Reducing Burn Care Unit Operating Costs

Strategic Recommendations for a Reduction of Operating Costs for Burn Care Unit Burn Care Unit is a healthcare organization operating the 40-bed unit. Since its formation, Burn Care Unit business has been profitable with an increase in revenues, however, the organization has faced challenges in recruiting the professional nurses, which forces them to adopt the Baylor plan. The plan is an overtime policy that adopts 36 hours pay for nurses who work for 24 hours on the weekend. Nurses who work for 60 hours in the weekdays are paid the equivalent of 70 hours.

However, the company has recorded high cost of operations because of the policy. Moreover, Burn Care has incurred $800,000 in nurses' payrolls because of the Baylor plan, and based on the recent increase in the costs of operations, the accountant has suggested that the CEO should discontinue the Baylor Plan to reduce the costs of operations. While this option will assist the organization to record a significant reduction in the operating expenses, the option will provoke the nursing strikes, which may make some nurses leaving the organization.

Since this strategy is not cost-effective, the study evaluates other options to reduce the operating expenses. The objective of this report is to evaluate different alternative strategies that will assist Burn Care to reduce the operating expenses by $500,000 without provoking the nursing strike. The report evaluates an improvement of information systems or adoption of the outsourcing strategy. The outsourcing strategy involves transferring the non-core activities of the Burn Care Unit to a third party.

The study reveals that the organization can outsource non-core activities such as housekeeping, food services, facility management, and Bio-Med. Burn Care Unit can also outsource IT services that include scanning/imaging services, mail services, document processing, storage and retrieval services. The adoption of the outsourcing strategy will assist Burn Care Unit to realize cost savings of $2.99 Million yearly. The downside of this alternative is that the organization can face resistance from the affected staff, which may provoke a strike from non-clinical staff. Moreover, some outsourcing vendors are not reliable.

Burn Care can face a disappointment from the outsourcing contract if the contract agreement is not drawn by a professional. Thus, the study does not recommend the outsourcing strategy as the best alternative to realize cost savings from operating expenses. An improvement of the information systems is another viable strategy that the organization can employ to reduce the operating expenses. This option involves upgrading the company information systems and integrating electronic medical records.

This strategy will assist Burn Care Unit to record a significant costs savings because the organization will perform the large volume of operations with fewer resources. Moreover, the strategy will improve the efficiencies of nurses, and enhances the organization quality of care. The EHRs will assist the organization to realize costs savings from a reduction in transcription services, a reduction in pulling paper charts, and eliminating the paper medical records. The system will also allow the nurses to create a template for ordering medications and type in notes.

While Burn Care will invest $700,000 to upgrade the information systems, the organization will record one- time savings of $375,800 with annual savings of $541,662 from the alternative strategy. Moreover, Burn Care will realize $2,000,787 from business and IT savings within three years. The report recommends that Burn Care Unit should choose an improvement in the information systems because this is the only viable strategy that will assist the organization to record cost savings without provoking the nursing strikes or conflict within the organization.

However, the report suggests that the Burn Care should outsource some aspect of the IT services to enjoy significant costs savings. However, choosing a right vendor to upgrade the information systems may still be challenging. The organization should choose a reputable vendor that has experience in the IT to enjoy full costs saving benefits from the information system improvements. Problem Analysis A multi-unit corporation in Georgia has been recognized nationally for its Burn Care Program. The corporation established the program in 1978 with 20 beds in 1978.

However, the units were able to expand the facilities to 40-bed units making the program to be highly financially rewarding. Nevertheless, the hospital has faced challenges in the last three decades because the unit has experienced the nursing shortages, moreover, the burn care program also suffered the staffing problems. The issues made Burn Care Unit to implement the Baylor Plan designed for nurses 12-hour shift every weekend, and weekdays. Nurses who worked for 24 hours get paid for 36 hours with full benefits based on overtime policy.

Thus, nurses who worked on weekends are prohibited from working on weekdays. During the weekdays, nurses are paid with full-time benefits based on overtime policy. Moreover, nurses who assigned the work weekdays for 5 continuous days were off for next two weeks (next 9 days). Since the introduction of Baylor Plan, the hospital is experiencing rising costs with the operating costs totaled $800,000 in nursing payrolls. Thus, the management has decided to reduce the operating expenses without jeopardizing the quality of care.

