Breaking Down Approaches to Reducing Labor Costs

In a recent Becker’s Hospital Review Article by Mariah Muhammad, 47 Executives commented on the question: “What is your hospital/health system doing to manage or reduce labor costs over the next two years?” About half were CEOs, the rest being executives mainly from the “C-Suite.”

I found the article fascinating to get the perspectives of so many senior leaders in one place. That said, there were so many responses that it was challenging to tease out trends and themes across the answers. So, I started to count when these leaders mentioned various topics in the article. While this approach is not scientific, and someone else might come up with different counts based on their reading and perceptions, it identifies several trends or areas in which these executives’ organizations focus their attention.

Contract Labor, Staff Retention, and Recruiting

The most significant focus area seems to be reducing contract labor, improving retention, and recruiting. Over half of the executives mentioned this as an area for improvement. Before COVID-19, the boom in traveler nurses, and the great resignation, I might not have put contract labor with the other two focus areas. However, many responses indicated a relationship between improving retention and reduced contract labor costs. This emphasis jells with many of the conversations I’ve had with senior executives as they work towards reducing the turnover rate and traveler usage back to pre-pandemic levels.

Process/Clinical Improvement and Technology Implementation

Half the executives mentioned clinical/process improvement or implementing technology to impact labor costs. Seven of them indicated AI as a particular technology they were implementing. I have seen a focus on clinical and process improvement at many of my clients, where they are improving patient throughput and reducing average length of stay as a cost reduction strategy. Technology implementations seem to be much more return on investment-focused than I have historically seen.

Back to Basics

I lumped most everything else into the traditional or “back to basics” category, which twenty participants mentioned. This category included many straightforward ways to reduce labor costs, including analytics/reporting, management restructuring, benchmarking, and cutting staff. Of these, the most mentioned topic was a labor cost management or analytics-based approach to expense reduction. Reducing overtime and premium pay was another favorite topic in this category.


Finally, seven respondents mentioned culture. A couple of these focused on being more cost-conscious, while the others concentrated on being more employee-friendly, likely supporting the retention efforts mentioned earlier.

The environment for health systems makes proactive cost management an imperative. Considering labor is by far the most significant expense in these organizations, it makes sense that many organizations focus on “upping their game” to improve their performance.

About The Author

John Stigaard has worked in healthcare analytics and operations improvement for over 30 years. His experience includes managing the annual staffing budget process for a single hospital-based health system. He has successfully led the development and installation of labor cost management systems in over a dozen organizations.