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Unveiling Overtime’s Total Costs

How OT May Be Harming Your Businessand Your Patients

The collective challenge to build a financially sustainable and safe healthcare industry, one where patient satisfaction is the norm, not “an aspirant goal,” remains a top priority, if not a mandate. Achieving a new performance plane requires solutions that can move the needle—incremental approaches will fall short with the frenetic pace of change. As staff are the most important and most expensive asset in healthcare, transformation has no better ally than its workforce.

The healthcare industry is in the throes of arguably its most challenging period. Payers, purchasers, consumers, and regulators have all trained a laser focus on driving better outcomes and reducing spending. The facts lead to an undeniable conclusion – without marked improvement, healthcare will continue to be the most expensive and most dangerous US industry. In 1999, the Institute of Medicine awakened the industry to its safety issue by proclaiming that 100,000 people are killed unnecessarily each year by medical errors. Today experts believe that number to be more than four times that—a staggering 440,000 (the equivalent of nearly 900 fatal jumbo jet accidents each year).1 From a financial perspective, healthcare accounts for 20% of the US economy, and is approaching $3 trillion annually. Left

unabated, healthcare will continue its outsized growth, doubling by 2040.2

As stakeholders actively seek solutions, seemingly around every corner, to this dangerous and expensive industry, leaders should look first at the workforce. More specifically, leaders should zero in on overtime. Overtime’s financial impact has long been self-evident: premium pay hurts the bottom line. However, the pernicious impact of overtime extends far beyond finances. Overtime’s negative impact on patient safety is astounding, and our understanding of its influence on patient satisfaction continues to deepen. The journey to a safer hospital and satisfied patients can be challenging. The following analysis will demonstrate how controlling overtime provides a dominant strategy for cultivating safer, financially sustainable hospitals.

Overtime’s Expensive and Pervasive Challenge Labor accounts for upwards of 55%of a hospital’s expense.3 Nursing is a core driver of this expense, accounting for 18%-25% of operating costs.4 Embedded in these figures are the significant overruns for nursing overtime. Unchecked, overtime can reduce already fragile bottom lines at a time when north of 50% of hospitals have low single-digit margins, and nearly a quarter have negative operating margins.5

“Today

experts

believe that

the number

of medical

errors is

440,000 –

four times

that of

the 1999

Institute of

Medicine

number (the

equivalent of

nearly 990

fatal jumbo

jet accidents

each year).”

By Daniel D’Orazio, MBA, Patrick Ball, MBA, Christopher DeMarco, PhD, MBA

According to national studies, over 50% of full-time nurses work overtime. And, it’s not small amounts of incremental overtime, but rather an average of seven hours per nurse, per week.6 For many hospitals, nurse overtime accounts for 7-10% of total hours worked.7 While overtime has and will continue to remain a solution for filling open shifts, unmanaged overtime in the 10% range is costly, roughly $3 million for a 300 bed hospital. By reducing nurse overtime from 7.5% of total hours to 2.5%, this same hospital can save north of $1.2 million annually.8 However, the return on managing nurse overtime extends far beyond hard dollar savings. The longer nurses work, the more they become dissatisfied, they are more prone to turnover, they have a marked propensity for medical errors, and they contribute to lower patient satisfaction

scores. Thus, measuring overtime solely in dollars and cents fails to account for true costs—medical errors and patient safety must enter into the equation.

Are Truckers Safer than Nurses? In July 2013 the Federal Motor Carrier Safety Administration (FMCSA) implemented new rules to limit the amount of hours a truck driver could work in a week by nearly 15%. The Secretary of Transportation proclaimed that “safety is our highest priority. These rules are common sense and data-driven changes to reduce truck driver fatigue and improve safety for every traveler on our highways and roads. ”The FMCSA noted that “working long daily and weekly hours on a continuing basis is associated with chronic fatigue, a high risk of crashes, and a number of serious chronic health conditions in drivers.”9

Trucking and nursing share similar risk factors, and numerous studies demonstrate that when nurses work long shifts or long work weeks, overtime contributes to a significant risk of more medical errors. At a time when new research demonstrates the gravity of medical errors is far greater than the industry believed, healthcare desperately needs solutions that will reverse this endemic challenge. With preventable medical errors resulting in more than 1,000 deaths per day, medical errors rank as the third leading cause of death behind heart disease and cancer.10

While regulation may not intercede on a national level as it did in the trucking industry, the question remains—how will healthcare deal with the danger of tired nurses? Sixteen states have begun to address this through passed and pending regulations that limit mandatory overtime.11 Yet while there is no national standard, groups like the American Nurses Association (ANA) are

trumpeting reform. The ANA recently updated its policy on this matter calling for changes to nurse schedules such as 12-hour work shifts and limiting nurses to 40 hours in a seven-day period.12 As the industry grapples with solutions to address medical errors and patient safety, there is perhaps no greater clarion call for improving patient safety than controlling overtime. Consider the following:

• The risk for making an error more than doubled when nurses worked 12.5 or more consecutive hours.13

• Medication errors and hospital- acquired infections are 3.71 and 3.39 times more likely respectively when nurses work more than 40 hours per week.14 • Patient falls and pressure ulcers are 3.36 and 3.50 times more likely respectively when nurses work voluntary overtime.15

“Patient

falls and

pressure

ulcers are

3.36 and

3.50 times

more likely

respectively

when

nurses

work

voluntary

overtime.”

