Labor is the single biggest line item for many hospital and health system budgets. As baby boomers retire and begin to face age-related health issues, they will likely seek more services from hospitals. But as the patient population expands, the pool of nurses and other caregivers is expected to recede, which—all else being equal—might push hospital labor costs even higher.
The prospect of declining margins keeps hospital CEOs up at night, according to our 2017 survey of hospital CEOs. Even though US hospitals and health systems collectively saw operating margins increase 4.8 percent between 2011 and 2015, the variation in hospital revenue and expense performance is large. Nearly one-third of hospitals reported negative margins, according to a recent report from the Center for Health Solutions that looked at the impact emerging technologies could have on hospital financial performance.
Moreover, forecasts are that margins could decrease in the future. For many hospitals, aging boomers will tilt the payer mix toward Medicare, which pays less than commercial payers. By 2024, commercial payments to hospitals and health systems are expected to decline from 37 percent to 33 percent. During the same period, the percentage of payments from Medicare is expected to grow from 35 to 40 percent.i
As the older population grows – the patient population will expand and the labor pool will shrink. Labor makes up about 60 percent of hospital noncapital costs and is the largest driver of operating expenses. By 2025, estimates say the health care industry will need 3 million nurses—but only 2.8 million are likely to be available.ii This anticipated shortage could bump hospital labor costs even higher if it leads to higher salaries or greater use of contract workers.
Where can technology make a difference?
What if a technology-enabled, no-collar workforce could take on some of the more mundane tasks in the hospital so that employees could spend more time providing care and improving patient experience? To help get the most out of their employees, and to keep margins from falling, hospitals might look to emerging technologies.
Here are a few areas where some hospitals are already using cost-curve-bending technology solutions:
Paperwork and documentation: In the business office, robotic process automation (RPA) can accomplish repetitive processing tasks—such as pulling data from spreadsheets and dropping it into software applications. When combined with artificial intelligence (AI), RPA also can perform documentation functions, which can mean more time for caregivers to provide care or to enhance their learning, according to our report on the Digital Hospital of the Future. Such technology also could simplify other paper processes. The need to complete volumes of redundant paperwork, for example, is a common pain point for patients and hospital staff. How can technology help?
- At one hospital, human resources and payable services staff manually transferred data from Excel spreadsheets into the hospital’s HR records system. Automating those tasks though RPA helped the hospital cut about 16,000 labor hours (including time spent on reworked processes due to human error).iii
- A virtual care assistant from CrossChx uses AI and RPA to perform a number of tasks, including eligibility, prior authorizations, and appointment reminders.iv Along with eliminating human error, the technology also allows employees to turn to other tasks, such as working directly with patients.
- As hospital processes go digital, staff can use AI to learn from and improve those processes. Clinical, financial, and demographic information can be pre-populated from the patient’s records. Moreover, patient information can be stored in the cloud where it can be accessed by other stakeholders.
Staffing: Hospitals typically turn to overtime, travel nurses, and contract agencies when faced with staffing gaps. Along with boosting labor costs, too much reliance on outside workers can hurt hospital performance in value-based care arrangements. How can technology help?
- Between 2014 and 2015, Hospital Corporation of America (HCA) saw its contract-labor costs rise 36 percent. HCA applies real-time analytics to manage its workforce—reportedly checking labor statistics every two hours. Its workforce is based on acuity and productivity targets. To more accurately anticipate staffing needs, the health system uses a dashboard to look at projections and historical patient data. Although contract-labor costs increased substantially, HCA was able to keep its labor ratio (total labor costs/net operating revenue) in check. Between 2014 and 2015, the ratio increased just slightly, from 45.8 percent to 46.9 percent.v
- Allina Health, a nonprofit health system based in Minnesota, uses technology from AMN Healthcare to automate its staffing-management process. The software allows Allina to forgo manual scheduling and track staff hours and costs. After four years, Allina saved more than $4.8 million in staff-related costs. Automation saved 120 hours per week previously spent in-sourcing, reviewing, scheduling, on-boarding, and invoicing for supplemental staff.vi
Productivity: Nurses typically spend less than two hours of a 12-hour shift on direct patient care. The remaining time, they are doing paperwork, searching for medications and supplies, coordinating lab results, and even helping deliver patient meals.vii How can technology help?
- Robotics and automation can help take on a number of tasks typically performed by nurses. By touching a screen, nurses and other medical staff can summon robots to deliver medications, transport blood samples, collect diagnostic results, and schedule linen and food deliveries—either as a prescheduled task or a real-time request. Robotic processes also can be used for certain hospital revenue cycle and accounting/finance functions, such as scheduling and claims processing.
These use cases and technologies are only the beginning of a more technology-enabled health care system. AI, RPA, predictive analytics, and robotics hold promise for bending the cost curve in the future.
i Chad Mulvany. “Margins under pressure.” HFM. Healthcare Financial Management, 70(4), 30-33. April 2016..
ii Data from American Hospital Association Annual Chartbook, 2016. Accessed October 10, 2017. http://www.aha.org/research/reports/tw/chartbook/2016/table5-9.pdf
iii Mary Lacity and Leslie Willcocks, “Robotic Process Automation: The Next Transformation Lever for Shared Services,” The Outsourcing Unit Working Research Paper Series, January 2016. http://www.umsl.edu/~lacitym/OUWP1601.pdf
iv Cross CHX, https://crosschx.com/ Accessed October 12, 2017.
v Burroughs Healthcare Network, “How HCA Keeps Labor Costs Under Control,” September 2016. https://burroughshealthcare.com/2016/09/14/help-wanted-how-hca-keeps-labor-costs-under-control/
vi AMN Healthcare Inc, “AMN Healthcare provides Allina hospitals & clinics cost savings and increased productivity,” July 30, 2013. https://www.amnhealthcare.com/uploadedFiles/MainSite/Content/About/Case_Studies/AMN%20 Healthcare%20-%20Allina%20Case%20Study.pdf accessed August 29, 2017.
vii Rhonda Collins, “Bringing Nurses Back to the Bedside,” For the Record, Vol. 27 No.9 P.10. http://www.fortherecordmag.com/archives/0915p10.shtml, accessed August 29, 2017.