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An Examination of the Possible Correlation Between Nurse Staffing and Hospital Financial Performance

Written by , MSP
January 16, 2024

In the ever-transforming healthcare landscape, patient care and staffing ratios are constantly evolving to meet compliance and safety standards, as well as avoid fiscal ramifications.  

A healthcare facility’s financial performance is a fundamental component in providing top-notch patient care and effectively allocating resources to address changes and challenges in the healthcare industry.

By exploring the possible correlation between nurse staffing and hospital financial performance, it becomes clear that nurse staffing ratios can impact a healthcare facility’s fiscal future in a variety of ways. 

In this article, we will highlight the major impacts of nurse staffing on financial performance, and delve into possible cost-saving solutions. 

 

Table of Contents

 

how does staffing affect hospital performance

 

Why Is It Important for Medical Facilities To Optimize Their Nurse Staffing Levels?

The importance of optimizing nursing staffing ratios lies in safety and patient outcomes. In the years following the COVID-19 pandemic, the healthcare industry has been called upon by high-authority organizations to increase their attention towards safe nurse staffing. 

The National Academy of Medicine (NAM) published the “National Plan for Healthcare Workforce Well-Being” in October 2022. The document was a call to action upon healthcare facilities and establishments to improve safe ratios and healthcare worker retention by investing, “in appropriate and flexible staffing plans that allow for safe patient care, including backup.”

Over the years, the rising need and call to action for reliable staffing models has also brought the healthcare industry into the courthouse repeatedly. 

On April 6th, 2023, the Safe Staffing Act of 2023 was introduced to Congress. This bill would, “require[s] hospitals to implement and submit to the Department of Health and Human Services (HHS) a staffing plan that complies with specified minimum nurse-to-patient ratios by unit.” This is one of the many Safe Staffing Acts that have been introduced into the legislative and judicial systems throughout the years.

There is a plethora of research and reviews that cite the importance of nurse staffing levels on patient welfare and outcome, staff safety and satisfaction, and staff retention and turnover levels. Proper nurse staffing is vital to the ecosystem of the healthcare industry at large. 

Staffing ratios matter because of establishment performance and appropriate patient outcomes, but cost is also a consideration. 

 

The Challenge of Balancing Nurse Staffing Costs With Profitability

Roughly 40% of operating budgets in a healthcare facility or agency are dedicated to staffing nurses. With nurse staffing making up a large portion of a facility’s budget, adequate staffing becomes reliant on finding efficacious solutions to numerous challenges. 

One of the biggest obstacles in maintaining a healthcare staffing budget is balancing the costs with profitability. Some examples of fiscal issues that might arise due to inadequate nurse staffing may include: 

  • Increased length of hospital stays
  • Higher readmission rates
  • Medical errors and litigation costs
  • Staff burnout and turnover
  • Fines incurred as a result of safety and compliance audits

On the other side, proper nurse staffing can help manage healthcare costs, as well as impact the financial performance of healthcare establishments. 

A proper and well-supported nurse staffing strategy may lead to improved patient outcomes and higher retention and staff satisfaction rates. Both of which can lead to cost-saving through efficiency

 

nurse staffing and hospital financial performance

 

Added Layer of Financial Consideration: Contingent Nurse Staffing

The COVID-19 pandemic put a spotlight on a major quandary faced by healthcare institutions nationwide. 

What is a practical solution for the nursing shortage? 

The conditions of COVID-19 exacerbated what was already an emerging cataclysm on the horizon of the healthcare industry. Hospitals seeking to avoid total decimation at the hands of the shortage turned to temporary labor. Nurses seeking to escape burnout and mental exhaustion found it in temporary labor roles like travel nursing. 

From there, the contingent staffing model began its evolution from a temporary solution to an ongoing means of staffing support. 

Contingent staffing may be costly, especially if there is no uniform way to track and maintain the contingent workforce of an entire facility. However, emerging evidence suggests that contingent staffing costs may be no greater than permanent staffing costs. 

A recent study examined and compared the cost of full-time staff and contingent staff and found that a full-time employee can cost a facility up to 1.9-2.2x their hourly rate. Due to the additional expenses of hiring and maintaining a full-time staff member, the contingent staff labor rate may cost 33% less than full-time labor costs. 

Whether the cost of employing contingent staff over permanent staff is higher or not, healthcare leaders must consider another costly consequence of unmitigated staffing issues — the closure of entire units and facilities. 

A Becker’s Hospital CFO report published in November cited 72 hospitals that had to close departments or end services since February 2nd alone. Another 2022 data report, conducted by the American Health Care Association, documented 1,000 nursing home closures since 2015 — with 776 of the closures happening before the pandemic and 327 closures happening during it. 

