The downsizing trend in hospitals is shrinking.
It appears most hospitals that were going to slash labor forces in order to reduce costs in the industrywide belt-tightening have done so, and fewer jobs need redesigning.
One out of eight hospitals actually is planning to increase staff next year, the highest number in at least four years, according to an annual poll of roughly 10% of U.S. hospitals.
Likewise, hospitals that one year ago intended to join networks or systems -- another measure of industry consolidation -- have executed those plans.
Could it be the crisis years for hospital managers are drawing to a close? No promises, but data so far make it look as if downsizing and work-force redesign at hospitals are becoming yesterday's trends. An annual survey of hospitals' human resources practices by the national consulting firm of Deloitte & Touche turned up encouraging signs:
Although staff cuts still are expected in 1998, they won't be as drastic as in previous years. Some 35% of respondents say if they cut staffing at all, it will be by less than 5%. In the 1995 survey, about 21% of hospitals reported such modest plans. By contrast, 46% of hospitals planned staffing cuts of 5% to 10% in the 1995 survey. Now 32% say they will chop that much.
As for job redesign, 37% of respondents in the 1995 survey had plans to reboot more than 10% of their staff positions. This time around, 25% report such progress. Whereas two years ago 14% didn't plan any job redesign, now 18% don't.
Nevertheless, Deloitte project manager Bill Chafetz cautions: "Even if change is slowing down, two-thirds of hospitals are still cutting costs. As 50% to 60% of hospitals' cost structure is people, it shouldn't be surprising that's the No. 1 issue for human resources departments."
The survey is written to elicit hospital managers' top concerns for human resources strategy in the next year. Some 625 hospitals, roughly 10% of all U.S. hospitals, returned surveys this year, up slightly from about 600 hospitals in the previous year.
One caveat regarding the data must be mentioned. The complexion of the responses has changed significantly, tilting toward smaller and rural hospitals. However, the same trends were observed for the large hospitals as the small facilities. Hospitals with fewer than 100 beds make up half the sample, compared with about 40% in the last survey. Meanwhile, hospitals with more than 200 beds constitute one-quarter of responses, down from one-third in the 1996 survey (See chart, p. 38).
Been there, done that. Of the hospitals surveyed, investor-owned facilities anticipate the least staff reduction and the greatest expansion in the coming year. That may be because they were the quickest to reduce labor, responding to the need several years ago.
Religious hospitals moved more slowly, and they are paying the price. Of all ownership categories, religious hospitals are projecting the biggest work-force reductions for 1998, the fourth year running. Even there, however, the number has dropped sharply to 31% from 44% in the 1995 survey.
Are religious hospitals, because of their social mission, more reluctant to lay off employees when times get [email protected] Or are they just slower to respond to the [email protected] The data don't answer those questions.
While religious hospitals are most likely to reduce their ranks next year, the severest cuts will occur at secular, not-for-profit hospitals. They project ditching 10% of employees in 1998 vs. projections of 6% at government hospitals and 3% each at investor-owned and religious organizations.
Meanwhile, the geographic distribution of projected work-force reductions could reveal something about the progress of the managed-care revolution. Hospitals in Central states plan the greatest reductions in personnel -- at an average of 10% -- and those in the East expect to cut back an average of 7%. Only in the West, where managed care has been metabolized furthest, are planned reductions modest at 4%. Clearly, managed care still is working its way through the digestive tract of the rest of the country.
Hospitals with fewer than 100 beds are less likely to be eliminating jobs in 1998, with 18% projecting cuts, than in 1997, when 28% projected cuts.
Similarly, rural hospitals, which generally face less pressure from managed care, are less likely than larger hospitals to restructure jobs.
Wide awake worrying. Keeping the lid on costs still is important to respondents, but there is a change in focus. Asked what are the most pressing human resource issues facing their hospitals, more listed enterprisewide costs than any other possibility at 38% (See chart, p. 40). Those include benefits compensation and training.
"The recent history of the healthcare industry suggests that cost-cutting has been the primary strategy, and rightly so," Chafetz says. "It's still a strategy, but it's less prevalent than two years ago. Re-engineering and other initiatives have ripped through the industry. There is only so much you can do."
Chafetz explains that there are three ways to act on people costs: Change the number of people employed. Change the types of employees, replacing 100 registered nurses with 100 licensed practical nurses at lower salaries, for example. Or change how much cost is attributed to each individual. This is dictated by benefits, pay, recruitment and training expenditures.
The leading challenge, Chafetz says, is making the surviving employees more productive with harder and smarter work. Worker productivity ranks No. 2 on hospitals' list of human resources concerns at 18%, a number that makes sense given many hospitals might have little room left to cut positions.
In third place was recruiting at 13%. That perhaps reflects the continuing scarcity of certain skilled healthcare professionals, such as physical therapists, and developing shortages of registered nurses in certain regions.
Employee morale was listed as the first object of worry by only 10% of respondents. That's a switch from previous years, when bad morale had dogged the human resources department (Dec. 16, 1996, p. 28; Dec. 11, 1995, p. 52). In the previous year, 86% of respondents reported morale as being their most serious problem, a record high. The dramatic difference, however, is most likely due to a rewording of the question to ask more specifically if improving morale is a concern.
Nevertheless, morale's move from an overwhelming source of concern to a more modest worry might indicate hospitals are settling down internally.
Chafetz thinks concerns about morale and productivity are closely linked. "In the future," he says, "employee productivity will come from helping them grapple with new ways of working."
A partner for the dance. One way hospitals are reducing overhead is by joining networks. "Joining networks is still a viable strategy," Chafetz says. "Even some rural hospitals are starting to get networked."
More than half of respondents have teamed up in some network or system, but those ties are becoming more established. For example, the number of hospitals that say they already have joined a network as a strategy rose by 13 percentage points between 1996 and 1997; and the number of hospitals "planning to join" dropped 15 percentage points (See chart, this page).
It's possible networking has helped hospitals gang up on payers, contributing to the ease of cost-cutting pressures and the fact that most hospitals are making fatter profit margins than managed-care plans these days.
Outsourcing, another partnering strategy, plays a smaller role in hospitals' plans these days. The number of hospitals pursuing outsourcing to cope with change has dropped to 28% from 33%. Paired with a decline in the number of hospitals planning services changes, that shift indicates not that those strategies are less attractive but that they've already been instituted, Chafetz says. "Hospitals will be more focused on reskilling their work force to derive the benefits from the changes they've made," he says.
On the rise are outsourcing of engineering, equipment maintenance, internal auditing and legal services. The share of hospitals outsourcing engineering services hit 14% this year compared with 9% in the previous year; while equipment maintenance outsourcing jumped to 42% from 35%.
"It's part of a trend to stick with core competencies," Chafetz says. "Outsource those things that aren't core competencies to those who have them as core competencies."
Within the human resources department, the tasks most likely to be outsourced are defined contribution administration, such as 401(k) plans, and defined benefit administration, like traditional pension plans.
Surprisingly, given the challenges human resources departments face, outsourcing of most other human resources activities isn't favored. For every other human resources task -- compensation, evaluations, health and welfare, labor, recruiting and training -- the vast majority of hospitals, into the mid-90th percentiles, prefer to do it themselves.