Improving Staff Satisfaction Ensures PFS Success - Management of employee turnover

Healthcare Financial Management, July, 2001 by Bobette M. Gustafson

Healthcare providers continue to be challenged by high turnover rates and shortages of qualified staff, particularly in the patient financial services (PFS) department. Recent government statistics suggest that PFS leaders cannot expect relief in this area. The U.S. Bureau of Labor Statistics (BLS) reports that in February 2000, the median number of years that employees aged 25 to 35 were with their current employers was only 2.6 years. [a] In addition, results of a BLS survey issued April 25, 2000, indicated that, on average, individuals in the United States hold 9.2 jobs between the ages of 18 and 34. [b] Such high turnover is problematic because of the high costs of employee replacement and, for PFS departments in particular, because of the negative impact turnover has on revenue-cycle productivity and financial results.

Direct and Indirect Costs of Turnover

The direct costs of employee turnover include the time and effort involved in dealing with a departing employee's separation from the organization and the process of recruiting, selecting, hiring, and training the employee's replacement. Although one might assume that most of these costs are replacement costs, the separation costs can be substantial, including exit interview time and processing; final payroll processing, with severance as applicable; benefit deduction and disenrollment processing; COBRA notification and administration; increased unemployment compensation; lost training investment; and the cost of "lost knowledge." The U.S. Department of Labor states that it costs a company at least one-third of a new hire's annual salary to replace an employee. [c]

Another widely accepted formula calculates direct turnover costs as being 25 percent of annual compensation plus 25 percent of the associated fringe benefits, which typically are 30 percent of annual wages. Using this formula, the direct turnover cost would be $8,125 for a PFS representative who is compensated at $25,000 annually, and $14,625 for a PFS supervisor whose annual salary is $45,000. These direct turnover costs, however, do not address the most significant, yet often overlooked, impact of turnover.

The indirect costs of employee turnover are incurred through bottom-line erosion due to various lost-productivity factors: the vacancy itself, the costs associated with redistributing the remaining workload, and deterioration of employee morale and team synergies due to the tensions created by the turnover and increased workloads.

Productivity continues to be negatively affected even after a new employee is hired. Other staff members must devote time to assist in training the new employee and help resolve errors that inevitably occur in a new employee's work. Human resource professionals have estimated that even when employees receive the highest-quality training, a new employee's productivity level is only 25 to 50 percent that of experienced employees during the first three months of employment, and the new employee is likely to take at least a year to become fully productive. A high level of turnover in the PFS department, therefore, results in additional costs to the organization due to diminished performance and outcomes throughout the revenue cycle.

Example of Actual Turnover Costs

To illustrate the effect of employee turnover on a typical hospital PFS department, assume that the budget of 100-bed "Community Hospital" includes 25 full-time equivalent (FTE) PFS representatives at an average annual salary of $21,000 plus $6,300 in fringe benefits (30 percent of salary). These employees are responsible for financially processing average net daily revenue of $127,000. The average annual turnover rate in the PFS department is 30 percent, or 7.5 FTEs.

Based on lost productivity and other factors, the PFS director and CFO conservatively estimate various negative PFS performance outcomes, including a one-day increase in accounts receivable (A/R), a 0.25 percent increase in bad-debt write-off, and a 0.5 percent increase in claim denials and underpaid claims.

Exhibit 1 shows that the direct turnover costs associated with separation and replacement of PFS representatives total $51,188. Yet this amount reflects only a small portion of the overall losses. As Exhibit 2 shows, the indirect costs due to diminished bottom-line performance total $334,632. These indirect costs are associated with diminished returns due to the increase in A/R inventory, increased expenses and fees, lost investment value due to the increase in bad debt, and similar losses due to inflated claim denials and underpayments. Based on these conservative estimates, the actual cost of Community Hospital's PFS turnover is $385,820 ($51,188 in direct cost + $334,632 in indirect costs).

Reducing PFS Employee Turnover

PFS leaders need to understand the reasons employees change jobs if they are to improve staff retention. Development Dimensions International (DDI), Bridgeville, Pennsylvania, recently conducted a survey of 745 employees within 118 organizations to identify the reasons employees cited for leaving their jobs versus those reasons quoted by human resource professionals. [d] This study disclosed that employers have a basic misunderstanding of what employees value most about their jobs and provides valuable insight into retention opportunities. Exhibit 3 (page 69) shows how the survey responses of human resources departments differ from those of employees regarding the reasons employees choose to remain in their jobs.