The Real Costs of Staff Turnover

by Joseph Watt

The high turnover rate in the healthcare industry, especially among frontline caregivers, is a serious problem for nursing homes, home health agencies, assisted living communities and hospitals.

Most providers underestimate the financial impact of staff turnover, perhaps significantly. Understanding the full cost burden of frontline turnover is critical and leads to a more complete set of practice and policy implications.

Direct Costs

Direct costs of frontline staff turnover in five areas can be tracked and calculated separately for an overall direct cost estimate.

•     Separation costs include exit interviews, administrative processing, experience rate increases in unemployment insurance and legal fees.

•     Vacancy costs, including overtime and temporary staffing, can be the largest direct cost related to turnover and can outpace training costs.

•     Replacement costs include advertising, applicant screening, interviewing, selection, physicals, tuberculosis (TB) testing, hepatitis B vaccinations, background verification, employment testing and certification and hiring bonuses.

•     Training and orientation costs include time for formal classroom training, as well as on-the-job training. Training replacement hires is often one

of the largest, if not the largest, most visible direct cost of turnover.

•     Increased worker injuries among direct-care workers in nursing homes and other personal-care facilities result in these groups having some of the highest injury rates of any group of workers in the U.S. economy.

Indirect costs

Indirect costs are also measurable and account for the largest portion of total turnover costs.

•     Lost productivity includes the costs of “ramping up” a new employee to the level of an experienced employee who has achieved job mastery. A study at a large medical center found the cost associated with the lower productivity of new hires constituted 42% to 66% of total turnover costs. Lost productivity can significantly exceed hiring and training costs per employee by as much as several thousand dollars.

•     Reduced service quality (quality of care) describes overburdened, fatigued workers who are at higher risk for errors and compromised patient care. Turnover adversely affects continuity of care and can affect the results of the provider’s state health survey that regulatory agencies conduct. Penalties and fines are possible consequences of such deficiencies, including malpractice claims.

•     Lost revenues or reimbursement can occur to the extent turnover results in staffing shortages, and care-giving hours may simply not be provided to patients or residents. 

Service delivery level turnover costs

Consumers and their families bear the consequences of lower-quality care, even when providers produce enough new workers to meet minimum staffing requirements. Reduced satisfaction, de-creased quality of care and increased risk of injury and illness can result from staff vacancies, rushed or undelivered care and continual adjustments to new caregivers unfamiliar with the patient.

Frontline workers also experience adverse consequences from worsening work environments due to turnover. Increased physical and emotional stress, on the job injuries and potentially, additional resignations, can all result from high turnover.

Implications for practices & providers

Overall turnover costs borne by healthcare providers can be substantial and constitute a significant financial drain on bottom lines.

Far from an inevitable cost of doing business, turnover costs can be measured and tracked to help providers make informed decisions about how much they can afford to invest in retaining employees. It can also make it easier to assess whether such investments improve their bottom line.

 

Joseph M. Watt is partner, BKD Health Care Group. 
E     |     jwatt@bkd.com