As financial pressures continue to challenge hospitals and with many uncertainties still looming related to the “One Big Beautiful Bill,” hospitals must act now in looking at operational opportunities. The ability to prepare for future challenges will center on being more efficient in order to strengthen the organization’s financial position.
It is no secret that in healthcare, the largest expense item is related to salaries and benefits. Many healthcare publications are talking about hospitals who are reducing head counts and trying to reduce or eliminate the dependence on contract labor as ways for their organizations to survive and thrive in the future. Often, labor and productivity initiatives are associated with job cuts, but this is not always the case.
A common myth is that increasing full-time equivalents (FTEs) automatically results in higher quality outcomes or improved patient satisfaction. In our work with hospitals across various settings, we have found that more staffing does not always lead to better results. In performing various productivity engagements and working as executives for several hospitals, we have experienced this is not always true. In working with a large teaching hospital, it was shared that their facility had experienced record high FTEs, yet their patient satisfaction scores declined, and the overall operating margin shrank.
In managing productivity, some leaders have a misconception that the more they can exceed a target, the better they will look as a leader. Productivity must also be balanced with achieving the organization’s Mission, Vision, and Values. Providing the highest quality care, in the safest environment with great human interactions, is the ultimate goal. The focus needs to be on achieving these goals while being good stewards of the hospital’s most prized asset, its people.
The Value of Productivity Analysis
Developing a well-executed productivity analysis allows hospitals to compare departmental performance against both internal targets and external benchmarks. When a hospital is consistently meeting or exceeding these standards, it affirms that leadership is actively managing staffing relative to volume and promoting efficient operations across the board.
A productivity analysis generally involves two core elements:
- The Numerator: Worked hours (or FTEs)
- The Denominator: Units of service
These values yield the worked hours per unit of service (WHPUOS), a widely used metric in hospital performance management.
Understanding Volume Credit and Staffing Alignment
It is critical for managers to ensure their teams receive appropriate credit for all services provided. From an analytical perspective, the higher the volume, the more productive a department will look. Therefore, the higher the volume, the more earned hours and FTE’s the department can earn. One important note related to this is to ensure departments receive the proper credit for all volumes being performed. Ensuring volumes are tracked and recorded appropriately will lead to a more accurate assessment of productivity and in some cases even justify additional staff. For example, if a Radiology Tech goes into the OR with a C-arm to capture an image, if the expense and hours for the Radiology Tech goes to Radiology, then that department should get credit for this Unit of Service.
When volumes decline, effective leaders must also manage staffing accordingly. This concept deals with actively managing the numerator of the equation, the number of hours worked. The ability to manage this is where strong leadership separates itself from average management. For example, if a high-volume surgeon is unexpectedly out for a week, operating room leaders must determine how to reallocate block time, reduce staffing for the day, or redeploy employees to other areas or units.
Anticipating and actively managing similar scenarios can minimize disruption while supporting productivity goals.
Staff Mix: The Hidden Variable
Beyond managing the total number of FTEs, leaders need to ensure the right mix of staff. While a unit may meet its productivity target, if it relies entirely on RNs without supporting roles like aides or technicians, care delivery can become expensive and inefficient. Nurses who cannot practice at the top of their license may experience burnout, which contributes to turnover.
If agency staff are consistently scheduled but core staff are flexed during low-volume periods, morale can be adversely impacted. To avoid this, leaders should maintain position control lists, monitor staffing patterns, and use PRN staff to help buffer fluctuations in patient volumes. When volumes stabilize, PRN employees may be available candidates for permanent roles.
Final Thoughts
As hospitals face increasing financial pressures, a proactive and transparent approach to productivity is needed. Monitoring FTEs for each pay period, or even daily, while aligning staffing with current patient volumes will ensure operational efficiency and support long term organization viability.
Productivity management does not have to conflict with staff engagement. By incorporating thoughtful planning, empathetic leadership, and open communication, hospitals can maintain high quality care, protect their teams, and fulfill their important missions. In doing so, they safeguard their financial health and help ensure their continued survival so that they may continue to serve their communities well into the future.
Contact our experts today.
Jason Glowczewski, Pharm.D., MBA, FASHP, FACHE, Senior Consultant