The objective of this project is to implement is to develop a strategy to reduce the operating costs by $500,000 without provoking the nursing strikes. 1. Estimating the Hospital Annual labor cost of Operating the Unit The report estimates the annual labor operating costs by calculating the number of hours of three groups of nurses. The study makes the following assumptions to estimate the total number hours all employees work last year: First, the paper assumes that HN worked 168 (1*12*14) hours per year pay period. The USs worked 672 (4*12*14) hours per year pay period.

Thus, the report calculates the remaining hour based on the percentages of the different nursing category: • 76.0% to RNs, • 16.0% to LPNs, and • 8.0% to NAs. For agency hours, and flex-pool, the paper assumes the same percentage distributions. The study also assumes that FTE (full-time equivalent) employees work 40 hours weekly or 80 hours per pay period. The FTE data for last year was taken from the "Census and Acuity Data by Pay-Period" (Shukla, 2000 p 2) table to estimate the number of hours worked for each pay period.

Thus, the hourly rates for the hospital regular staff is assumed as follows: Baseline Cost Estimate Hourly Rate REGULAR Staff 6 am-2pm 2 pm -6pm 6 am-10 pm 10 pm -6 am HN 17,50 17,50 RN 14,50 16,00 16,00 17,50 LPN 9,80 10,80 10,80 11,80 NA 6,50 7,50 7,50 8,50 US 7,50 8,50 8,50 9,50 Based on the calculation, the hourly rate between 6 am and 6 pm is 8 hours.

Thus, the average hourly rate for 6 am -- 6 pm group is based on 8 hours at the first rate and 4 hours at the second rate divided by 12; while the average hourly rate for the 6 pm -- 6 am groups is based on 4 hours at their first rate and 8 hours at their second rate divided by 12." (Shukla, 2000 p 2). The table 2 below reveals the proportion of a number of hours worked on the first shift (6 am -- 6 pm) and on the second (6 pm -- 6 am) shift.

Table 2: Daily Staffing Pattern (in hours, by shift) HNs RNs LPNs NAs USs 6 am-6pm 12 48 48 24 6 pm-6am 0 48 0 24 Daily 12 96 48 48 Percent 6am-6pm 50% 50% 50% Percent 6pm-6am 0% 50% 50% 0% 50% The next process is to calculate overtime costs with 0.30 per regular hourly rate.

Hourly Rate REGULAR Staff Percent of Hours Regular Employees 6 am-2pm 2 pm -6pm 6 am-10 pm 10 pm -6 am 1st Shift 2nd Shift Average Regular Pay Hourly Fringe Costs Average Hourly OTCosts Fully Loaded Hourly Rates HNs 4368,0 17,50 17,50 0% 17,50 5,25 22,75 RNs 140217,0 14,50 16,00 16,00 17,50 50% 50% 16,00 4,80 20,80 LPNs 29619,4 9,80 10,80 10,80 11,80 50% 50% 10,80 3,24 14,04 Nas 14759,7 6,50 7,50 7,50 8,50 0% 6,83 2,05 8,88 Uss 17472,0 7,50 8,50 8,50 9,50 50% 50% 8,50 2,55 11,05 Regular Employees RNs 11831,7 16,00 17,50 17,50 19,00 50% 50% 17,50 5,25 n/a 22,75 LPNs 2490,9 11,30 12,30 12,30 13,30 50% 50% 12,30 3,69 n/a 15,99 Nas 1254,4 7,50 8,50 0% 7,83 2,35 n/a 10,18 Agency Employees RNs 9196,0 22,00 24,00 24,00 25,00 50% 50% 23,67 n/a 23,67 LPNs 1936,0 16,00 17,00 17,00 18,00 50% 50% 17,00 n/a 17,00 Nas 968,0 12,00 13,00 0% 12,33 n/a 12,33 The next process is to estimate the overtime calculation where nurses work on shifts for 24-hour weekly and get paid 36 hours based on the overtime policy.

When nurses work 60 hours for weekday shifts, they are paid 70 hours. The weekday and weekend shifts from 6 am to 6 pm shifts are 84 hours (7*12) work, and nurses receive a pay of 106 (36+70). On the 6 am -- 6 pm shift, nurses receive an extra bonus of 26.19% (106/84 -- 1), more than regular base pay in overtime.

