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Service Intensity and Healthcare Wages Major Factor in Healthcare Costs

In 2010, at the Symposium on Payment Solutions for Healthcare Providers and Payers in Las Vegas, William Bertschinger, divisional chairman of finance at the Mayo Clinic, said healthcare labor costs are driving systemic inefficiency. According to Bertschingser, “Seventy percent of the high cost of healthcare is due to labor costs,” he went on to say that “There are too many full-time employees and too many employees are paid at too high a rate.” Bertschingser has suggested that “In order to cut costs in healthcare, we need to reduce the number of full-time employees, reign-in salaries, and stop increasing the fees we charge patients.” He based his comments on data from the Federal Bureau of Labor Statistics and the Kaiser/HRET Survey of Employer-Sponsored Health Benefits. This data showed that wages of healthcare staff have been increasing faster than the overall U.S. workforce and the rate has also outstripped the overall inflation rate.

Contrary to these statistics, many experts believe that productivity is the real challenge for providers. According to IMA Consulting, productivity data for hospitals show that the number of FTEs has gone up 1 percent a year from 2006-2009 which implies that productivity may be eroding. The data suggests that more labor resources are being used for the same productivity volume. Bob Gift of IMA Consulting contends that labor costs can be directly correlated to how many patients are served by the hospital. Gift calls this “service intensity.” Do providers have the right people doing the right jobs or is someone with higher skills doing a job that someone with lower skills could do?

Without comprehensive workforce planning, pay for performance compensation strategies and talent retention strategies, healthcare providers will continue to struggle to rein in costs. Inappropriate pay for healthcare workers, falling productivity, inconsistent incentive and reward programs result in labor shortages that are driving higher wages. Service intensity will continue to increase due to healthcare reform which means controlling labor costs will need to be managed even better than before. Solutions for integrated talent management, workforce planning, pay for performance incentives and talent retention strategies are available for those Healthcare organizations that want to place the right people in the right jobs and benefit their bottomline. Integrated solutions can be implemented for modest costs for healthcare organizations of all sizes.

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