Overtime will continue to play a role in staffing, but when overtime becomes part of a hospital’s fabric, executives must reconcile the attendant threats. These threats impact not only patients, but also the system’s financial health. Many of these errors are costly, unreimbursable never events. For example, MRSA, central line infections, and pressure ulcers cost more than $40,000 per incidence.16,17,18 While it is unreasonable to think that healthcare’s systemic workforce supply and demand challenges will be resolved easily, organizations do have the power to proactively manage overtime and diminish the exposure to medical errors.

Satisfied Staff + Satisfied Patients=Financial Returns A hospital’s business model increasingly depends on satisfied patients. In many markets, patients have a choice, their financial responsibility is growing, and they have access to a growing amount of data that helps them to evaluate hospital performance. In many ways, consumerism has arrived, and not just for individuals. Medicare shares similar aims, and has instituted value-based purchasing bonuses or penalties that can impact up to 1.5% of a hospital’s Medicare reimbursement. In recognition of patients’ voices, Medicare derives 30% of these metrics from patient satisfaction surveys called Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS).19

Similar to its impact on medical errors, nurse overtime hampers patient satisfaction. With nurses spending 40% of their shifts in direct patient care, nurses arguably represent the most visible interface with the patient. Yet the longer nurses work, both in terms of hours and shifts, the more dissatisfied both they and their patients become. Nurses working shifts of thirteen hours or more are 2.7 times more likely to be burnt out, 2.38 times more likely to be dissatisfied in their jobs, and 2.57 times more likely to intend to leave their job in the next year than nurses who work 8-9 hours.20 Patients feel the impact of long shifts too. Patients reported higher satisfaction when higher proportions of nurses worked eleven or fewer hours and less satisfaction as nurse shifts extended beyond thirteen hours.21

The connection between patient satisfaction and the length of a nursing shift can impact financial performance. As nurses work more hours, patients are more likely to rank hospitals 6 out of 10 or below in HCAHPS.22 JD Power and Associates provides key inputs to monetize the power of poor HCAHPS scores. Patients who score a hospital less than a 7 on HCAHPS have a 38% likelihood of returning to

the hospital, whereas patients who score the hospital with an 8 or higher are more than twice as likely to return (80%).23 This evidence is supported by other studies demonstrating that the percentage of patients who would “definitely recommend” a hospital to their loved ones decreased 2 percent for every 10 percent of the nurses who expressed dissatisfaction with their jobs.24 These data sets reinforce the power of staff satisfaction and its contribution to satisfied patients.

Closing ThoughtWith healthcare changing almost daily, executives face an extraordinary set of challenges. The shorthand of this mandate reads like this: Make the hospital safer, do it cheaper, and keep the “customer happy.” Moving the proverbial needle will be difficult, but controlling overtime can be a force multiplier. Rare is the opportunity to attack cost, patient safety, and patient satisfaction with one metric. When properly managed, overtime can deliver on that promise.

“As nurses

work more

hours,

patients

are more

likely

to rank

hospitals

6 out of 10

or below in

HCAHPS.”

About API HealthcareAPI Healthcare (www.apihealthcare.com) is focused on workforce optimization solutions exclusively for the healthcare industry. The company’s staffing and scheduling, patient classification, human resources, talent management, payroll, time and attendance, business analytics, and staffing agency solutions are used by more than 1,600 health systems and staffing agencies. Founded in 1982, API Healthcare has been rated by KLAS in the Top 20 Best in KLAS Awards Report (www.KLASresearch.com) as the top time and attendance provider system for the last 12 years (2002-2013) and the top staffing and scheduling solution in 2012 and 2013.

About GE HealthcareGE Healthcare provides transformational medical technologies and services to meet the demand for increased access, enhanced quality and more affordable healthcare around the world. GE (NYSE: GE) works

on things that matter - great people and technologies taking on tough challenges. From medical imaging, software & IT, patient monitoring and diagnostics to drug discovery, biopharmaceutical manufacturing technologies and performance improvement solutions, GE Healthcare helps medical professionals deliver great healthcare to their patients.

About the AuthorsDan D’Orazio, Pat Ball and Chris DeMarco are executives with Sage Growth Partners (SGP), a healthcare strategy, technology, and marketing services firm (www.sage-growth.com). Mr. D’Orazio is a member of the Professional Faculty of the Johns Hopkins Carey Business School and Mr. Ball is an Adjunct Instructor, The Pennsylvania State University.

