Preserving Margins: A Guide to Overtime Management in Healthcare

Key takeaways:

• In the face of historic challenges and pressures on U.S. healthcare margins, controllable labor expense management emerges as a pivotal solution.
• Benchmarking enables a collaborative goal-setting process for managing labor expenses and overtime.
• Premier’s PINC AI™ OperationsAdvisor® provides external benchmarking and internal monitoring capabilities, enhancing a healthcare organization’s ability to proactively navigate workforce challenges using data to identify actionable changes.

The U.S. healthcare industry, historically a low-margin sector, is currently facing challenges with reimbursement model changes, pandemic-induced inflation, rising supply costs and staffing issues. These obstacles have led to shrinking margins, and in many cases, financial losses for healthcare organizations. To address these challenges, healthcare leaders are recognizing the need to scrutinize all controllable costs, with a particular focus on reducing labor expenses where safe and appropriate.

Labor expenses have historically made up over 50 percent of an organization’s operating budget. According to a recent PINC AI™ analysis, labor expense grew by 23 percent between 2018 and 2022.[1]

Premium pay, such as overtime, has also increased since 2018.[1] One way a healthcare organization can reign in these expenses and better ensure its financial viability is to focus on the drivers of overtime expenses.

Here are three key areas for an organization to prioritize, which may improve its labor expenses, with a particular focus on controllable expenses like overtime.

1. Develop a Workforce Management Strategy (WFM)

An organizational strategy for workforce is essential to develop to guide the organization’s overall labor budgets. It also encompasses the associated subcomponents that are important for overall planning that will drive recruitment and retention, skill mix (licensed/unlicensed), workforce configuration (full time, part-time, PRN, float) as well as education, orientation and premium pay including overtime.

Having a developed strategy often helps departments build their budgets and programs. For example, Human Resources develops the recruitment and retention strategy, while Nursing develops strategies for skill mix and workforce configuration and float pool sizing for projected census. Other operational efficiencies that should be considered include:

• Establish recruitment and retention strategies that include nursing student opportunities and other strategic pipeline programs.
• Evaluate composition of full-time and part-time staff so there are options to flex staffing or to meet peak hours or days of the week.
• Design a float pool using a PRN staff to respond to staff call-ins or increases in census on a shift-to-shift basis.
• To maximize staff flexibility during low census periods, cross-train employees so they can support other areas that may be able to use them to cancel overtime.
• Assure schedules are built with the proper core staffing and, if using self-scheduling (best practice), that staff are balanced across the shifts and day of the week prior to posting.
• Determine an appropriate Patient Throughput/Discharge Process to ensure patients are being discharged early in the day to allow for emergency department patients to arrive on the units as early in the day as possible, decreasing emergency department patient hold overtime.
• Assure new admissions are placed on the appropriate unit and the unit that already has capacity to take patients rather than one that is already at staffing capacity.

2. Identify Unnecessary Overtime

Premium pay (including overtime) should be proactively and consistently monitored by both senior and department leaders as part of an effective WFM strategy. Organizations that perform better actively incorporate expectations and accountability into their daily WFM practices. Doing so can lead to tighter management of premium pay inclusive of overtime.

Unplanned or unapproved overtime often signifies a lack of organizational processes for the scheduling and approval of overtime. Having proper controls in place for approval of overtime and that govern the amount of overtime that is worked by individual employees can prevent issues such as staff burnout, fatigue, poor employee morale and ultimately lead to more serious and expensive problems, like high staff turnover, reduced quality of quality of patient care or decreased employee engagement. Things to consider to improve overtime management include:

• Benchmark externally against like peers to determine the overtime percentage for your organization on both a facility level and a department level compared to others like you.

• Based on these benchmarks, establish realistic departmental performance targets collaboratively between senior and departmental leaders based on current state and ideal state.

• Create visibility and accountability for overtime usage internally to ensure established targets are being met.

• Develop departmental action plans when extreme variances occur and/or performance is trending in an unfavorable direction.
• Establish an overtime approval process for all overtime, including missed lunches. This will allow for a review to determine if PRN, part-time staff or pre-scheduled shifts can be used in lieu of overtime.
• Monitor incremental overtime usage against scheduling and company policies (i.e., rounding rules), and create an accountability plan.
  

3. Tap the Power of Data

An effective WFM program includes sustainable and reliable data to help leaders proactively manage and monitor labor performance like overtime. Using operational labor benchmarks for an external perspective coupled with ongoing internal daily and bi-weekly labor productivity monitoring is key.

With Premier’s PINC AI™ OperationsAdvisor® labor management system, healthcare leaders can benchmark overtime externally and monitor bi-weekly overtime usage internally.

With the external benchmarks, users of Premier’s PINC AI™ OperationsAdvisor® gain access to a database with over 650 reporting healthcare organizations, providing valuable insights for optimizing workforce productivity and identifying opportunities to identify innovative staffing approaches and best practices. Overtime and other key labor metrics can be benchmarked against peers (using custom and AI-based automated peer groups) at the entity level and department level as well as trended quarterly.

Bi-weekly overtime usage can be measured internally by entity, service line, VP, department and even at the employee level with Premier’s labor productivity module and allows for leadership visibility for a call to action if needed.

Ultimately, PINC AI™ OperationsAdvisor® empowers healthcare organizations with the information needed to set realistic goals and expectations, ensuring they stand out in their competitive landscape.

For more:

• Learn more about Premier’s PINC AI™ OperationsAdvisor® and our workforce management Advisory Services solutions.

[1] This data was sourced from a PINC AI™ OperationsAdvisor® analysis of overtime trends ranging from 2018 to 2022. This analysis reviewed the overall labor expense across all OperationsAdvisor® entities, and the percent of labor spend that resulted from overtime hours, to find the average per year.

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