When is it a Good Idea to Use Contract Labor?
When is it a Good Idea to Use Contract Labor?
Leveraging premium resources to benefit your organization financially and operationally
Contract labor is a hot topic in healthcare for all the wrong reasons. When hospitals need a caregiver resource urgently, they are often forced to compromise on talent and pay far too much to fill the position. In our experience, these unfortunate outcomes can be avoided through strategic and focused management. Healthcare leaders commonly underestimate the level of attention required to effectively utilize premium labor resources to their benefit without experiencing the unfortunate financial effects that have made travelers a dirty word in some US hospitals.
In our experience, when managed well, there are compelling hospital use cases for contract labor. While many effective strategies exist, those that most successfully control overall labor expenses include using contract labor for vacancy and leave of absence support, workload volume fluctuations, and outsourcing specialty departments.
VACANCY AND LEAVE-OF-ABSENCE
Every hospital makes a core commitment to ensure the right number of staff are in the right place at the right time to provide excellent quality care to patients in the communities they serve. Success in fulfilling this commitment requires thoughtful reflection on historical data and adequate planning - which at times means the use of premium labor, especially when resource availability is constrained by vacancies.
Identifying criteria for the use of contract labor and designing a process for request and approval that supports the timely arrival of resources to support services is perhaps the most challenging part of addressing temporary staffing shortages. Consider three primary categories:
1. Chronic Vacancies: When vacant positions are difficult to fill and the chronic FTE gap becomes too taxing for existing staff to cover with overtime and premium pay incentives, contract labor can help ease the burden and prevent further turnover due to staff burnout.
a. When the time to fill critical positions exceeds 90 days, the challenge of filling open shifts with existing staff through overtime may not be sustainable. Quantifying the timeframe for replacing coverage - including position approval, time to fill, and allotted weeks for orientation - will help determine how long contract labor is needed.
b. If more than 25% of department staff leave their jobs within 12 months, it is best practice to secure contract labor as soon as possible to steady the department and reduce further turnover driven by burnout. For departments with high turnover by design, such as med/surg units from which nurses are commonly transferred to higher acuity units, it is important to quantify the anticipated turnover and hire ahead as demonstrated in this video:
2. Predictable Leave of Absence for Individuals: There are many reasons employees may take LOA including maternity leave, elective surgeries, education, and military leave. These life events often provide enough notice to plan for the temporary replacement of that staff member with a traveler.
a. If your department experiences chronic LOAs, and has at least 1 FTE of LOA each month, it may be appropriate to hire ahead to support this need in the long term. However, if LOAs are more sporadic, travelers are a great short-term solution. Encourage staff to report planned leave ahead of time and work to request a traveler with enough notice to recruit and select the best fit for your department in advance of the LOA.
3. New Department Ramp Up: Occasionally, new programs grow faster than we expect, leaving us ill prepared to support the demand. In this situation, contract labor may be used to provide support while the facility is working to hire and orient staff. In this case, it is critical to closely monitor the departure of travelers to coincide with new employees completing orientation.
In each of these cases, it is important to establish criteria for contract labor requests and approval. The requester should quantify the demand by defining the number of open shifts per week and the number of weeks coverage is needed. Next, a review of existing department resources should be completed to identify how many shifts could be comfortably supported with overtime or pool staff, which is more cost effective than contract labor. It can be helpful to review historical overtime utilization to estimate the bandwidth to cover the open shifts. Engaging the department leader to survey staff and determine their interest in overtime shifts can be useful in making this determination.
If more cost-effective options are not available to support the workload need, securing contract labor is the right option. Best practice is to request the resource as early as possible to secure the most qualified candidate for the position.
VOLUME FLUCTUATIONS
Workload volume fluctuations are perhaps the most common driver of contract labor utilization. When volume fluctuations are unpredictable, such as flu season which can arrive in December or March, leaders are left without many options when it comes to preparation. However, in the case of predictable volume fluctuations, such as seasonality, hospital administrators have an opportunity to support staff and patients while saving their organization significant labor dollars.
One of our clients, an 80,000 annual visit emergency room in Central Florida, experiences significant volume fluctuations between the summer and winter. In the summer, 115 FTEs are required to support ER visits, but in the winter, as many as 143 FTEs are required to support ER visits. The waste of resources in the summer from hiring 143 FTEs was unacceptable but finding the extra 28 FTEs needed in the winter months was nearly impossible! In the end, together we selected a hire target of 129 FTEs that reduced $500,000 of waste in the summer and established a process to secure overtime and fill traveler requests for winter months far in advance. Repeating this exercise for an additional 8 nursing departments yielded annual savings for the hospital of $850,000 in perpetuity.
OUTSOURCING
Another appropriate use of contract labor is to outsource a service or department. The decision to outsource is never easy and requires thoughtful multidisciplinary consideration of financial, regulatory, quality, physician support, and community impact. Reasons for outsourcing may include:
Low Demand: The community utilization of the service is too low, causing the organization to lose money each month (e.g., a coffee concierge in the hospital lobby).
Specialty Required: The service requires specialized competencies not currently available within the organization (e.g., Wound Care).
Regulatory and Liability Requirements: The service requires subject matter expertise beyond what is available at your facility (e.g., Dialysis).
External Management Expertise Available: An external vendor that offers enhanced management support based on extensive experience with the types of employees in the department at a lower cost (e.g., Environmental Services or Food and Nutrition Services).
A WORD OF WARNING
Even though it is often more cost effective to cover temporary staffing needs with contract labor, inadequate management is often the culprit of failed premium labor strategies. The effective and responsible use of contract labor requires attentive management. This means planning for seasonality and new programs, weekly evaluation of productivity performance, ensuring contracts provide flexibility around floating and cancellation, close attention to turnover fluctuations, and an organizational commitment to tight request and approval protocols including careful quantification of needs and timeline.
EMBEDDING RESPONSIBLE LABOR MANAGEMENT INTO LOCAL CULTURE
Many organizations struggle to establish a culture of accountability around labor management. While it can feel uncomfortable, this structure is required to effectively support staff with the premium labor resources they need to care for our patients. In the end, if your organization is not able to closely manage premium spend, it is best to not use this type of labor. However, industry best practice is to leverage contract labor to support your organization by embedding responsible utilization into your culture.
Being aware of the compelling reasons to use contract labor in your hospital can not only save your organization money but can support the delivery of a seamless quality experience to your patients. Effective and efficient use of contract labor can help hospitals ensure we have the right staff in the right place at the right time – in all seasons of the year - to support our staff and patients in the communities we serve to support quality care, patient satisfaction, and employee engagement with fiscal responsibility.
