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High Road Versus Low Road

Given the range of problems confronting nursing departments, two paths clearly emerge for hospital managers seeking to build a quality nursing staff. Throughout the past decade, most hospital administrators have taken the low road: the path of cutbacks, downsizing, speedups and corner-cutting. At any given moment, hospital management has determined that such strategies would boost their bottom line. Along the way, however, these policies created a long-term, structural nursing shortage and increased the risk of medical error to frightening proportions.

Even in the narrowest financial terms, the policies associated with "restructuring" in the 1990s created significant long-term costs that are often hard to capture in corporate accounts but nevertheless represent a significant economic burden: higher turnover costs, reduced productivity, increased lengths of stay, and a greater incidence of costly errors and unnecessary complications.

By comparison, a smaller group of hospitals has adopted a high-road strategy that, while demanding up-front investments in nursing staff, has been shown to deliver significantly lower turnover costs, shorter lengths of stay, fewer unnecessary complications and better quality of patient care.314

The most direct measure of these competing strategies is a recent study comparing the current magnet hospitals with a second set of hospitals that had attained magnet status in the past but had lost that rating due to changes in operations. The study's author notes that the two groups of hospitals are generally similar and faced a common set of market challenges: The two groups essentially "chose to respond to similar political and economic environmental pressures through different organizational strategies."315 Those who abandoned the high road did so through pursuit of a common and familiar set of strategies. Asked to describe the "restructuring activities" they undertook in the past five years, the non-magnet hospitals were significantly more likely to have done any and all of the following: reduce overall hospital staffing levels; implement skill-mix changes resulting in fewer RNs; eliminate the department of nursing; or engage in a merger, acquisition, consolidation, partnership or similar agreement.316

The impact of these choices on the nursing staff has been dramatic. Chief nursing executives (CNEs) at the magnet hospitals are significantly more likely than their counterparts to report that nurses in their hospital have "enough time and opportunity to discuss patient care problems with other nurses," "there is a lot of teamwork between doctors and nurses," "nursing controls its own practice" and nursing "assignments foster continuity of care."317

Perhaps unsurprisingly, patient and family complaints were 60 percent higher at the group of hospitals that abandoned the magnet standards, and CNEs at the magnet hospitals ranked their quality of care significantly higher than did their non-magnet counterparts.318 And indeed, 33 percent of the magnets were accredited with "commendation," the highest level of accreditation awarded by the Joint Commission on the Accreditation of Healthcare Organizations, while only 10 percent of the non-magnet hospitals received this designation.319

 

 Profitability of Magnet Hospitals, 2000-01

 Facility

 Fiscal Year
End Date

 Revenue

 Expenses  

 Net
Gain/Loss 

 Profit
Rate

Aurora Healthcare

 12/31/00

 $221,960,143

 $230,718,403

 -$8,758,260  

 -3.9%

 Childrens Memorial Medical Center

 8/31/01

 $282,100,000

 $271,700,000

 $10,400,000

 3.7%

 Englewood Hospital and Medical Center

 12/31/00

 $183,075,294

 $176,936,475

 $6,138,819

 3.4%

 Fox Chase Cancer Center 

 6/30/00

 $36,142,246

 $35,262,275

$879,971

 2.4%

 Hackensack University Medical Center 

 12/31/00

 $618,830,873

 $598,966,045

 $19,864,828

 3.2%

 High Point Regional Health System

 9/30/00

 $224,158,463

 $207,899,710

 $16,258,753

7.3%

 Jewish Hospital

 12/31/00

 $418,232,988

 $392,618,032

 $25,614,956

 6.1%

 Long Island Jewish Medical Center

 12/31/00

 $659,938,854

 $647,824,977

 $12,113,877

 1.8%

 Morristown Memorial Hospital

 12/31/00

 $853,489,538

 $811,288,809

 $42,200,729

 4.9%

 Poudre Valley Health System

 12/31/01

 $192,000,000

 $176,600,000

 $15,400,000

 8.0%

 Robert Wood Johnson University Hospital

 12/31/00

 $421,694,678

 $356,666,086

 $65,028,592

 15.4%

 St. Lukes Regional Medical Center

 9/30/00

 $253,051,416

 $233,574,723

 $19,476,693

7.7%

 Wake Forest University Baptist Medical Center

 6/30/01

 $549,105,996

 $517,687,525

 $31,418,471

 5.7%

 Average of Hospitals Shown   

 