The contingent staffing model may have its financial costs, but it costs less than the alternatives or other areas where the effects of nurse staffing impact hospital financial performance. 

 

7 Areas Where the Effects of Nurse Staffing on Hospital Financial Performance May Be Identified

So how does staffing affect hospital performance when comparing adequate and poor nurse staffing levels? How can a hospital cut from its staffing budget until it begins to impact the facility’s fiscal outcomes? And what is the bottom line of the effects of nurse staffing on hospital financial performance? 

Read on to reveal the answers.

 

#1: Staff Retention

A high staff turnover rate can be costly and healthcare turnover rates are notably high.

The ‘2023 NSI National Health Care Retention & RN Staffing Report’ revealed that the 2023 turnover rate for hospitals nationwide stood at a high of 22.7%. 

The same NSI Solutions report also uncovered the cost of poor staff retention. The cost of an RN turnover ranges between $40,200 and $64,500, with the average RN costing facilities $52,350. 

Contrary to poor staff retention, adequate staff retention can reduce financial costs by:

  • Improving the quality of patient care
  • Reducing the training/orientation budget
  • Decreasing the growing reliance on temporary staff

The average hospital currently spends 11.7% of the staffing budget on the contingent workforce. On average, these costs may be lower than the costs of recruiting, hiring, and training full-time staff in the face of high turnover rates. 

With so much time and resources poured into the hiring process of staff nurses, it can be costly and nearly impossible for facilities to keep up with the gaps created by labor shortages without help. 

At Trusted Managed Services, it is our goal to provide and help manage a hospital’s pool of contingent workers to take some of the burden off of healthcare leaders and administrators. By centralizing and optimizing your facility’s contingent staffing pool, we can help provide insight to help you decrease staffing and retention costs. 

 

the effects of nurse staffing on hospital financial performance

 

#2: Length of Stay (Turn Rate)

Inadequate nurse staffing may lead to delayed or rationed time for care, which may increase the length of stay for patients. 

A 2021 BMJ Open study examined patient outcomes in med-surg nurses with a staffing ratio of 4.2 to 7.6 patients per nurse. The study found that the odds of a patient staying a day longer at all intervals increased by 5% per each additional patient added to the nurses’ average patient load. 

A further examination of this figure estimated that an appropriate 4:1 patient load could have saved the facility over $117 million that year alone. 

 

#3: Patient Ratios

Adequate patient ratios are intrinsic to patient outcomes like mortality rates, turn rates, patient satisfaction and experience, medical errors, and readmission rates. When your patient ratios are stretched thin, the quality of care suffers. 

Due to this, legislators have created laws to enforce proper patient-to-nurse ratios through audits and costly fines. California, a state with one of the strictest patient ratio laws applying to all units and specialties, holds healthcare facilities accountable for inadequate patient-staffing ratios with a $15,000 fine for the first offense and a $30,000 for the next. 

New York passed the Safe Staffing for Quality Care Act in 2021 which requires ICUs to comply with a 1:2 nurse-to-patient staffing ratio. The bill also requires every nursing home to maintain daily staffing hours equal to 3.5 hours per care facility resident. Failure to comply with either ratio standards may result in a $2,000 fine imposed each day in a quarter until minimum staffing requirements are met.

The laws around patient ratios are becoming a trend in other states. The list of states with pending patient ratio laws includes:

  • Illinois
  • Georgia
  • Maine
  • New Jersey 
  • Pennsylvania

 

#4: Patient Outcomes

The relationship between nurse staffing and patient morbidity rate is a well-researched topic.  

A Swiss longitudinal study focusing on routine shift, unit, and patient-level data over three years found that high nurse staffing levels had lower odds of mortality (decreased by 8.7%), as opposed to low staffing levels which were associated with high odds of mortality (increased by 10%).

High morbidity rates can be costly for healthcare facilities. According to the Agency for Healthcare Research and Quality, the total cost of hospitalizations ending in death across the nation was $17.6 billion in 2007. With the rising cost of medical equipment and supplies and the surging morbidity rates, the cost of high patient mortality rates is great. 

Healthcare facilities cannot provide quality and fiscally responsible care with a bare-bones nurse staffing model. The contingent workforce may help hospitals by supplementing staffing gaps and reducing the workload of staff nurses. 

 

nurse staffing and hospital financials

 

#5: Readmission Rates

Adequate nurse staffing leads to quality care that reduces readmission rates. One study found that the odds for readmission for patients with heart failure was 7% higher for each additional patient introduced onto a nurse’s workload. 