The overall calculation is revealed below: Hourly Pay Schedule Cost Percent of Hours Regular Employees 6 am-2pm 2 pm -6pm 6 am-10 pm 10 pm -6 am 1st Shift 2nd Shift Average Regular Pay Hourly Fringe Costs Average Hourly OTCosts Fully Loaded Hourly Rates HNs 4368,0 17,50 17,50 0% 17,50 5,25 4,58 27,33 RNs 140217,0 14,50 16,00 16,00 17,50 50% 50% 16,00 4,80 4,19 24,99 LPNs 29619,4 9,80 10,80 10,80 11,80 50% 50% 10,80 3,24 2,83 16,87 Nas 14759,7 6,50 7,50 7,50 8,50 0% 6,83 2,05 1,79 10,67 USs 17472,0 7,50 8,50 8,50 9,50 50% 50% 8,50 2,55 2,23 13,28 Flex Pool Employees RNs 11831,7 16,00 17,50 17,50 19,00 50% 50% 17,50 5,25 22,75 LPNs 2490,9 11,30 12,30 12,30 13,30 50% 50% 12,30 3,69 15,99 NAs 1254,4 7,50 8,50 0% 7,83 2,35 10,18 Agency Employees 0,00 RNs 9196,0 22,00 24,00 24,00 25,00 50% 50% 23,67 23,67 LPNs 1936,0 16,00 17,00 17,00 18,00 50% 50% 17,00 17,00 NAs 968,0 12,00 13,00 0% 12,33 12,33 The next stage is to calculate the annual baseline costs revealed as follows: TOTAL HOURS FOR YEARS Average Regular Pay Hourly Fringe Costs Average Hourly OTCosts Fully Loaded Hourly Rates Regular Employees HNs 4368,0 76440,0 22932,0 20020,0 119392,0 RNs 140217,0 2243471,0 673041,0 587576,0 3504088,0 LPNs 29519,4 318809,0 95643,0 83498,0 497950,0 NAs 14759,7 100858,0 30257,0 26415,0 157530,0 USs 17472,0 148512,0 44554,0 38896,0 231962,0 Regular Subtotal 206336,1 2888090,0 866427,0 756405,0 4510922,0 Flex Pool Employees RNs 11831,7 207054,0 62116,0 269170,0 LPNs 2490,9 30638,0 9191,0 39829,0 NAs 1245,4 9756,0 2927,0 12683,0 Flex Subtotal 15568,0 247448,0 74234,0 0,0 321682,0 Agency Employees RNs 9196,0 217639,0 217639,0 LPNs 1936,0 32912,0 32912,0 NAs 968,0 11939,0 11939,0 Flex Subtotal 12100,0 262490,0 0,0 0,0 262490,0 TOTAL ANNUAL 234004,1 3398028,0 940661,0 756405,0 5095094,0 2.

Alternative Strategies for reducing Labor Expenses This section evaluates three alternative strategies to reduce the labor costs. The three strategies are as follows: • Discontinue the Baylor Plan • Improving the information systems, and • Adopting the outsourcing policy. Discontinue the Baylor Plan The goal of the hospital is to reduce the operating expenses by $500,000. To achieve this goal, Mr. Adam suggests that the CEO should discontinue the Baylor Plan to reduce the Burn Care Unit's operating expenses.

While this option will assist the hospital to reduce the operating expenses, the downside of the option is that it will provoke the nursing strike, which will make some nurses leaving the organization. As being pointed out by the "Head Nurse of the Burn Care Unit" (Shukla, 2000 p 2), the morale of nurses went down very fast when it was announced that the Burn Care Unit is considering discontinuing the Baylor Plan. Many nurses were considering a resignation, some of the nurses decided to go on strike.

Thus, this option is not a viable alternative to reduce the costs of operations. The report provides two effective alternative strategies to assist Burn Care Unit to reduce the labor costs from $800,000 to $500,000 per year. First, Burn Care Unit should improve the technical support systems, which is an effective alternative method to save costs. Typically, Burn Care Unit should invest in the information systems and communication systems to assist the organization to cut the cost of operations.

Moreover, the organization should consider outsourcing non-core activities to cut cost and improve the quality of patient care. Meanwhile, the report evaluates the two strategic alternatives one after the other. Improving TSS (Technical Support Systems) The technical support systems consist of communication systems, information systems, and distribution systems. However, the health information systems are the wide array of data sources that include electronic medical records, computerized physician medication order entry and decision support systems. Hillestad, James, Katya, et al.

