Website spotlight: 3 creative ways to cut nurse labor costs

Staff Development Weekly: Insight on Evidence-Based Practice in Education, January 27, 2012

Because nurses comprise a huge chunk of labor costs, they often fall under the financial microscope. Reducing these caregivers, however, can truly be detrimental to your hospital's quality of care and the patient's overall experience-two areas that CFOs should strive to bolster, not undercut. That puts nurse labor costs somewhat in limbo. Though financial leaders want to reduce costs, they grapple with how to do so without the negative ramifications.

Though there may be excess cost in your nursing line item, it doesn't always rest within the wage, says Mary Nash, PhD, RN, chief nurse executive for the 932-bed Ohio State University Medical Center in Columbus, OH. The total cost of a full-time registered nurse averages $98,000 per year, or approximately $45 per hour, according to the 2011 U.S. Hospital Nurse Labor Cost Study produced by KPMG Healthcare & Pharmaceutical Institute. But base wages account for only about 57% of the total before factoring in premium pay and benefits.  

My reporting turned up three main strategies for trimming the cost of nurse labor without gutting their ranks.

1. Reduce Overtime
Nash, a 38-year nursing veteran, was charged with the task of reducing overall nursing costs at her hospital. After some data analysis, it became clear that the excess use of overtime was inflating costs beyond the budgeted registered nurse average pay rate.

Getting the right staff at the right time was critical to controlling payroll costs, she told me.

At OSUMC, there are union requirements, such as giving overtime to senior nurses first. Although the organization couldn't change the nurse's union contract, managers could reduce the necessity for overtime.

This required a new staffing and scheduling system. In addition, Nash established a staffing pool to supplement staffing needs. She found immediate labor savings.

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