Case Study Graduate 2,987 words

Reducing Operating Costs in a Burn Care Unit: Strategic Analysis

~15 min read 6 sections Health · Nursing Management

Abstract

This report analyzes strategic alternatives for reducing operating costs at a 40-bed Burn Care Unit whose Baylor Plan overtime policy has generated approximately $800,000 in annual nursing payroll expenses. The paper estimates baseline labor costs across regular, flex-pool, and agency staff categories, then evaluates three strategies: discontinuing the Baylor Plan, outsourcing non-core activities, and upgrading health information systems with electronic health records (EHRs). After weighing financial projections and organizational impact, the report recommends an information systems improvement initiative requiring a $700,000 investment that is projected to yield one-time savings of $375,800 and recurring annual savings of $541,662, reaching $2,000,787 over three years—without provoking nursing strikes or staff conflict.

Key Takeaways

Introduction and Executive Summary: Overview of Baylor Plan costs and recommended alternatives
Problem Analysis and Baseline Labor Cost Estimation: Baseline labor cost tables and overtime assumptions
Alternative Strategies for Reducing Labor Expenses: Three strategies evaluated: Baylor, IT upgrade, outsourcing
Estimating Potential Cost Savings from Each Strategy: Quantified cost savings for each strategic alternative
Chosen Strategy and Implementation Plan: EHR upgrade selected with 13-week rollout plan
References: Citations for HIS, outsourcing, and Baylor Plan sources

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What makes this paper effective

Grounds every recommendation in quantitative analysis: baseline labor cost tables, overtime calculations, single-year and three-year cost-benefit analyses, and NPV projections give the argument measurable weight.
Systematically rules out alternatives before committing to a recommendation, demonstrating a structured decision process that anticipates objections (nursing strikes, vendor reliability) rather than simply advocating for one option.
Integrates a detailed, week-by-week implementation plan that moves the paper beyond theoretical analysis into operational guidance, making the recommendation actionable for healthcare administrators.

Key academic technique demonstrated

The paper employs cost-benefit analysis as its central method, constructing both single-year and multi-year financial models for each alternative. This allows the writer to compare strategies on a common financial basis and translate abstract policy choices (continue or abandon the Baylor Plan, adopt outsourcing) into concrete dollar figures, which is essential practice in healthcare management and public affairs writing.

Structure breakdown

The paper opens with an executive summary that previews all three alternatives and the recommended solution. It then works through a problem analysis section that establishes the baseline annual labor cost (~$5.1 million) before evaluating each strategy in turn: discontinuing the Baylor Plan, improving information systems, and outsourcing. A dedicated cost-savings estimation section quantifies each option. The paper closes with a chosen strategy, a 13-week implementation timeline, a reference list, and a detailed cost-savings appendix for the EHR option.

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Essay 2,987 words

Introduction and Executive Summary

The Burn Care Unit is a healthcare organization operating a 40-bed inpatient facility. Since its formation, the unit has been profitable and has seen increasing revenues; however, the organization has faced persistent challenges in recruiting professional nurses. To address chronic staffing shortages, management adopted the Baylor Plan—an overtime policy under which nurses who work 24 hours on the weekend are paid for 36 hours, and nurses who work 60 hours on weekdays are paid the equivalent of 70 hours. Although the plan has helped stabilize staffing, it has driven annual nursing payroll costs to approximately $800,000 above a straight-time baseline. The unit's accountant has suggested that the CEO discontinue the Baylor Plan to reduce operating costs.

While eliminating the Baylor Plan would produce measurable savings, doing so would very likely provoke nursing strikes and cause valued staff to resign—outcomes that carry their own costs and risks. Because that option is not organizationally viable, this report evaluates two additional alternatives: (1) improving the unit's health information systems (HIS) through the adoption of electronic health records (EHRs) and related technologies, and (2) outsourcing non-core activities to third-party vendors.

The objective of this report is to identify a strategy—or combination of strategies—that will reduce Burn Care Unit's operating expenses by $500,000 without provoking a nursing strike. Key findings are summarized below:

Outsourcing non-core activities (housekeeping, food services, facility management, Bio-Med, and selected IT services) to vendors such as Aramark, Sodexo, and Datamark could generate cost savings of approximately $2.99 million per year. However, this option carries meaningful risks: affected non-clinical staff may resist or strike, and poorly structured vendor contracts can result in service failures.

Improving the information systems requires a total investment of $700,000 ($200,000 for direct-care enhancements and $500,000 for broader IT efficiency improvements). In return, Burn Care Unit is projected to realize one-time savings of $375,800, recurring annual savings of $541,662, and cumulative IT and business savings of $2,000,787 over three years. This strategy avoids any disruption to nursing staff and is therefore the recommended course of action.

The report further recommends that Burn Care Unit selectively outsource portions of its IT services to supplement the information systems strategy—provided that only reputable, experienced vendors are engaged. A 13-week implementation plan for the information systems upgrade is presented in Section 4.