(2005) argue that the major benefits of HIS (health information systems) are its ability to dramatically reduce the costs of operations, and greatly improve the patient care and safety. The authors substantiate their argument by pointing out that an organization that invests in the HIS will enjoy a significant costs efficiency because the organization will perform the same work with fewer resources. For example, if the most hospital and clinics adopt HIS in the United States, the potential saving for both outpatient and inpatients will be more than $77 billion a year.

The largest savings are from a reduction in the hospital stay, and reduction in nursing administrative time, which leads to better scheduling and safety. The EHRs is integrated into the HIS, and EHRs assists in eliminating the paper medical records, and the Burn Care Unit will realize savings from a reduction in transcription services, and pulling paper charts. The costs saving will be realized by the reducing the number of staff doing the administrative jobs because the systems will be doing multiple tasks at the same time.

The systems also allow the nursing professionals to create a template that will assist in reducing a significant amount of time spent in ordering medications, and typing in notes. Hillestead, Bigelow, Bower, (2005) support the argument of the previous authors by estimating the efficiency of savings from patient and inpatient in healthcare organizations in the United States. The estimated savings will be up to $77 billion that come from a reduction in the nurses administrative time, and reduction in hospital lengths-of-stay.

Outsourcing non-Core Activities The outsourcing is the policy of an organization that allows third party providers taking some activities of the organization in order to focus on the core business. In the United States, the outsourcing policy has become the major business strategy that healthcare organizations employ to cut the cost of operations. Thus, outsourcing has become the major tools that healthcare organizations employ to lower costs while offering high-quality healthcare services for patients. The outsourcing will assist Burn Care Unit to lower both the variable costs and fixed costs.

However, Burn Care Unit still needs to choose the outsourcing vendor with caution because some vendors are not reliable. However, the outsourcing companies such as Aramark, and Sodexo provide outsourcing services such as housekeeping, food services, facility management, and Bio-Med. Roberts, Henderson, Olive, et al. (2013) argue that Aramark and Sodexo specialize in the outsourcing services that include food preparation. The companies also provide the environmental services such as cleaning all staff, patient, and visitor areas, and perform full laundry service.

Moreover, Burn Care can also outsource IT services to control and reduce the operating costs, focusing on the core health activities and gaining access to the top class IT services. The suggested IT services that Burn Care Unit can outsource include the electronic medical records and security of the IT Infrastructures. Datamark vendor provides the mail services, scanning/imaging services, document processing, storage and retrieval services for organizations. This vendor assists organizations to lower pricing by leverage the business volume.

The organization can also process medical devices efficiently with minimal effort and without incurring the additional capital investments. Despite the benefits that the health care organization stands to derive from outsourcing, the outsourcing option can be risky. Hsiao, Pai, & Chiu, (2009) argue that the outsourcing can fail if not managed effectively. Moreover, the outsourcing contract may fail if not efficiently drawn. 3: "Estimating Potential Cost Savings from each strategy at various Levels of Implementation" The report estimates the cost saving of each strategy one by one.

Cost Savings by Discontinuing Baylor Plan According to the Baylor Plan, nurses work for 12-hour shift and nurses who work 24 hours on the weekend get paid for 36 hours, and nurse who work 60 hours weekday get paid for 70 hours. However, the plan costs the organization over $800,000 of nursing payrolls. Thus, if Burn Care Unit eliminates the Baylor Plan, the organization will assume 24-hour costs for nurses who work for 24 hours and 60 hours for nurses who work for 60 hours eliminating the OT eligible at 1.5x.

Thus, nursing staff who work two 6 am -- 6 pm shifts at weekend and weekday actually work for 84 hours (7 x12), however, receive the pay of 106 (36 +70) hours. Thus, the nurses receive an extra of 26.19% (106/84 -- 1), above and over their base (regular) pay based on the overtime policy. The annual baseline costs of the hospital based on the regular pay are $3,398,028. However, an implementation of the Baylor Plan increases annual baseline costs to $5,095,094. The organization will save $1,697,066 ($5,095,094 -$3,398,028) if discontinuing with Baylor Plan.

However, this option is not cost-effective because nurses will go on strike because.