 $377,983,115

 $358,287,928

 $19,695,187

 5.2%

 National Median, AR Hospitals (Fiscal 1999)         

 

 

 

 

 3.2%

Source: Annual Reports or IRS Form 990s. Year in question varies according to data available and hospital fiscal year. National median is for FY 1999 as reported by Health Care Industry Association, The Sourcebook, 2001.


Beyond the quality of working life for nurses and quality of care for patients, high-road practices may ultimately save hospitals money. The landmark Harvard study concluded that higher nurse staffing ratios result in shorter lengths of stay and thus reduce both direct hospital costs of treatment and indirect costs associated with a hospital's liability and loss of reputation.320 Similarly, Johns Hopkins researchers report that patients with fewer RNs in the ICU at night incurred 14 percent higher hospital costs.321

According to a California Nurses Association study, that state's staffing mandate is likely to generate a savings of $2 billion per year for hospitals due to shorter patient stays, including savings of $1 billion per year in lower expenditures on temporary nurses and $182 million per year in reduced turnover costs.322 A second study cited by the California Nurses Association, currently in progress, reports that higher levels of RN staffing are associated with significantly lower costs and shorter lengths of stay for patients at risk for pneumonia, urinary tract infections and venous thrombosis or pulmonary embolism.323

Finally, the evidence suggests that hospitals that have adopted the high road remain at least as profitable as their counterparts. LERC's survey of magnet hospitals produced a sample of 13 hospitals including information on staffing and employment policies and financial data. While this is not a statistically significant sample, the findings are nevertheless instructive. Taken as a whole, these 13 magnet hospitals — which have largely eschewed mandatory overtime and agency nurses and have mandated more ambitious staffing levels — enjoyed an average profit rate of 5.2 percent, substantially above the national median of 3.2 percent. While this outcome may vary from year to year, and might be different for a different selection of magnet hospitals, no evidence suggests that adopting superior staffing ratios and magnet practices entails a decrease in profitability. As with individual hospital contracts, high- and low-road options appear in national policy and legislative agendas. Ultimately, success in negotiating individual hospital contracts will have only slight effects on the industry as a whole, unless large numbers of hospitals sign model contracts. For conditions to improve to the point at which the nursing shortage could be solved by drawing non-working RNs back into the labor force, it may be necessary for state or national legislation to improve conditions across the hospital industry. For all that hospital owners and administrators proclaim the need to improve working conditions for nurses, it is not clear that they are truly committed to this path.

In terms of national policy, the alternative low-road path consists of seeking out immigrant or American minority employees whose general job prospects are bleak enough to make even a low-wage, high-stress nursing job attractive. Along with this, the American Hospital Association has advocated policies that seem to move toward the dismantling of nurse licensing procedures, creating unlicensed catch-all occupations that might enable hospitals to staff wards with cheaper labor.324

These solutions may or may not temporarily succeed in attracting employees who are both skilled enough to do the job and desperate enough to do it for the terms offered. In the long run, however, this strategy offers little hope of solving the nursing shortage and guaranteeing Americans the standard of care the public demands. Both in legislative debates and in contract negotiations, hospital managers face stark choices.

During the past 20 years, most managers have consistently chosen short-term cost-cutting rather than longer-term investments. The evidence presented here powerfully suggests that a change of direction would result in more effective recruitment and retention of nurses, improved patient care, and a bottom line that is at least stable if not stronger.