Healthcare organizations are facing a critical shortage of nurses, exacerbated by rising labor costs and high turnover rates.

In this white paper, Improv’s Vice President of Healthcare Strategy Dr. Sarah Inman discusses the root causes of the clinical staffing shortage and explores innovative and data-driven workforce management strategies that healthcare organizations can implement to address these challenges. Through evidence-based solutions, strategic workforce planning, and the use of advanced Workforce Management (WFM) technologies, this paper provides actionable insights on how healthcare leaders can reduce labor expenses, improve employee satisfaction and retention, and enhance patient care.

Key highlights include:

• Reducing reliance on costly agency and overtime labor
• Leveraging WFM technology to optimize staffing and improve operational efficiency
• Implementing strategic change management to foster employee engagement and retention  

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Addressing the Nursing Staffing Shortage through Effective Workforce Management

Introduction

As hospitals across the country face a perfect storm of rising labor costs and a shrinking nursing workforce, healthcare leaders must act now or risk jeopardizing patient safety and financial stability. The healthcare sector is grappling with an unprecedented shortage of nurses, a challenge exacerbated by high turnover rates and fewer graduates entering the profession. Drawing on research conducted by Dr. Sarah Inman, this paper explores strategies to tackle these pressing issues by analyzing insights from hospital administrators and discussing actionable solutions for addressing the workforce crisis.

Background

The World Health Organization (2016) sounded the alarm several years ago on the global nursing shortage, stating that patient safety could be at significant risk in the very near future if healthcare systems do not address workforce challenges. By 2023, the situation had worsened significantly. In the United States, hospitals are facing unsustainable financial strain from overtime and nursing agency labor. A recent survey revealed that hospitals spent an estimated $24 billion on temporary nursing staff in 2021 alone (Becker's Hospital Review, 2022), a significant increase from previous years. On top of that, hospitals are paying approximately $17 billion annually in overtime, as reported by the American Hospital Association (AHA, 2022).

With turnover rates in some hospitals exceeding 18%, healthcare organizations are increasingly forced to rely on costly agency nurses and mandatory overtime to fill staffing gaps. This situation creates a financial burden that further exacerbates the challenges facing the healthcare system.

Methodology

Improv’s Vice President of Healthcare Strategy, Dr. Sarah Inman, conducted a qualitative inquiry study as part of her doctoral research to explore hospital administrators' perspectives on workforce management solutions, and their impact on rising labor costs. The research sample was comprised of healthcare executives from a diverse range of hospitals, including large academic medical centers, rural hospitals, and regional healthcare systems.

Each participant held extensive experience in healthcare operations and workforce management, with several holding over 15 years of executive leadership in their organizations. Their roles included Chief Nursing Officers (CNOs), Chief Financial Officers (CFOs), and Chief Operating Officers (COOs), providing a robust understanding of both clinical and financial challenges related to staffing. These leaders brought a wealth of knowledge regarding the complexities of managing nursing labor costs while maintaining patient care quality. This in-depth exploration of healthcare executives' experiences provided critical insights into how hospitals are currently addressing workforce challenges and highlighted areas where long-term, strategic workforce management approaches are urgently needed.

Key Themes Uncovered

Theme 1: Reactive Staffing Solutions

A significant finding from Dr. Inman’s research is that many hospitals are addressing staffing issues reactively, relying on short-term solutions that fail to address the root causes of rising labor costs. This “band-aid approach” includes hiring agency nurses or implementing mandatory overtime for existing staff which creates a tremendous strain on labor budgets as well as resources. One administrator noted, “Mandatory overtime is not a staff satisfier,” underscoring the unsustainable nature of overtime as a long-term staffing strategy and the detriment it can cause to employee morale and retention.

Additionally, the widespread use of those high-cost agency and travel nurses compounds the financial strain on hospitals. One administrator shared, “The usage of agency nurses has millions of dollars’ worth of negative impact on a hospital’s budget,” while another remarked, “There has been a lot of reliance on travel nursing, and when you have a travel nurse, they will cost more.”

