Harnessing technology to redesign labor cost management reports: labor costs typically represent over 50 percent of a hospital's total operating expenses.
Author: Healthcare Financial Management

When cost based Medicare programs transitioned to diagnosis related groups in 1983, and HMOs were being introduced, hospitals realized their need to become more cost efficient to survive in the new era of managed care competition. However, the IT revolution was in its embryonic stage and hospitals were struggling to understand how to use the new technology. Technological capability to store and access the detailed data required to produce integrated reports from multiple sources was limited and cost prohibitive. Data accessed through mainframes resulted in unsophisticated and nonintegrated management reporting tools. Consequently, hospitals focused on the productivity tools readily available to them-paid and productive full-time employee equivalents per adjusted patient day.

Over 20 years later, many hospital administrators are still using the same key labor indicators to manage their labor costs. They believe that if their hospital achieves 100 percent of its productivity standards, they will meet their annual operating budgets. However, they are learning that operating at 100 percent productivity does not guarantee they will achieve their budget goals.

The time has come for healthcare financial managers to provide leadership in redesigning labor cost management reporting tools.