Problem Analysis and Baseline Labor Cost Estimation

A multi-unit healthcare corporation in Georgia has been nationally recognized for its Burn Care Program. The program was established in 1978 with an initial capacity of 20 beds and subsequently expanded to a 40-bed unit, making it highly financially rewarding. Over the past three decades, however, the unit has experienced persistent nursing shortages and staffing problems. In response, management implemented the Baylor Plan: nurses work 12-hour shifts every weekend and, if applicable, on weekdays. Nurses who work 24 hours on the weekend are paid for 36 hours with full benefits. Those assigned to weekday shifts for five consecutive days are given the following nine days off. Since the plan's introduction, operating costs have risen substantially, with nursing payrolls totaling approximately $800,000 above straight-time costs. Management has therefore decided to reduce operating expenses without compromising the quality of patient care.

Estimating Annual Labor Operating Costs

The report estimates annual labor costs by calculating the hours worked by three groups of nurses—regular employees, flex-pool employees, and agency employees—across multiple staff categories. The following assumptions apply:

The Head Nurse (HN) worked 168 hours per pay period (1 × 12 × 14).
Unit Supervisors (USs) worked 672 hours per pay period (4 × 12 × 14).
Remaining hours were distributed by nursing category: 76.0% to Registered Nurses (RNs), 16.0% to Licensed Practical Nurses (LPNs), and 8.0% to Nursing Assistants (NAs).
The same percentage distributions were applied to agency and flex-pool hours.
Full-time equivalent (FTE) employees work 40 hours per week or 80 hours per pay period. FTE data were drawn from the "Census and Acuity Data by Pay-Period" table (Shukla, 2000, p. 2).

Baseline Cost Estimate — Hourly Rates for Regular Staff

The assumed hourly rates for regular hospital staff, by shift and role, are as follows:

6 am–2 pm / 2 pm–6 pm / 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

The average hourly rate for the 6 am–6 pm group is calculated as 8 hours at the first rate plus 4 hours at the second rate, divided by 12. The average for the 6 pm–6 am group is calculated as 4 hours at the first rate plus 8 hours at the second rate, divided by 12 (Shukla, 2000, p. 2). The daily staffing pattern, expressed in hours by shift, is shown in Table 2 below.

Table 2: Daily Staffing Pattern (hours by shift)

6 am–6 pm: HNs = 12 | RNs = 48 | LPNs = 48 | NAs = 24 | USs = —
6 pm–6 am: HNs = 0 | RNs = 48 | LPNs = 0 | NAs = 24 | USs = —
Daily Total: HNs = 12 | RNs = 96 | LPNs = 48 | NAs = 48 | USs = —
Percent 6 am–6 pm: RNs = 50% | LPNs = 50% | NAs = 50%
Percent 6 pm–6 am: HNs = 0% | RNs = 50% | LPNs = 50% | NAs = 0% | USs = 50%

Overtime costs are calculated at 0.30 times the regular hourly rate. The fully loaded hourly rates—comprising regular pay, hourly fringe costs, and average hourly overtime costs—for each employee category are summarized in the tables below.

Fully Loaded Hourly Rates — Regular Employees (Baseline, No Baylor Plan)

Flex Pool Employees (Baseline)

Agency Employees (Baseline)

Under the Baylor Plan, nurses working two 6 am–6 pm shifts (weekend and weekday) actually work 84 hours (7 × 12) but receive pay for 106 hours (36 + 70). This represents an extra bonus of 26.19% (106/84 − 1) above their regular base pay. The fully loaded hourly rates with the Baylor Plan overtime premium applied are shown below:

Fully Loaded Hourly Rates — Regular Employees (Baylor Plan in Effect)

Annual Baseline Costs — All Employee Categories

Flex Pool Employees:
RNs: 11,831.7 hours | $207,054 | $62,116 | — | $269,170
LPNs: 2,490.9 hours | $30,638 | $9,191 | — | $39,829
NAs: 1,245.4 hours | $9,756 | $2,927 | — | $12,683
Flex Subtotal: 15,568 hours | $247,448 | $74,234 | $0 | $321,682

Agency Employees:
RNs: 9,196 hours | $217,639 | — | — | $217,639
LPNs: 1,936 hours | $32,912 | — | — | $32,912
NAs: 968 hours | $11,939 | — | — | $11,939
Agency Subtotal: 12,100 hours | $262,490 | $0 | $0 | $262,490

Total Annual Cost: 234,004.1 hours | $3,398,028 | $940,661 | $756,405 | $5,095,094

Alternative Strategies for Reducing Labor Expenses

This section evaluates three alternative strategies for reducing labor costs by $500,000: (1) discontinuing the Baylor Plan, (2) improving health information and technical support systems, and (3) outsourcing non-core activities.

Discontinuing the Baylor Plan

The accountant, Mr. Adam, suggests that the CEO discontinue the Baylor Plan to reduce the Burn Care Unit's operating expenses. While this option would reduce costs, its critical drawback is that it would provoke nursing strikes and likely cause significant staff turnover. As noted by the Head Nurse of the Burn Care Unit (Shukla, 2000, p. 2), nurse morale dropped sharply as soon as word spread that management was considering discontinuing the plan. Many nurses considered resigning, and some moved toward organized strike action. Because this option risks destabilizing the nursing workforce, it is not a viable alternative and is not recommended.

