Healthcare Labor Management: Cracking the Low-Supply, High-Demand Code

In a classic case of the law of supply and demand, labor costs continue to be a significant driver of margin pressure for health systems. One study projects a shortage of about 100,000 critical healthcare workers by 2028, straining a system already fraught with highly manual, inefficient processes. 

In parallel, the economics are moving in the wrong direction: 

• Hospital average hourly wage rates are up 34 percent since 2019. 
• Agency labor rates have increased by 63 percent. 
• Retention presents another stubborn challenge, with burnout driving churn that costs tens of thousands per nurse and well over $1 million per physician in key specialties.
• Operating margins per provider that have declined despite growing patient volume.

Labor impacts aren’t contained to margin. They show up in appointment wait times that now exceed 30 to 40 days and in lead times that have increased by more than 50 percent since 2020.

In other words: The healthcare workforce isn’t just under pressure. It’s constraining margin performance. Addressing these pain points requires a data-driven, systemwide approach that integrates labor planning with physician enterprise management, operational analytics and patient flow optimization.

According to Premier’s strategic guide to cost management, four priorities rise to the top. 

Predict Labor Bottlenecks Before They Occur

For leaders operating in this landscape, a philosophical shift is critical: Stop reacting to labor shortages. Start predicting them — and employ targeted strategies before they begin to impact financial performance and patient care.

When health systems can confidently forecast where shortages will occur, they can intervene more quickly and potentially before they disrupt patient care or financial performance. That’s why leading organizations are moving toward data-driven, systemwide workforce planning, integrating labor strategy with physician enterprise management, operational analytics and patient flow optimization. 

Advanced analytics and machine learning, including Premier’s AI-powered workforce analytics, help make this possible. Beebe Healthcare, for example, used Premier’s OperationsAdvisor® to benchmark performance and uncover improvement opportunities, delivering $15 million in savings in a single year. 

At the same time, as health systems continue to invest in employed providers amid workforce shortages and financial pressure, the challenge is no longer whether to invest but how to identify trends or gaps in performance and take informed action. This is where tools such as Premier’s Performance Insights Value Optimization Tool (PIVOT) play a critical role.

With PIVOT, savvy health systems can:

• Meet patient demand effectively by optimizing provider capacity and services.
• Improve the efficiency of patient access and throughput systems.
• Deploy staffing models and skill mixes to boost agility and productivity.
• Foster collaboration among physicians and advanced practitioners for improved care.
• Analyze physician and advanced practitioner compensation trends and align with productivity goals.
• Understand patient demographics and complexity to tailor services and address community needs effectively.

Employ Technology to Extend Scarce Labor

Organizations should streamline processes and eliminate inefficiencies to both free up scarce resources for patient care and cover the added expense of higher salaries in a hypercompetitive market. This means eliminating tasks that could be delegated to non-clinical staff and tech-enabling processes that are eating into clinical caregivers’ time. 

To better leverage labor resources and reduce inefficiencies, organizations can focus on several targeted actions:

• Automate documentation and coding to reduce administrative burden. Premier’s CodingGuide, for example, helps providers accurately capture Hierarchical Condition Category (HCC) codes at the point of care, while Premier’s CodingCare enhances coder and Clinical Documentation Improvement (CDI) workflows.
• Streamline tracking and reporting of quality measures. Premier’s end-to-end quality improvement platform helps organizations benchmark performance, track key metrics and streamline improvement using risk-adjusted data from more than 40 percent of U.S. hospital discharges.
• Introduce automated surveillance to reduce manual monitoring. Premier's Clinical Surveillance, powered by TheraDoc®, helps health systems detect risks more quickly, document and report infections and streamline pharmacy workflows, potentially reducing surveillance time by up to 40 percent.
• Adopt electronic prior authorization (PA). Prior authorization costs the U.S. healthcare system $31 billion each year, with one in three requests delaying care and providers spending an average of 45 minutes per submission navigating manual processes. Premier’s AI-driven PA solution automates approvals using evidence-based criteria, reducing administrative burdens and delays.
• Tech-enable routine processes that have remained stubbornly manual to extend scarce labor, both to remove inefficiencies and improve employee productivity and satisfaction. For example, the accounts payable (AP) process is ripe for enhancement. Time-intensive, paper-based and error-prone processes have bogged down the supply chain — and healthcare finances — for far too long.
• Lean into workforce collaboratives. Premier’s Workforce Innovation (WIN) Collaborative helps participating members tackle tough labor challenges. Through increasing retention, optimizing talent acquisition and building resilient teams, members can reduce turnover and overall labor costs.

Another word of caution: Ill-fitting or poorly integrated technology may fail to have the intended effect on labor challenges, leaving clinicians overworked and increasing the organization’s reliance on costly overtime or agency staff. That’s why it’s paramount to deploy the right tools, seamlessly integrated into human workflows to predict demand, balance workloads, fulfill clinician preferences, optimize coverage and more. 

The result? Enhanced staff satisfaction, reduced burnout and improved operational efficiency.

Connect with Community Partners to Streamline Efforts and Eliminate Redundancies

There’s a pattern emerging across health systems, and it’s an expensive one: investing time, labor and capital into building programs that already exist in the community, such as outreach, prevention and population health engagement. Local health departments (LHDs) and community-based organizations (CBOs) are often already delivering these services — and doing it well.

In a constrained labor market, duplication isn’t just inefficient. It’s unsustainable. Partnerships with LHDs and CBOs offer a different path:

• Extending reach without expanding internal teams.
• Reducing duplication across services.
• Improving coordination of care.
• Surfacing emerging needs more quickly.

The shift is subtle but important, and with 73.8 percent of health systems already partnering with local health departments, collaborations are becoming standard practice rather than the occasional experiment.

Leverage Advisory Expertise for Tailored Outsourcing and Redesign Strategies

To achieve meaningful improvement in labor performance, many health systems must overcome both internal inefficiencies and external workforce constraints. But they don’t have to do it alone. Premier’s advisors channel deep insights into measurable results, partnering with provider organizations to co-design and implement strategies tailored to their unique needs. 

That work often translates into practical decisions about where to redesign and where to augment. In some cases, that means redesigning workflows and staffing models to increase efficiency. In others, it means bringing in targeted support to fill critical gaps and maintain momentum.

Outsourcing, in that context, becomes a tool, not a default, supporting continuity while the underlying system is improved. Consider Bayhealth: Through a co-management model with Premier that restructured operating room materials management, the organization identified approximately $8 million in savings within the first year. These savings were driven by eliminating inefficiencies, improving workflow and bringing greater discipline to how work was executed.

In many organizations, those inefficiencies are driven less by staffing levels and more by variation in how care is delivered. Not all workforce pressures are obvious. Some are embedded in variation: different workflows, different care pathways and different ways of solving the same problem across teams and sites. 

Premier’s advisors help reduce care variation and enable peak efficiency by empowering multi-disciplinary teams to achieve consistency in care pathways using data and literature. This helps teams deliver improved outcomes while reducing unnecessary treatment and avoidable errors and shortening length of stay.

Where might these opportunities exist across your organization, and how are other health systems approaching them? Gain more insights by downloading your copy of Premier’s strategic guide to margin management in healthcare.