors we could control, and we realized $10 of savings for every $1 we invested in less than a year.” 

- S. Lee Boles Jr.
Chief Executive Officer
Hunt Regional Medical Center

Results That Start on the Front Line

SCM’s critical element is buy-in. All decision-makers must be aligned with the mission and strategy of your healthcare system. To be effective, an SCM engagement should be developed in close concert with your managers, so the final product is seen as “their own.” Accordingly, increased organizational effectiveness will be achieved by:

• Supplying management with appropriate and timely information relative to staffing, skill mix, service level, utilization, and costs within approved and correctly formulated budgets.
• Establishing accurate staffing requirements for area workloads based on management’s prerequisite for service and quality.
• Designing and implementing systems for improved utilization of personnel by formulating Management Action Plans with managers.
• Integrating the above systems into the financial controls of your hospital.

Delivers Actionable Benefits

SCM principles impact healthcare productivity improvement by empowering management to make more rational decisions about using existing staff. Unlike the slash-and-burn job-cutting approach, SCM yields durable productivity increases and cost savings through:

• Attrition
• Volume absorption
• Reduced overtime and agency hours
• Skill-mix adjustments
• Career redirection

We’ll Provide the Tools for Continuous Improvement

Futura does not execute an SCM evaluation of your hospital, write a report, and walk away. We believe education and empowerment are essential for continuous improvement. Sustainable change occurs at the front-line management level where managers are provided with the tools, education, and timely data to make effective decisions. The SCM process for success includes the following steps:

• Evaluate hospital- and department-specific data.
• Determine optimal resource allocation.
• Develop a strategic management action plan.
• Provide routine, concise feedback.

Profitability Through Productivity Improvement Without Cutting Staff

Over the last year, Futura Healthcare has partnered with more than 50 unique health systems. Each of our clients is different, so we tailor our solutions to the greatest opportunities for improvement which has led to more than $500 million in achieved savings.

Click here to request a phone call with Futura’s Senior Vice President, Mike Talerico, so we can learn more about your top strategic initiatives and identify steps to help you exceed your goals and improve your margins with a Strategic Cost Management solution.