Improving Technical Support Systems (TSS)

Technical support systems encompass communication systems, information systems, and distribution systems. Health information systems (HIS) draw on a wide array of data sources including electronic medical records (EMRs), computerized physician medication order entry, and clinical decision support systems. According to Hillestad, James, Katya, et al. (2005), the primary benefit of HIS is its capacity to dramatically reduce operating costs while simultaneously improving patient care and safety. The authors estimate that if most hospitals and clinics in the United States adopted HIS, potential savings for both outpatient and inpatient care would exceed $77 billion annually. The largest savings would come from reductions in hospital length of stay and nursing administrative time, leading to better scheduling and improved patient safety.

When integrated into HIS, Electronic Health Records (EHRs) eliminate paper-based medical records and yield savings through reduced transcription services, fewer paper-chart retrievals, and lower administrative staffing requirements. EHR systems also allow nursing professionals to create medication-ordering templates and enter clinical notes more efficiently, further reducing time spent on administrative tasks. Hillestad, Bigelow, and Bower (2005) corroborate these projections, estimating efficiency savings of up to $77 billion from reductions in nursing administrative time and hospital lengths of stay across the U.S. healthcare system.

Outsourcing Non-Core Activities

Outsourcing involves transferring selected organizational activities to third-party providers so that the organization can focus resources on its core mission. In the United States, outsourcing has become a major strategy that healthcare organizations use to lower costs while maintaining high-quality patient services. Outsourcing can reduce both fixed and variable costs for Burn Care Unit.

Companies such as Aramark and Sodexo provide outsourced services that include housekeeping, food preparation, environmental services (cleaning all patient, staff, and visitor areas), laundry, facility management, and Bio-Med support (Roberts, Henderson, Olive, et al., 2013). On the IT side, Datamark offers mail services, scanning and imaging, document processing, and storage and retrieval services, allowing organizations to leverage volume-based pricing. Outsourcing IT functions can also give Burn Care Unit access to top-tier IT expertise while reducing capital investment in infrastructure.

Despite these benefits, the outsourcing strategy carries significant risks. As Hsiao, Pai, and Chiu (2009) note, outsourcing can fail if not managed effectively. Poorly drafted contracts are a particularly common source of failure. Additionally, affected non-clinical staff may resist or strike in response to outsourcing announcements, creating a parallel risk to the one associated with discontinuing the Baylor Plan. For these reasons, while outsourcing merits consideration for selected IT services, it is not recommended as the primary cost-reduction strategy.

3 Sections Hidden · 870 words

Estimating Potential Cost Savings from Each Strategy500 words

Under the Baylor Plan, nurses who work two 12-hour weekend shifts (24 hours) are paid for 36 hours, and nurses who work five weekday shifts (60 hours) are paid for 70 hours. Combined, a nurse working both weekend and weekday shifts works 84…

Chosen Strategy and Implementation Plan280 words

The report recommends that Burn Care Unit adopt the information systems improvement strategy as its primary cost-reduction initiative. This is the only viable alternative that will yield the target…

References90 words

Hillestad, R., James, H. B., Katya, F., et al. (2005). Health Information Technology: Can HIT…

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Appendix 1: Detailed Cost Savings from Information Systems Improvements

Direct Cost Savings — Software Clients

Software — Servers

Hardware

Server Consolidation: 4 units | $34,800
Virtualization: 2 units | $17,400
Peripherals/Replacement/Other: $0
Hardware Total: One-Time = $36,000 | Annual = $52,200

IT Services

Consulting Services: 80 hours | Annual = $36,000
Outsourcing: 80 hours | Annual = $36,000
IT Services Total: One-Time = $0 | Annual = $24,000 | 3-Year = $72,000

Power/Electricity Usage

PC savings: Annual = $160,965 | 3-Year = —
Server savings: Annual = $63,072 | 3-Year = —
Power/Electricity Total: Annual = $224,037 | 3-Year = $672,111

Other IT Costs

Reduce Bandwidth Costs: $10 per unit | $0 one-time
Reduce Heating/Cooling Costs: $2 per unit | $0 one-time
Reduce Other Facilities Costs: $10 per unit | $0 one-time
Other IT Costs Total: One-Time = $0 | Annual = $11,700

Business Savings — Travel Expenses

Employees impacted: 5 (average trips reduced)
Trips avoided: 67
Travel Savings: Annual = $73,355 | 3-Year = $220,066

Business Services and Other Business Expenses

All line items (consulting, outsourcing, supply costs, raw materials, inventory carrying costs, operations): $0 across all columns.

Grand Total — All Savings

Key Concepts in This Paper

Baylor Plan Operating Cost Reduction Electronic Health Records Outsourcing Labor Cost Analysis Health Information Systems Cost-Benefit Analysis Nursing Payroll Flex Pool EHR Implementation