The researchers also found that higher staffing ratios yielded lower post-discharge ED visits and facility readmissions. Furthermore, the study uncovered a surprising finding — the decreased costs and fewer visits/readmissions offset the cost of increased staffing. 

 

#6: Medical Errors

Over the last 20 years, more than 100 academic studies have been conducted on the relationship between poor nurse staffing ratios and unnecessary patient outcomes, including death, due to medical error. A 2004 Ontario-based study found that low nurse-to-patient proportions lead to a higher number of medication errors and wound infections. 

In addition to causing patient harm, medical errors are another negative effect of nurse staffing on hospital performance. According to the Institute of Medicine, medical errors cost facilities between $17 billion to $29 billion each year. 

 

#7: Patient Satisfaction, Future Choice, and Referrals

A positive patient experience and satisfaction may lead to the facility becoming the patient’s primary choice for their future healthcare needs. 

Nurses spend the most time with patients, and patient satisfaction tends to revolve around how safe and well-cared for the patient feels. Inadequate nurse staffing may lead patients to feel low priority as nurses are forced to ration care under large patient workloads.

 

How Can Contingent Nurse Staffing Help Improve Hospital Financial Performance?

In a perfect world, healthcare facilities would not need to rely upon contingent staffing to maintain appropriate nurse staffing to meet patient needs and financial performance goals. 

Nurse staffing is a complex system that may rely on sometimes arbitrary figures, such as:

  • Patient acuity
  • Admissions numbers
  • Transfers
  • Discharges
  • Staff skill mix and experience
  • Mental exhaustion and burnout
  • Permanent staff availability

With so many factors that can influence nurse staffing ratios, not relying upon contingent staff may cause more harm than good. Some trends may be anticipated but some can leave hospitals without adequate staffing models that may affect some or all of the above-mentioned areas.

Healthcare managed service providers (MSPs) help healthcare facilities optimize workforce management and stabilize labor costs by:

  • Providing market guidance and utilization visualization: Healthcare MSPs meet the challenge of contingent staff headcount and data by centralizing the contingent staff ordering process while maintaining contingent employment data. This gives the system more visibility when it comes to managing contingent staff budgeting and cost-saving initiatives. 
  • Helping facilities keep healthcare workers in compliance: Healthcare MSPs take the responsibility for validating and maintaining worker records and licensing, which saves the hospital time and fines that could be the result of a Joint Commission audit. 
  • Bringing down contingent labor costs: Through rate and contract negotiations with staffing companies, hospitals can lower industry costs by strictly relying on a healthcare MSP for contingent labor. 
  • Encouraging full-time conversions: Unlike travel nursing, which rarely offers a chance for travelers to become staff nurses, Healthcare MSPs allow establishments the opportunity to “try before they buy.” 

To fully receive the benefits of a healthcare managed service provider, hospitals must rely on healthcare MSPs they can trust. Trusted Managed Services is a healthcare MSP that hospitals can rely on when navigating the challenges posed by the healthcare labor shortage. It may not be your goal to rely on a healthcare MSP to relieve the burdens of staffing shortage but the reality is that the contingent staffing model supplements nurse staffing challenges to help reduce costs, negative patient outcomes and experiences, and undue burden on permanent staff. 

At Trusted Managed Services, we understand the duality of contingent staffing and the ongoing healthcare labor shortage. Our professionals are committed to working with you and your facility to help you find a contingent staffing solution that remedies your staffing challenges while addressing your concerns and worries. 

 

Trusted Managed Services: A Healthcare MSP Dedicated To Helping Facilities Manage Their Nurse Staffing Challenges

The effects of nurse staffing on hospital financial performance can be costly, even more so, if these challenges are not supplemented with a contingent staff force.  

The alternative to using the support of contingent staffing resources, like MSPs, may incur high burnout rates, poor patient outcomes, costly fines and litigation, and more. Healthcare facilities need an adequate amount of nurses to continue optimal and safe operations. It may not always be possible to meet staffing needs with in-house hiring alone. 

Through Trusted Managed Services, you can utilize labor from a large talent pool to meet staffing needs when the need arises. By using our resources to help you manage your contingent staff force, you can make informed and data-driven decisions when choosing contingent staffing counts. 

Our services are at no cost to the facilities we assist. 

Contingent labor costs, like any healthcare facility cost, are always a factor in facility performance. At Trusted Managed Services, we use our industry knowledge to help healthcare facilities lower their costs by negotiating with staffing suppliers. 

Meet the effects of nurse staffing on hospital financial performance head-on with Trusted Managed Services, the healthcare managed service provider you can trust.  

 

the effects of nurse staffing on hospital financial performance

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