When Contracts Hurt: Considering Two Workforce Scenarios for Healthcare Facilities
As the healthcare terrain shifts, a growing number of healthcare facilities are learning that replacing full-time employees with external service contracts is a great way to amass needless expenses and inefficiencies in the long run — even if the short-term savings look great on their balance sheet.
It’s not a matter of opinion, nor an isolated example. It’s a provable phenomenon we’ve documented in hundreds of facilities across the country. Even better: The outcomes are both repeatable and sustainable by growing internal teams and capabilities while gradually reducing service contracts.
To understand why and how building in-house capabilities benefits healthcare facilities, let us consider two workforce scenarios:
Let’s say your hospital currently employs:
- One highly technical or senior-level technician at $80,000/year
- One mid-level technician at $60,000/year
- One mid-level technician at $50,000/year
- One contractor to fill the gaps at $80,000/year
Altogether, you pay these employees $270,000/year.
With a forced restructure and budget reductions, you’re looking for ways to cut costs. Your senior tech, Bill, plans to retire soon, freeing up that $80-grand a year. What to do with it? No one else on staff has the expertise and certifications to perform Bill’s work, but those $80,000 sure would look nice as savings. So you eliminate Bill’s position and outsource it instead. But that’s not enough, you are forced to reduce your full-time employee count even more to show bigger savings and must eliminate John from his mid-level position.
So now what? The work still must be completed, yet you do not have the staff to perform it. You get a service contract signed, and now your annual expenses for the same key deliverables look like this:
- One contractor at $160,000/year
- One contractor at $120,000/year
- One mid-level technician at $50,000/year
Your new total: $330,000/year.
The difference doesn’t stop with these numbers, though. When Bill and John were on staff, they were readily available for repairs and maintenance. Now, turnaround takes longer, dependent on the contractor’s availability. At times, the response delays mean patients and clinicians get delayed too.
Another difference? Bill and John had intimate knowledge of your facility, processes, systems, the quirks and priorities of internal customers. They’d often pitch in other areas beyond their primary job description, help off-site or affiliate facilities, mentor less experienced techs, and look at your facility with the eyes of an employee. Those benefits are now gone.
After a cost-benefit analysis, you decide to build back the in-house team. Your goal: 70% of work performed by a full-time employee. You begin that transition by analyzing your data:
- Current labor.
- Types, costs and terms of current contracts.
- Average repair times.
- Staffing needs in light of organizational goals.
- Average retirement age of your workforce, taking into account the number of workers near or at retirement age now.
You then plan for the ideal team makeup:
- Identify crucial roles or skills your facility can’t thrive without.
- Evaluate the value of retiring positions: Is it a position or skillset you need to replace?
- Maintain contractor relationships that provide the most value.
- Use contractor relationships to help train employees.
You’ll want associates with advanced technical skills working alongside contractors and mentoring less experienced team members. You’ll also want to back-fill positions to further reduce contracts in the future.
Back to our earlier example, your resulting team might look something like this:
- One senior-level technician at $80,000/year
- Two mid-level technicians at $60,000/year each
- One entry-level technician at $40,000/year
… for a total of $240,000/year.
However you choose to build your workforce, do examine contracts periodically and use your data to at least negotiate better terms next time around.
>> Related Resource:
[White Paper] FTEs of the Future: Aligning Needs & Skills for Profitable Healthcare Facilities
Medxcel enables healthcare providers to optimize their facility assets, systems and in-house capabilities, while reducing expenses. Built by and for healthcare, Medxcel’s solutions are being implemented in health facilities nationwide.