The dramatic reductions in revenue many healthcare providers have experienced during the past few years have been well-chronicled in this magazine. The effects of the cuts have been showing up on the bottom line, sometimes prompting executives to make shortsighted budgeting decisions.
The revenue reductions began in earnest in the mid-1990s as managed care began to take a big bite out of net revenue because of utilization controls and lower contractual payments.
Those cuts were exacerbated with the passage of the Balanced Budget Act of 1997, which is expected to reduce projected federal healthcare outlays by more than $170 billion over five years through 2002-mostly from Medicare payments, including the $18 billion in provider relief approved late last year. Since healthcare is a $1.1 trillion industry, on average this amounts to a revenue cut of about 4% per year. That spells financial hardship for many hospitals and healthcare systems, especially those that are only marginally profitable.
The payment reductions have resulted in a wide variety of consequences, some of which legislators and policymakers intended. At the same time, there have been some unintended consequences that could have far-ranging and harmful implications. One such recent development has been healthcare's dramatic cuts in money allocated for staff training and development.
Time and again hospital and healthcare system chief financial officers have told me that spending on training, development and planning is the first cut being made by their administrations as budgets become tighter. This is an extremely problematic strategy.
While it may provide short-term relief, the reduction of training opportunities will have severe long-term consequences. As an industry we pride ourselves on our clinical expertise at making patients better and on our financial expertise at maximizing the reimbursements we receive for the services we render. Most in the industry believe we have continued to improve in both these areas. Rather than cutting back on training dollars, we should be looking at less-damaging places to reduce expenses. Having a knowledgeable, well-trained staff is essential to pinpoint financial and clinical areas that are negatively affecting quality benchmarks. Those areas are where cutbacks can be made.
The shortsighted strategy of cutting training dollars threatens the successes the healthcare industry has achieved. The American Society of Training and Development noted in both its 1998 and 1999 state-of-the-industry reports that those organizations on the leading edge of training investment have a higher level of aligned systems of practice. They also report higher measures of employee performance for sales, overall productivity and quality of products and services. So investing in executive and staff training does lead to bottom-line results. The 1999 report also states that although healthcare has the highest percentage of employees receiving training, it has the lowest training expenditures per employee and as a percentage of payroll.
The cost of managerial and staff training can be offset by significant gains at healthcare organizations, both tangible and intangible. The improvements can take the form of revenue enhancements, cost reductions and patient satisfaction gains. The return on investment can vary, but sometimes it can be huge. For example, a clinical department manager at one hospital attended a seminar several years ago and learned about a technique that increased reimbursements by almost 20% per year.
Though not all training sessions will provide this kind of revenue windfall, ongoing training has a cumulative effect for all managers and staff. You may never know how many of your staff have great ideas for cost savings if they are not continually exposed to new methods and/or provided with new technical skills. In addition, consider for a moment how the lack of effective, timely and sufficient training can lead to problems such as lawsuits, dissatisfaction among physicians and patients, and poor employee morale.
Overall, the American Society of Training and Development reported that the average training expenditures per employee in 1997 for all firms in its database and for the leading-edge firms were $649 and $1,966, respectively. Average training expenses as a percentage of payroll in 1997 for all firms and leading-edge firms were 1.8% and 4.4%, respectively. Healthcare ranks at the bottom, spending an average of $345 per employee and 1.2% of payroll on training.
Where does your organization place? Are you on the leading edge, like General Electric Co., which requires managers to spend a percentage of hours each year training their staff? Such companies understand that once training is cut, the corporation's failure to acquire knowledge could seriously damage the bottom line. Then there's Motorola, which has a policy of providing a minimum of 40 hours per employee per year in training and spends 3% to 4% of its payroll on training.
Leading-edge companies are committed to continuing these training policies even when times get tough, because they won't mortgage the future just for the sake of current performance. These firms also know that effective training comes in many forms. Your organization may value classroom-based training, on-site or off-site. Or it may prefer computer-based learning using Internet, intranet or CD-ROM technologies. Also remember that some of the best teachers already work for you. Whatever the flavor of the training, healthcare organizations must continue to invest in training if we are to maintain the very high standards that are the pride of the industry.
Steven Berger is vice president of finance at Highland Park (Ill.) Hospital and is the author of the book "Fundamentals of Healthcare Financial Management-A Practical Guide to Fiscal Issues and Activities."