Cost & Quality

Kathleen D. Sanford


At a Glance  

  • Dissatisfaction with staffing is the main reason nurses leave hospitals.  
  • Hospital-acquired conditions are higher in hospitals with lower RN hours per patient day.  
  • Finance and nursing need to collaborate to determine appropriate nurse staffing so units are not overstaffed or understaffed. 

On one side: Nurses point to evidence linking quality patient care to higher nurse-to-patient care hours. On the other: Hospital finance leaders are being asked to find ways to better manage costs in anticipation of declining payments under healthcare reform. For example, Moody's Investors Service predicts that even small increases in hospital costs would negatively impact the margins and credit ratings of Minneapolis-St. Paul hospital systems ("Temperatures Rise in the Twin Cities as Hospitals Prepare for the Largest Nurses Strike in U.S. History," Moody's Weekly Credit Outlook, June 28, 2010).

The debate regarding how to staff efficiently and ensure the right number and mix of nurses to meet patient needs is not new. Mass layoffs at hospitals hit a record high last April, according to the Bureau of Labor Statistics-and some of those layoffs have included nurses and other clinicians (Elliott, V.S., "Mass Layoffs at Hospitals Hit New Highs," AMA Medical News, June 14, 2010).

It's time for hospitals to effectively address nurse-staffing issues. Finance and nursing must collaborate-work as a true team-to provide the proper balance and to ensure that the right nurse is delivering the right care to every patient.

It's How You Cut Nursing Expenses

Hospitals are facing financial challenges, and nursing labor costs are among their biggest expenses. When times get hard, hospitals commonly look at how they can reduce nursing costs.

However, there are problems with how hospitals typically cut nursing expenses. One is that hospitals have never done cost accounting for nursing, so they do not know the true costs associated with nursing. Without an understanding of the total costs of nursing, hospitals are often unable to do a good job of managing those costs.

Hospitals that cut nurses to reduce expenses-saying, "We'll just have fewer of them on the floors"-are taking a shortsighted approach to cost containment. In the short term, costs may go down. But what impact will a reduction in nurses have on a hospital's costs down the line? What will be the effect on patient care when nurse staffing levels are reduced? Research at Catholic Health Initiatives (CHI) by nurse researchers from the University of Alabama, Huntsville, shows that higher registered nurse (RN) and licensed practical nurse hours per patient day and a higher percentage of RNs in the staffing skill mix result in a significantly lower number of patient adverse events as well as shorter lengths of stay. One finding: Increasing the RN percentage of patient care staffing by 5 percent decreases the number of adverse events by 15.8 percent (Frith, et al., "Effects of Nurse Staffing on Hospital-Acquired Conditions and Length of Stay in Community Hospitals," Quality Management in Healthcare, April-June 2010).

With value-based purchasing projected to grow as a basis for hospital payments, there is an economic consequence to this quality and patient safety issue. Hospital leaders must start asking: What is the cost of turnover when nurse staffing levels are reduced? What is the cost of unhappy nurses?

Dissatisfaction with staffing is the No. 1 reason nurses cite when they leave hospitals. Studies have shown that about 45 percent of new nurses leave their first hospital jobs within two years of graduating nursing school-and inappropriate nurse staffing levels are unlikely to encourage them to remain at their first hospital of employment. High nurse turnover has a price tag, which individual hospitals need to quantify and understand.

Finding the Appropriate Level

There is a point where you can staff too many nurses, resulting in unnecessarily high labor costs. However, there is a proper, effective, and appropriate balance, where hospital units are not overstaffed or understaffed, and patients have the right number and mix of nurses available to provide quality care.

It is critical that hospital leaders understand the business case for quality and the business case for nursing-and how these two are tied together. The business case for quality is becoming more and more transparent. Payment system changes, including value-based purchasing pilots, are beginning to tie revenue to quality.

Less transparent is the business case for nursing-or for ensuring the right number and mix of nurses to maintain quality.

Until this business case is made and understood, financially troubled hospitals will always look at nursing as one of their biggest costs. But reducing staff without complete information about the quality and financial ramifications is an illogical choice because cutting nurses may actually reduce revenue and increase overall costs.

Building the Business Case

CHI is addressing the need for appropriate nurse staffing levels by installing a software product that will help ensure that the organization matches the right nurses with the right patients-so that more severely ill or complex patients will be matched to nurses with the most advanced clinical skills. This software not only will help managers with daily patient assignments, but also will give the organization data to understand typical nursing needs of patients according to their severity of illness. With this information, CHI will be better able to plan for the nursing needs associated with different diagnoses and comorbidities.

At the same time, CHI is pursuing systemwide research related to nurse staffing ratios and patient outcomes. Eventually, the organization hopes to put together a dashboard to predict a hospital's percentage risk of harming a patient (i.e., because of patient falls and hospital-acquired conditions). For instance, "If your daily census is X and you choose to staff with X number of nurses, then you have X percent risk of harming a patient today." Such a dashboard could be the first of its kind.

CHI is still a few years away from completing this project, which requires complicated systems engineering work. The system is partnering in the dashboard development with their University of Alabama colleagues along with computer scientists and business operations experts.

Once all the pieces are in place, CHI will be able to mine data that will help the organization better understand its true cost of nursing care. Leaders will then have information to help in decision making on the appropriate level of staffing-a level that does not overstaff or understaff, while ensuring safe care and quality patient outcomes.


Kathleen D. Sanford, RN, DBA, MA, FACHE, is senior vice president and chief nursing officer, Catholic Health Initiatives, Denver (kathleensanford@catholichealth.net).

Publication Date: Wednesday, September 01, 2010

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