Otiz, J.P. (2011). Cutting Hospital Costs Without Cutting Staff. Healthcare Financial Management. Retrieved from http://www.hfma.org/Publications/hfm-Magazine/Archives/2011/October/Cutting-Hospital-Costs-Without-Cutting-Staff/.

“Virtually every industry is still feeling the pain of the recession—still cutting costs and making workforce reductions. Yet these cuts often fail to generate real bottom-line results. This situation is all too familiar to the healthcare industry—and to hospitals, in particular. In fact, the Bureau of Labor Statistics (BLS) recently recorded the second highest number of mass-layoffs in hospitals since 2000. Such a trend cannot continue without serious repercussions on quality of care.

The story is the same for hospitals around the country. When finding themselves in financially dire straits, they often yield to their first impulse, which is to lay off staff. On the surface, this solution makes sense. After all, labor is a hospital’s number one expense—reflecting 40 to 50 percent of incurred costs. But more often than not, after just a few months, the hospitals pay for the staff layoffs with an epidemic of inefficiency. Remaining staff cannot keep up with key functions, services deteriorate, and patient complaints begin to rise. Then, to overcome dissatisfaction among patients, physicians, and employees alike, hospital managers are compelled to bring in costly temporary or interim help.

Moreover, an organization that goes too far in reducing the work force ignores future costs of “restarting” after economic conditions change, in terms of recruiting, rehiring, and training costs. As economic conditions improve, this organization will have added costs for rebuilding capacity that could leave it behind its competition.”