Healthcare Revenue Cycle Management, ICD-10, Claims Reimbursement, Medicare, Medicaid

Practice Management News

Hospitals Target Labor Costs, Layoffs to Reduce Healthcare Costs

Layoffs and outsourcing emerged as trends among major health systems as the organizations focus on reducing labor costs to decrease overall healthcare costs.

Hospital labor costs and healthcare costs

Source: Thinkstock

By Jacqueline LaPointe

- Hospitals and health systems are under immense pressure to improve efficiency and reduce their healthcare costs as payers decrease claims reimbursement rates and hospital consolidation continues to grow.

Facing tighter margins and increased competition, C-suite executives are turning to labor costs as an opportunity to decrease their expenditures. Labor represents about 60 percent of hospital costs and is the greatest driver of operating expenses.

Labor costs may also grow at hospitals and health systems as the demand for healthcare services increases.

As Baby Boomers age, they are seeking additional healthcare services and aging into Medicare. Hospitals and health systems must respond to increased service demand by growing their staff. But Medicare rates are lower than private payer rates, resulting in less reimbursement for a greater volume of services.

The healthcare industry is also facing a growing provider shortage. The physician shortage is projected to reach up to 104,000 physicians by 2030 and the industry is expected to need over 3 million nurses by 2025 despite researchers estimating just 2.8 million nurses being available at that time.

READ MORE: Hospitals Face Healthcare Employment Challenges, High Turnover

With the supply of providers below demand, hospitals and health systems may need to up compensation to attract and retain their talent.

Hospitals and health systems are responding to and anticipating these labor challenges by reducing their workforce and outsourcing key roles.

Atrium Health laid off 90 individuals to increase efficiency

North Carolina-based Atrium Health, formerly known as Carolinas HealthCare System, laid off 90 people since November 2017 in efforts to reduce labor costs and increase efficiency, local news sources reported.

Other health system employees may also find their hours reduced or face overtime limitations.

Atrium Health reduced its 38,000 regional workforce by less than one percent to bring labor costs as a percentage of revenue closer to the percentage of their peers, the Charlotte Observer explained. About 20 of its peers are currently outperforming Atrium Health on this measure.

READ MORE: What Is Healthcare Revenue Cycle Management?

The health system aims to reduce labor costs to at least 50 percent of net operating revenue. Labors costs are currently about 59 percent of net operating revenue, the local news source stated.

The goal would keep Atrium Health in line with its regional peers, such as Duke Health with 48 percent and Novant Health with 52 percent, as well as national leaders, including Universal Health Services with 47 percent and Tenet Healthcare with 48 percent.

The reduction will also help the health system brace for Medicare and Medicaid reforms and 340B drug payment reductions, documents obtained by the Charlotte Observer stated.

Atrium Health stated that their efforts to reduce labor costs will not impact patient care. Only eight jobs part of the 90 positions recently laid off involved employees who provided patient care.

Through labor cost reductions, the health system expects to actually improve patient care and healthcare affordability.

“If you think about affordability, the more we can do to be efficient as a healthcare provider, the better it is for the patient and the family,” Atrium Health Chief Operating Officer Ken Haynes told the news source.

Partners HealthCare outsources 100 coding jobs overseas

READ MORE: Staffing Shortages, Healthcare Reform Top C-Suite Concerns

Partners HealthCare in Massachusetts outsourced 100 medical coding positions to companies in India, The Boston Globe reported.

The health system reportedly outsourced coding positions, which were compensated about $40 an hour, to medical coders in India who are paid significantly less.

“We need to do things to improve productivity in healthcare,” the health system’s President and CEO David Torchiana, MD, told the local news source. “I don’t know of another … sector that doesn't outsource call centers and back-office functions.”

The health system is under pressure to keep its healthcare spending growth to 3.1 percent per year according to state law governing all hospitals in Massachusetts.

And the layoffs are part of a three-year plan to reduce healthcare costs by $500 to $800 million. Outsourcing healthcare jobs that can be done cheaper in another location is a key way to meet that goal.

Outsourcing medical coding can allow physicians to concentrate on patient care without the distraction of ensuring documentation and coding are accurate for claim submission. Hospitals also do not have to support the infrastructure of an in-house coding department. Labor is oftentimes cheaper when coding is outsourced, too.

However, outsourcing medical coding could break down communication between clinicians and revenue cycle management staff, preventing providers and billers from receiving timely answers to questions regarding claims.

Outsourcing revenue cycle management functions like coding is on the rise. About 72 percent of large hospitals plan to outsource key functions for up to five years, and 55 percent of community hospitals and 51 percent of small hospitals expect to do the same, a recent Black Book survey showed.

124 jobs cut at University of Arkansas for Medical Sciences

As part of a healthcare cost reduction effort, the University of Arkansas for Medical Sciences reportedly plans to eliminate another 124 jobs, bringing the total number of eliminated positions up to 730, according to local news sources.

The combined reductions account for about 6.6 percent of the organization’s 10,900-member workforce.

The hospital’s most recent workforce reduction was done through attrition rather than layoffs, meaning the hospital is downsizing its workforce without hiring new staff to fill those positions.

The workforce reduction is part of a larger effort to reduce healthcare costs at the University of Arkansas for Medical Sciences. The university’s teaching hospital also suspended a $45 million maintenance plan.

Through the job cuts, contract suspension, and other cost-cutting initiatives, the academic health center expects to finish the fiscal year ending on June 30 with a budget deficit no greater than $39 million, Arkansas Online published. The deficit would be almost half of the $72 million deficit that the academic medical center projected at the time of Jan. 8 layoffs.

“We have, I think, accomplished a great bit in just about three months' time,” Chancellor Stephanie Gardner told the local news source. “I think we have turned a corner, but it is incredibly important for our employees, faculty and staff to understand the message, that we're making progress.”

Ascension Health Michigan announces layoffs

The largest non-profit health system’s Michigan arm started the process of laying off employees at 14 hospitals across the state, Crain’s Detroit Business reported. Layoffs at Ascension Health Michigan could amount to over 1,000 employees.

Layoffs will reportedly include patient care providers, including nurses, therapists, nurses aides, patient care technicians, and patient transporters.

The local news sources reported that Ascension Health has been laying off employees and healthcare providers since January, with confirmed layoffs at Providence-Providence Park hospitals in Southfield and Novi, St. John Macomb-Oakland Hospital in Plymouth and Warren, Borgess Medical Center in Kalamazoo and the St. John Detroit hospital.

More layoffs are expected in the next few weeks, according to sources who know of Ascension Health Michigan’s plan. Some positions may also be outsourced to contract management companies, the news article added.

The workforce reduction may help Ascension Health to improve the financial health of its organizations in Michigan. One of the health systems owned by Ascension Health in Michigan reported a 78 percent drop in operating income.

Ascension Health Michigan has yet to comment on the latest news of layoffs. Instead, the health system offered a response that it has put out there for a month now.

“We continually review staffing models to ensure efficiency of our resources, while providing the highest quality and most compassionate care as if consistent with our mission,” an Ascension Health spokesperson told the news source. “At this time, we have no information to share regarding personnel matters.”


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