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Costly Trends Reported in the Use of Contract Labor among Hospitals
August 20, 2004 – A new study by the American Hospital Directory reveals
that hospitals are spending more than $16 billion per year for contract
labor. Over a recent five-year period the use of such contract labor has
grown steadily and increased from 4.7 percent of hospital personnel
expense in 1997 to 8.1 percent in 2002. This trend may indicate that
hospitals are substituting more expensive contract labor for salaried
staff. Preliminary measurements from 2003 indicate even further
escalation of the trend. Since contract labor typically costs twice as
much as salaried personnel, the high utilization of contract labor may
represent as much as $8 billion in incremental expense.
The study examines Medicare cost report data and provides statistics for
various types of hospitals. Spending patterns are examined for
short-term, acute care hospitals by type of control, the presence of
teaching programs, hospital size, and service intensity. Comparative
information is presented to enable individual hospitals to compare their
own labor expenditures to that of their peers. For example, for-profit
hospitals report total labor expenses representing 40.1% of operating
revenue during 2002 while voluntary hospitals report expenses of 51.6
percent.
The study also explores operational reasons that may explain patterns in
labor expense. It is widely believed that increases in contract labor
may be attributed to shortages in nursing personnel. When asked if
nursing shortages make the use of contract labor unavoidable, Doug
Howell, a co-author of the study, replied, "There is no nursing shortage
if a hospital is able to arrange contract labor. It simply means that a
hospital has to be smarter in attracting and retaining nurses. If an
agency can hire a nurse why can't the hospital?"
Mr. Howell provides a case study showing how Norton Healthcare of
Louisville, Kentucky used an innovative approach for dramatically
reducing their contract labor expense. He concludes, “The impact … on
the system has been a reduction of $9 million annually in labor costs,
plus the added benefit of knowing that Norton employees provide all of
the nursing care in the system’s hospitals.” Mr. Howell is Senior Vice
President with Norton Healthcare and has extensive career experience in
Human Resources.
Paul Shoemaker, the other co-author, states, “We know that everyone who
works in health care is aware of personnel shortages in nursing and
other specialties. We were surprised, however, at the magnitude and
escalation in contract labor costs. We hope that this study will help to
reinforce hospital management’s awareness and provide useful comparative
information that might be helpful in addressing individual situations.”
Mr. Shoemaker is President and CEO of American Hospital Directory, Inc.
The complete study can be retrieved from the American Hospital Directory
website at http://www.ahd.com. The American Hospital Directory has been
providing the operating details of virtually every hospital in the
United States as a free on-line service since September 1997. On-line
reports describe a hospital’s general characteristics, services
provided, financial information, volumes, average lengths of stay,
average charges and much more. The free service is provided to over
5,000 users each day. AHD also offers more detailed subscription
services and custom data reporting for those who need it.
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Note to editors and journalists: In addition to the study, figures
are available for local markets from American Hospital Directory for
local-to-national market comparisons.
Click here to view the
study.
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