Controlling Premium Labor Costs…Ten Minutes at a Time

Dan Gorman

Managing premium labor costs without having a negative impact on the quality of patient care is top of mind for healthcare executives. Yet, many health systems are missing out on an opportunity to make some relatively easy process and policy adjustments that could save them hundreds of thousands of dollars annually…without harming the quality of care.

The opportunity involves managing incidental overtime. Sometimes called incremental or creeping overtime, incidental overtime is short periods of unplanned and preventable overtime. While these periods of overtime are typically just 10-15 minutes, the financial impact is anything but incidental. Through our work with hundreds of health systems, we’ve found that incidental overtime typically accounts for about 5-10% of total overtime expenses.  Often, incidental overtime is an entirely unnecessary expense that can be eliminated since it is not adding value to the organization, but is rather the result of an employee badging in to their shift early, staying a few minutes late or missing their lunch period. Those brief, but high-cost stints of overtime can be eliminated through policy and process changes.

So, how can incidental overtime be better managed? Start with data transparency. Find out how many occurrences of overtime are an hour long or less. Gather data about how many employees are missing their lunch breaks. Pay attention to which units have more issues with incidental overtime.

Armed with that information, be proactive and disciplined about policy and process changes that can address the issue.  For example, do shift change procedures need to be adjusted? Can lunch coverage plans be enforced to ensure employees take their lunch break whenever possible? Use the data to create a culture of accountability, where managers have the information they need to make proactive adjustments to better manage overtime.

Here’s one example of a health system that has tackled the issue of incidental overtime successfully. A regional health system in the Midwest discovered that they had nearly 900 instances of staff missing their lunch periods during each two-week pay period. After some analysis, they found that the missed lunches were unnecessary, and the chief operating officer sent an email asking the management team to better manage lunch breaks. Within one month, they dropped the number of missed lunches by 35%. With a single email, the COO will potentially save over $185,000 in unnecessary overtime expenses, as long as that rigor around managing lunch breaks continues.

Another health system in the South committed to cutting overtime by $500,000 as part of a corporate cost out initiative, and eliminating incidental overtime was a key part of their strategy.  With their average overtime costs at about 3% across the organization, their goal was to drop it to 2.8% by asking all departments above 3% to drop to 3%, departments at or below 3% to cut overtime by 25% and every department needed to eliminate incidental overtime completely.  The result: their overtime dropped to between 1.8% and 2.1% across the organization, exceeding their goal, and they met their goal of saving $500,000 annually with the reduction in overtime.

Interested in learning more about managing incidental overtime and other premium labor costs? Check out this ebook.


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