Indeed, hospitals pay an average of $200 to $300 per hour for travel nurses, a stark contrast to the average $50 to $80 per hour for a permanent nurse (AHA, 2022). This reliance on temporary labor may provide immediate short-term relief but results in skyrocketing costs that can quickly snowball. Combined with the $17 billion spent annually on overtime, it is clear that these reactive staffing solutions are unsustainable and contribute to burnout, turnover, and further financial strain within a healthcare organization.

Theme 2: Uncertainty and Lack of Strategic Direction

Hospital administrators expressed a shared sense of uncertainty regarding how to effectively manage rising labor costs given the many challenges facing clinicians today. One study participant shared, “We have got to be very fiscally responsible. But…I truly believe that the costs are going to continue to go up, and I don't know what the solution is for that.” Another added, “They’re still not addressing the root cause of the problem. So, it’s a temporary fix.”

This uncertainty reveals a critical gap in strategic planning, as many leaders recognize the need for new workforce management approaches but lack clear long-term solutions. The absence of a strategic direction leaves hospitals vulnerable to ongoing financial instability and the wider-reaching problem of nurses leaving the bedside due to job dissatisfaction and burnout.

Theme 3: Evidence-Based Solutions and Financial Incentives

Despite the challenges they face every day, many participants in Dr. Inman’s study acknowledged the need for innovative, evidence-based staffing solutions. However, these solutions are often stifled by financial concerns. One administrator noted, “We were completely shot down” when proposing evidence-backed interventions without a corresponding business plan that charted the financial return on investment.

Even when administrators recognize the potential benefits of new staffing models, fear of financial risk often prevents them from embracing change. Despite this hesitation, the majority of healthcare administrators interviewed for the study agreed that hospitals must explore creative, long-term solutions to address staffing shortages and rising costs. In many instances, the struggle is understanding where to start when their organizations have not developed a long-term strategic plan for optimizing clinical staffing.

Effective Staffing Strategies and Their Impact on Retention

Research consistently shows that effective staffing strategies can lead to higher employee retention, greater engagement, and a reduction in both turnover and labor costs. A 2019 study by Gallup found that healthcare organizations with strong workforce management practices reduced turnover rates by 17% and saved over $4 million annually in recruitment and training costs on average. Dr. Inman’s findings support these conclusions, as hospital administrators highlighted the importance of strategic staffing in fostering a more engaged, satisfied workforce.

When healthcare organizations invest in evidence-based staffing models that align with employee needs and organizational goals, they create an environment where staff feel supported, heard, and valued. This leads to higher levels of employee engagement, which has been directly linked to lower turnover rates and improved patient outcomes.

A 2021 report from Gallup found that highly engaged employees were 59% less likely to experience burnout and 24% more likely to remain in their current roles for at least one additional year (Gallup). For hospitals struggling with nurse retention, adopting effective staffing strategies is crucial to stabilizing their workforce, reducing reliance on costly temporary staff, and decreasing overall labor costs.

Effective workforce management strategies also help mitigate the risks of burnout and absenteeism. By offering flexible scheduling, ensuring manageable workloads, and providing opportunities for professional development, hospitals can increase employee engagement. Ultimately, these approaches lead to better retention and less reliance on agency nurses, travel nurses, or mandatory overtime.

Leveraging Workforce Management Technology Solutions

In addition to strategic workforce planning, leveraging advanced workforce management (WFM) technology solutions is essential for addressing staffing shortages and operational inefficiencies. These technologies provide real-time data, predictive analytics, and automation that help healthcare leaders make informed decisions and optimize staffing processes. They can also provide a clear financial ROI, which can help appeal to executives or boards who require a breakdown of the risk and reward of purchasing and implementing a new system or optimizing an existing one.

