The High (and Hidden) Costs of Staff Turnover in Healthcare

Everyone has heard the adage “everyone is replaceable”, and most managers take comfort from that when there is staff turnover, but it comes at a cost (and probably higher than you believe) and you better understand iStock_000023202844XSmallwhat it is exactly before you take it for granted. Turnover is a part of operating any organization most would agree, it’s the cost of doing business, especially in healthcare… but do you understand what that cost really is?

Do you pause and think through the consequences of letting an employee go? Do you understand or care what it means when an employee chooses to leave? If you answered NO to either or both of these questions, at minimum you should understand the impact to your organization when either scenario occurs.

Average Turnover Rates

Employees and employers part company for many reasons and in healthcare the percentages are fairly low compared to other industries. However, in a January 2012 Survey, The Bureau of Labor Statistics reported that Education and Healthcare employers let nearly 10% of their staff go in 2011 and nearly 15% of staff chose to leave their employer in 20111. In a 2012 study, US Government data reported that healthcare jobs turned over at 28% percent2. This may be the data reported by the government, but I have worked with many healthcare organizations that have turnover in the 30, 40 even 50% range and they just keep pumping employees through their doors. Various studies have found that nursing aide turnover is the highest at 43-75%.

Healthcare leaders are focused on reimbursement, recidivism rates, quality indicators, facility rankings etc. Staff satisfaction may be factored in there if it impacts leaders’ bonuses, but turnover is usually viewed as an issue that HR must handle.

Real Costs of Turnover

I imagine you all know the replacement costs of an employee (search, recruiting, training), but do you know the complete cost of replacing someone you let go or chooses to leave? Of course, as you would think, the cost of replacement is directly proportional to the pay grade of the position. An article by the Robert Wood Johnson Foundation3 reported that RN replacement at 13 different hospital groups cost between $22,000 and $64,000 with the average being $36,567. For other healthcare job types, the replacement cost can be as much as 20% of annual pay (this doesn’t include MDs).

Do I have your attention now?

Your cost or replacing an employee may differ from the findings of the sited article above due to many different factors, but the primary buckets of replacement cost are shared by all.

The direct costs of replacing an employee:

  • Termination – Exit interview(s), severance, higher unemployment taxes, vacation payout
  • Replacement – Advertising, agency/screening, testing, interviewing, verification of licensure/certifications and in some cases travel and relocation
  • Training – Orientation, re-certification, skill assessment
  • Vacancy Cost – OT, temporary staffing/Registry

All of these “direct” costs are well understood and easily determined. But there are the “hidden” costs of losing an employee as well. Not many studies on this subject include these “hidden” or “indirect” costs because they are more difficult to put a number on.

The indirect or “hidden” costs of replacing an employee:

  • Reduced Quality of Care – Replacing one of your employees with a new/temporary/Registry person
  • Reduced Morale – Remaining staff are impacted when a fellow employee leaves
  • Lost Productivity – From the exiting employee and from the temporary “fill ins”
  • Increased Workload – As the remaining staff works more hours trying to cover for the vacancy created by the exiting employee
  • Cost of New Employee – As they come up to speed, they are less productive, but cost you the same amount of money
  • Historical Knowledge – Those that have been around for a long time have a native understanding of the operations in your facility that isn’t not easily replaced

So our staff work a few more hours a week and maybe take care of an additional patient for a shift (in non-patient ratio states). In a 2007 article4, The National Foundation for American Policy sited many different studies that point to decreasing quality of care and increased negative clinical outcomes as a nurse’s patient load was increased. In addition, studies have shown overtime leads to increased fatigue and negatively impacts patient outcomes.

These “hidden” costs have potentially bigger impacts on an organization than the direct cost of replacing a lost employee.

“But, I can’t always pay them what they think they are worth and I will be forced to fire some employees while others will choose to leave no matter what I do”, you think. This is true. A 0% turnover rate is unrealistic, so let’s discuss some non-wage increasing actions you can take to decrease turnover and the cost of replacing an employee.

How to Decrease Turnover

  • Implement a tracking mechanism – Know exactly where your turnover rates AND costs of replacement are department-by-department and by job type. If you are flying blind, you can’t fix anything. There are new, cutting-edge scheduling and staffing systems that can pinpoint trouble spots by reporting churn rates and even estimated replacement costs (in dashboards or reports) so you can implement corrective action quickly and efficiently.
  • Empower your employees – Without losing control. A large part of staff satisfaction is accountability and autonomy. The Internet is enabling a more collaborative and transparent world, so embrace it. There are scheduling systems where staff can have more autonomy of their work schedule while your managers maintain complete control over who works when.
  • Listen and show that you hear them – Many organizations fall into the trap of asking questions (Staff Satisfaction Survey) and then ignoring what they hear/learn. Asking and ignoring is a recipe for unhappy employees. Your employees don’t know they are heard unless you tell and show them how their feedback is changing the organization.
  • Don’t just hire a body, hire a good fit – cultural and ethical fit of a potential employee is very important. Spend time interviewing and ensuring your organization is a good fit for this individual. I know many regions are strapped when it comes to finding clinical staff to decrease vacancies so you tend to on-board anyone that has the credentials, but if that person isn’t a good fit they are either going to negatively impact others or will leave.

My Real World Experience

I will never forget my first career job out of Grad school. After studying this company for a month during my final semester in school, I knew it was the place to be. This assessment came from the Harvard Business Review, local business tracking and a single presentation from their MarCom person. I had no idea of the culture, pay, opportunity etc. One Monday with resume in hand, I walked in the front door and asked to meet with an HR person. They welcomed me as if they knew I was coming and after an hour conversation with the HR manager, I was being considered for an entry level, field position.

After going through the normal 2 week interview process with different leaders and potential co-workers, I was told my final stop would be the CEO because “the CEO interviews everyone.” The day arrived and I was nervous; what would the CEO want to know about me that the others didn’t already ask/know? The CEO greeted me in slacks, golf shift and loafers with no socks. He immediately asked what I enjoy doing outside of work, about happy times in my life, do I ski etc, etc. I immediately came to realize that he left the questions of qualifications to the others and he wanted to know if I would fit into the culture of the company.

This company didn’t pay the highest salaries around, but they were fair. This company worked their employees long and hard, but they realized this and required everyone to take a week off each quarter (in addition to the standard 2 weeks a year). This company had many layers of management, but even at the lowest level I was empowered to “do the right thing” for the client without any need for approval. I was in a hospital working on Thanksgiving and the day after Christmas my first year, but happy to be there because the CEO had called me personally to recognize my efforts. When the company went public, the benefit wasn’t left only to the leadership team. They wanted each one of us to own a part of the company and feel the joy of our hard work.

Through this culture and leadership, this company built a professional family that nobody wanted to leave. We were often recruited by the competitors offering more pay and a few chose to leave, but most of us couldn’t imagine leaving “the nest.” We stuck around for the environment and culture not for the money.

Understand the true cost of losing an employee, implement a system to help you identify your trouble areas, focus on non-monetary solutions to staff churn, and build a culture where your employees are empowered and held accountable.

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  1. […] in hospitals has high numbers and high costs, but just how high is matter of opinion. For instance, ShiftHound cites a 2012 study that reported a 28 percent turnover rate in healthcare jobs. Nursing Solutions, […]

  2. […] The Executive Dashboards will now include graphs on Churn, as well as Cost of Replacement. Turnover is a major issue for many organizations, and being able to view turnover trends and reasons is very important. Data reports supplement the […]