Why labor benchmarking is so critical to healthcare productivity

Healthcare organizations are no strangers to staffing challenges and labor shortages.

Over the last few years, thousands of healthcare workers have exited the medical profession, driving up hospitals’ labor costs by more than $42.5 billion between 2021 and 2023 to a total of $839 billion. Today, labor costs account for roughly 60% of the average hospital’s expenses, according to figures published by the American Hospital Association.

While some of these labor costs are attributable to the surge in temporary staffing  at the height of the pandemic, the pressure to do more with less has never been greater.

“Our staff really are the most important asset, but it’s more challenging than ever to uphold staffing standards,” said Bailey Benoit, MHSA, manager of healthcare strategy and operations at Plante Moran. “We’ve seen an exodus of staff providing bedside care. We have a limited pool of clinical staff to pull from, and a lot of nurses are choosing to either leave inpatient nursing or move to another organization.”

To stay profitable, healthcare organizations must embrace a smarter staffing approach. 

The right labor productivity benchmarking tools, used in conjunction with strategies that improve mid-level manager engagement, can help with this while boosting staff morale. 

Understanding the benefits

Benchmarking has come a long way since the late 1990s, when it was primarily used to gain clinical insights that would improve outcomes .

Today, benchmarking tools are leveraged by multiple healthcare stakeholders — payers, clinical managers, healthcare CFOs and regulatory bodies — to track and improve quality, efficiency and productivity. In order to best manage labor expenses, specifically, having tools in place to measure productivity compared to other like-organizations on a biweekly basis allows managers to flex and adjust to align production with staffing resources.

Yet, studies suggest that both clinical and operational benchmarking tools are still somewhat underutilized at the healthcare organization level.

A Dec. 12, 2023, MGMA Stat poll found that 41% of medical group leaders benchmark their organization’s data versus external data annually, compared to nearly one in four (24%) who are benchmarking at least monthly and another 15% benchmarking quarterly. This is understandable for a few reasons.

Healthcare managers don’t always have readily available data to make decisions. With physician and nurse turnover at high levels already, emotions come into play, as managers strive to support their teams, and ensure quality of care. For example, if a hospital’s top surgeon asks for more clinicians to be assigned to their cases (in addition to a circulator, scrub tech or anesthesiology team), or a charge nurse pleads for more aides in the surgery unit, saying “no” is hard. Healthcare managers don’t want to risk endangering patients or upsetting their top revenue-generating providers. 

Another reason labor productivity benchmarking is underutilized may stem from a lack of understanding of its power to improve employee satisfaction. Healthcare workers that went into medicine to help others often see benchmarking productivity as a way of justifying staff reductions. The negative stigma is hard to shake, according to Sharon Ulep, MBB, MBA, CMCA, partner, healthcare operations, Plante Moran. 

“Often, when folks approach labor productivity benchmarking, it feels like it’s coming from finance leadership with a directive to meet a number, and they aren’t educated and engaged at the table in a way that allows them to recognize it’s actually a productivity tool,” said Ulep.

With proper engagement and coaching, mid-level managers should feel empowered to make changes that impact efficient use of labor. They should also feel more fully informed on how to staff to demand each day and adjust based on activity.

Without labor productivity data, it’s nearly impossible to truly know the magic number of staff that are correlated with the optimal outcome. It’s also impossible to know if a seemingly busy OR is understaffed or if staffing levels are just right. Thus, a difficult cycle of emotional guesswork — and the potential for overspending on labor — continues.

Empowering mid-level managers to improve staffing

Given the challenges the healthcare industry faces beyond 2025, labor productivity management is no longer a luxury. It’s a necessity of doing business in order to provide decision-based information about hiring and staffing to demand.

With that in mind, Ulep suggests this five-step approach for organizations that want to implement labor-productivity benchmarking processes that improve operations while empowering mid-level clinical managers.

1. Listen. Frequently, executives perceive labor productivity benchmarking as a mandate from the finance team, focused solely on achieving a specific target. Instead, health leaders should talk directly to their mid-level managers and listen to their feedback. What are the concerns that they have about staffing or patient care? What keeps them up at night? What is morale among physicians? What is making it difficult to deliver services? Listening to managers is also important because it could unearth information to consider when benchmarking (e.g., facility design that requires higher minimum staffing to operate safely).
2. Analyze. Once essential feedback is gathered from stakeholders, it’s time to zero in on the data itself. When embarking on a benchmarking exercise, be sure to use metrics that are department-specific whenever possible. This helps mid-level managers understand what a productive day or pay period looks like. Healthcare organizations that would benefit from assistance in choosing the appropriate comparison groups for benchmarking should seek out a third-party expert or vendor partner. Your finance system may have display capabilities for building recurring reports that assess real-time performance. If so, use it. If not, consider using visualization tools such as Tableau, Power BI or Excel to show performance at the department level to mid-level management.
3. Coach. Sharing data insights directly with managers empowers them to make the changes that will ultimately elevate quality and efficiency. Work with your teams to discuss the data, ensuring managers understand it and know how to identify the levers they control to improve productivity (e.g., staffing levels, hours of operation, or patient slot times). “Coaching really has to be that place where we say, ‘here’s what you control, and based on our interviews with your organization, here’s where you can improve,’” said Ulep. “That creates the roadmap for the next phase, which is improvement.”
4. Improve. Once managers are educated and engaged on how to use data to initiate change, they can start to gradually implement best practices. The goal is to enable the manager of a department to understand the levers they can pull to directly impact productivity performance. With accurate labor productivity benchmarking data, it’s easier to initiate change and implement best practices that can be measured over time. Keep in mind that making the right changes to meet performance goals will involve a bit of trial and error.
5. Sustain. To understand how changes in labor are impacting productivity goals, it’s important to run reporting functions in a benchmarking productivity tool and create timely production reports for each pay period. C-suite leaders need to understand how to use the data to further refine benchmarking data flows and maintain key goals.

“When we engage with organizations, we work with them to get labor productivity reporting going out to their team every two weeks in order to demonstrate and sustain the gains that they’re making,” said Ulep.

Looking to the future

Productivity should not be used to justify staff reductions. It is meant to be a way to understand how your organization is performing compared with similar facilities. It is meant to drive curiosity in understanding why you are different from others and where improvement would benefit your patients and your bottom line. And it is a way of respecting your staff, their time, their skills and their needs, and to meaningfully connect them to your organization’s mission.

With ambulatory volumes expected to increase 10% by 2027, labor productivity benchmarking tools can help inform smarter staffing decisions. Even organizations that have a mature understanding of labor benchmarking should be considering how their benchmarks and tools are adapting to managed care and the shift in site of care to an ambulatory setting. The science of productivity management will stay the same, but the variables affecting healthcare labor management continue to adjust. Matching your labor management strategy to your changing operations strategy is the key to success.

About Plante Moran

Plante Moran is among the nation’s largest accounting, tax, consulting, and wealth management firms and provides a full line of services to organizations. Our healthcare practice is one of the leading national financial and operational consulting practices, serving over 2,500 clients across the entire healthcare continuum. Our clients are large health systems, community hospitals, skilled nursing facilities, independent and assisted living facilities, home health and hospice agencies, medical groups and physician practices, health plans, community-based service providers, and private equity groups. For more information, visit plantemoran.com.

_{This published piece is provided solely for informational purposes. HFMA does not endorse the published material or warrant or guarantee its accuracy. The statements and opinions by participants are those of the participants and not those of HFMA. References to commercial manufacturers, vendors, products, or services that may appear do not constitute endorsements by HFMA.}