How to Make Productivity Gains Possible and Profitable

By Shawna O'Neill and Cary Gutbezahl, M.D.

Hospital leaders often fear that efforts to improve productivity will alienate staff or lessen quality. Including all stakeholders, redesigning processes and working toward national benchmarks will ensure that productivity improvements stick.


Shawna O'Neill	Cary Gutbezahl, M.D.

One area in hospital operations that has gone largely untouched is reducing the cost of delivering safe, quality health care. This is where new thinking about workforce productivity, case management, and lean processes and policies can reduce the cost of running a hospital. Hospital leaders can transform their organizations into leaner, faster and better organizations—with sustainable improvements.

Planning for success and involving employees in the change increase the likelihood of achieving savings. The most important asset of any health care facility is its people. Without the right people, it is difficult to deliver high-quality, efficient care with great patient, employee and physician satisfaction scores. Productivity gains will come from everyone at the hospital working to be part of the solution, so that there is a groundswell of support and a hospitalwide commitment to become better.

Why Don't Leaders Take Action?

From interviews we have conducted with hospital executives, it is abundantly clear that many have a fear of tackling productivity. Below are some possible sources of that fear:

Hospital leaders often assume that trade-offs are necessary due to potentially competing goals. For example, they believe that reducing labor costs will lower quality and patient satisfaction.
Hospital leaders have a concern that if an objective assessment of hospital productivity reveals significant improvement opportunities, the result will be interpreted as a failure of management.
Many hospitals have existing productivity measurement systems in place and in the absence of an objective assessment, leaders feel that productivity has already been maximized.
Productivity has a richly deserved bad reputation based on failed attempts that executives have participated in or heard about, such as the slash-and-burn approach.
Hospital leaders are often in a precarious position: High turnover, short tenure and concern about reactions from trustees, managers and employees can make even fearless CEOs pause.
In some highly mission-driven hospitals, an emphasis on productivity can be viewed as conflicting with concern for employee well-being.
Many executives are reluctant to pressure nursing productivity for fear of losing nurses to competing hospitals.

What Can Be Done to Alleviate the Fear?

In order to minimize fear and resistance, incorporate the following elements into the change process:

Understand your operational and strategic realities. Carefully tailor any productivity targets based on circumstances, strengths and challenges within each department. Setting productivity targets within each department makes good sense to managers, whereas establishing arbitrary quartile or percentile targets is generally resented or dismissed.

Be fair and all-inclusive. Another guiding principle, and one that managers find to be reassuring, is that the process of establishing productivity targets should be fair and all-inclusive. Include every sector or department in the process, and leave politics out of target setting.

Recognize that staff cuts are not always the answer. Although expense reduction is the ultimate goal, the credibility of the standard-setting process is enhanced when you state a willingness to add to staffing whenever it is indicated. Managers can also make other payroll expense reductions that are not related to full-time equivalents (FTEs), such as overtime, premium pay or skill mix changes.

Build trust. Don't be locked into a departmental standard for life. You will build trust with managers if you are open to changing a standard as new information develops, changes occur within the department or new insights emerge.

Pledge to minimize layoffs. It's best to improve productivity without internal disruptions or large-scale layoffs. A layoff is detrimental to an organization. It not only lowers morale, but if processes do not change, quality and satisfaction suffer, and FTEs will begin to seep back into the organization.

Support "managing to the numbers." Provide tools and education to managers so that you are not only giving them the objective, but also the means of reaching the objective.

A Successful Methodology for Improving Productivity

Improving productivity is a two-step process. The first step is to assess your organization's readiness and willingness to change. This involves the degree to which the leaders are aligned behind a project as complex and demanding as productivity improvement. The leaders of clinical services, ancillary and support services, medical affairs, finance and human resources should share and articulate a unity of purpose regarding the project. They should communicate it as not just a cost-cutting exercise but as a balance of cost management, quality and patient satisfaction.

Interview each department manager to understand the operational realities that affect how productive their employees can be. To understand the operational realities, ask the following questions:

What is the department's scope of service?
What is the depth of experience of the manager?
Does the physical space in which that department resides allow for efficient operations?
Are there intradepartmental and interdepartmental cooperation and communication issues that affect efficiencies?

This interview process also helps obtain buy-in from the managers once their target is set—they feel like they were a part of the process, not just handed a target and then told to figure out how to meet it. Include everyone in the process to encourage trust and participation throughout the organization; there cannot be any sacred cows.

In your interviews, identify other labor expenses that are not FTE related. Many times these are quick fixes that can help your bottom line immediately, like overtime, premium pay, incremental time and meeting time, which can be identified by auditing the payroll.

Next, make a comparison with national benchmarks. National benchmarks are expressed as a range that departments function within; the ranges are usually very comparable across any vendor, and many can be found through a department's professional association. Conduct a comparison to determine actual versus expected FTE staffing levels, and set a specific target for each department.

Putting Your Plan Into Action

After you've completed the assessment, the next step begins. Share findings and recommendations with the entire management team. Identify and prioritize work process redesign opportunities and other projects. Complete detailed project plans, timelines and risk assessments for each project.

Select the appropriate team members for successful implementation of the plans. To sustain the improvements, implement tools to help managers achieve and monitor their progress. Examples of tools that are helpful to managers are a staffing plan based on average workload, a position control of employees that matches the staffing plan, a flexible staffing plan for a department that has volume fluctuation, and a daily and biweekly productivity tracking monitor. A culture of responsiveness to balanced organizational metrics (e.g., productivity, quality and satisfaction) will begin to evolve.

Improving hospital labor productivity while maintaining the quality of patient care and employee satisfaction is an important accomplishment. It demonstrates that stewardship, people and patient care are not conflicting values. An organization that achieves success becomes an organization that learns to embrace change in the future. As processes and the bottom line improve, celebrate the success. Share this with the entire organization and use this to cultivate a can-do culture. The effects of improving productivity can have benefits throughout the hospital.

Shawna O'Neill, R.N., M.H.A., is a co-principal of the workforce management practice at Compass Clinical Consulting in Cincinnati. Cary Gutbezahl, M.D., is the president and chief operating officer of Compass.

This article 1st appeared on June 28, 2010 in HHN Magazine online site.

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