Hospital executives constantly face the challenge of managing labor costs and fluctuating levels of available clinical personnel while managing patient care.
KPMG LLP’s Healthcare & Pharmaceuticals division recently conducted a study that addressed hospitals’ views on quality of patient care, direct employee labor costs, and temporary nurse usage. The 2011 U.S. Hospital Nursing Labor Costs Study, based on a survey of 120 senior hospital executives throughout the United States, provided some interesting facts on the costs of nursing staffing.
Essentially, the study indicates that the cost of employing a permanent nurse is essentially the same as the cost of using a traveling or per diem nurse.
Labor Cost for a Full-Time Registered Nurse
According to the survey, the total cost of a full-time direct care hospital RN averages $98,000 per year, or $45 an hour, of which only $55,739 is base wages ($25.84/hour).
Fully-loaded payroll, which includes base wages, employer taxes and paid time off represents 76-78% of the total cost of the RN labor force. The balance is made up of non-productivity costs (12-13%), insurance costs (8-9%), recruiting costs (1-2%), and other costs (1%). In other words, the actual cost per hour for a full time nurse is on average 176% of their base hourly wage.
Hidden Costs of Full-Time Nursing Labor
The KPMG study also revealed significant additional nursing labor costs, such as non-productive labor hours and associated opportunity costs, attrition, and time required to fill a permanent direct care RN position. Non-productive labor hours on average represent 13% of total hours.
Optimum Staffing Levels and Quality Override Cost as Decision Factors
Two-thirds of the hospital executives who responded to the survey say they are currently using travel or per diem nurses. Why? They say their main reasons are supply and demand, and the quality of these nurses, which appear to be even more important factors than cost.
Some reasons that enable some hospitals not to use traveling staff include the use of extra full-time staff, part-time employed staff, and incentives to limit turnover and to encourage working overtime. Many of these factors may be of a temporary nature, and increase costs and turnover over the long term.
Respondents also stated that they felt the ideal balance is 90% permanent staff and 10% supplemental labor.
The KPMG study shows that temporary and permanent staff cost the same, so hospitals can determine their optimal ratio of temporary to full-time staff with cost being a neutral factor. Travel nurses present essentially the same cost to a hospital as a full-time staff member, and furthermore, studies have also shown that travel nurses offer the same level of quality care as permanent nurses employed by hospitals.