Some key benefits of WFM technology include:

• Optimized Scheduling: Workforce Management (WFM) platforms allow healthcare organizations to automate and optimize nurse scheduling based on critical factors such as patient acuity, census data, and staff availability. This eliminates the opportunity for manual scheduling errors and ensures that the right number of staff are available when needed, with the ability to flex to demand or acuity as needed.
• Predictive Analytics: Advanced WFM systems use predictive analytics to forecast staffing needs based on historical trends and real-time data. This enables hospitals to anticipate spikes in patient demand and adjust staffing levels accordingly, reducing the reliance on contingent staff which is often a significant expense.
• Labor Cost Management: By tracking labor costs in real-time, WFM technology provides healthcare leaders with the tools to manage overtime, reduce unnecessary labor expenses, and allocate their valuable clinical resources efficiently in the areas of greatest need. Hospitals that implement WFM systems report a significant reduction in overtime costs, with some experiencing up to a 20% decrease in labor-related expenses based on study participant feedback (2023).
• Employee Self-Service Tools: WFM platforms often include self-service portals where employees can manage their schedules, request time off, and swap shifts with co-workers with similar licensure or experience. These powerful tools empower staff to take control of their own schedules, improving work-life balance and engagement while reducing administrative burden.

By integrating these technologies into their workforce management strategies, hospitals and other healthcare organizations of all sizes can improve operational efficiency, help reduce staff turnover, and significantly mitigate the financial impacts of the on-going nursing shortage.

Leveraging Healthcare Consultants

Healthcare consultants play a pivotal role in helping hospitals navigate these staffing challenges by offering expert guidance on both strategic workforce management and the implementation of WFM technology solutions. At Improv, we can provide a valuable perspective given our many years of experience with other healthcare organizations and the most popular WFM tools currently on the market.

Here are just a few examples of what a strategic services engagement with Improv could yield for your organization:

• Comprehensive Assessment: Our Healthcare Strategists analyze current staffing practices, financial impacts, and operational workflows, identifying inefficiencies and recommending targeted improvements based on your organization’s business priorities.
• Strategic Planning: By leveraging industry best practices and decades of experience in the industry, Improv’s Strategic Services team can help organizations move away from reactive measures and develop proactive staffing strategies that promote retention and reduce costs.
• Training and Development: Improv can help develop and facilitate leadership and front-line staff training to enhance their existing skillset in workforce management, ensuring administrators and team members are fully equipped to foster a culture of continuous improvement.
• Technology Implementation: Our Strategic Services team can assist in selecting and implementing WFM technology solutions that align with the hospital's goals, ensuring a smooth integration into existing operations.
• Ongoing Evaluation: Improv can provide ongoing support to assess the effectiveness of implemented solutions, ensure processes are aligned with identified objectives, and help make necessary adjustments based on constantly the evolving needs of the healthcare organization.

Conclusion

Dr. Sarah Inman’s research highlights the critical need for innovative workforce management strategies to address the ongoing nursing staffing crisis. Hospital administrators are well aware of the challenges posed by rising labor costs and high turnover but often lack the tools and strategic direction needed for long-term solutions with so many other pressing concerns in their purview.

To break free from the cycle of short-term fixes and the corresponding costs associated with them, healthcare organizations must embrace evidence-based staffing solutions and leverage WFM technology to optimize staffing processes, enhance employee engagement, and reduce costs. Engaging our Strategic Services team at Improv can provide hospitals with the expertise required to implement these solutions, ensuring a stable and engaged workforce, greater financial sustainability, and enhanced patient outcomes.

References

• World Health Organization. (2016). "Nursing Shortage and the Impact on Global Health."
• Inman, S. (2023). "Assessing the Impact of Workforce Management Solutions on Rising Labor Costs."
• Becker’s Hospital Review. (2022). "Temporary Nurse Staffing and Hospital Financial Impact."
• American Hospital Association (AHA). (2022). "Nursing Shortages, Overtime, and Financial Burden on U.S. Hospitals."
• Gallup. (2021). "The State of the Global Workplace Report."
• Smart Square Jefferson. (2023). “Streamline Healthcare Workforce with Smart Square Jefferson.”