© Copyright 2015 API Healthcare Corporation. All rights reserved. © 2015 General Electric Company – All Rights Reserved. GE Healthcare, a division of General Electric Company.

1Allen, Marshall. “How Many Die from Medical Mistakes in U.S. Hospitals?” ProPublica September 19, 2013. http://www.propublica.org/article/ how-many-die-from-medical-mistakes-in-us-hospitals2Executive Office of the President Council of Economic Advisers. “The Economic Case for Healthcare Reform.” June 2009. http://www.whitehouse.gov/ assets/documents/CEA_Health_Care_Report.pdf3Massachusetts Hospital Association. “Hospital Costs in Context: A Transparent View of the Cost of Care” April 2010. Accessed July 3, 2014. http://www.mhalink.org/AM/Template.cfm?Section=Home&Template=/CM/ContentDisplay.cfm&ContentID=11241 4Welton, John. Hospital Nursing Workforce Costs, Wages, Occupational Mix, and Resource Utilization. The Journal of Nursing Administration, 41, no. 7/8 (2011): 309-314.5Adamopoulos, Helen. “5 Things to Know about Hospital Margins.” Becker’s Hospital Review. http://www.beckershospitalreview.com/finance/5-things- to-know-about-hospital-margins.html6Bae, Sung-Heui. “Nursing Overtime: Why, How Much, and Under What Working Conditions?” Nursing Economics, 30, no. 2 (March/April 2012): 60-71.7The Advisory Board Company. “Data and Analytics Nursing Productivity Benchmark Generator.” Accessed July 2, 2014. http://fac.advisory.com/2014_B_NUBI_BGFramework/Main/GetSession/?var=917910FF-D016-4149-BB43-DD6666801BC08Sage Growth Partners Analysis.9James, John T. “A New, Evidence-based Estimate of Patient Harms Associated with Hospital Care.” Journal of Patient Safety. September 2013, 9, no. 3: 122-128. http:/journals.lww.com/journalpatientsafety/Fulltext/2013/09000/A_New,_Evidence_based_Estimate_of_Patient_Harms.2.aspx10Allen, Marshall. “How Many Die from Medical Mistakes in U.S. Hospitals?” ProPublica September 19, 2013. http://www.propublica.org/article/ how-many-die-from-medical-mistakes-in-us-hospitals11Bae, S.-H., Brewer, C. S., & Kovner, C. T. State mandatory overtime regulations and newly licensed nurses’ mandatory and voluntary overtime and total work hours. Nursing Outlook (2011): 1-12.12 American Nurses Association. http://www.nursingworld.org/MainMenuCategories/Policy-Advocacy/State/Legislative-Agenda-Reports/ MandatoryOvertime13Rogers, Ann, et al. The Working Hours Of Hospital Staff Nurses And Patient Safety. Health Affairs, 23, no.4 (2004):202-212.14Bae, Sung-Heui. Presence of Nurse Mandatory Overtime Regulations and Nurse And Patient Outcomes. Nursing Economics. March/April 2013; 31, no. 2: 59-89.15Ibid.16Shorr, A., and T. P. Lodise, Jr. Burden of Methicillin-resistant Staphylococcus aureus on Healthcare Cost and Resource Utilization. International Society of Microbial Resistance, 2006. PDF.17Centers for Disease Control and Prevention. The Direct Medical Costs of Healthcare-Associated Infections in U.S. Hospitals and the Benefits of Prevention. By R. Douglass Scott, II. 2009. PDF.18Zaratkiewicz, Sunniva et al. Development and Implementation of a Hospital-Acquired Pressure Ulcer Incidence Tracking System and Algorithm. Journal of Healthcare Quality. 2010, 32(6): 44–51.19Kaiser Health News. “Methodology: How Value-Based Purchasing Payments are Calculated.” Accessed December 22, 2014. http://kaiserhealthnews.org/news/value-based-purchasing-medicare-methodology/20Stimpfel, Amy, et al. The Longer The Shifts For Hospital Nurses, The Higher The Levels Of Burnout And Patient Dissatisfaction. Health Affairs, 31, no. 11 (2012): 2501-2509.21Ibid.22Ibid.23JD Power and Associates cited in Sisneros, Dorothy M. Employee Focus in a Time of Change, Thunderbird Leadership Consulting and Leebov Golde Group, May 12, 2012. http://www.lonestarhfma.org/files/file/Presentations/2012_05_Sisneros_Dorothy_CreatingAnEngagedWorkforce.pdf24McHugh, Matthew et al. “Nurses’ Widespread Job Dissatisfaction, Burnout, And Frustration With Health Benefits Signal Problems For Patient Care.“ Health Affairs, 30, no. 2 (2011): 202-210.