Key Drivers of Labor Cost within a Hospital

Over the past five decades, a primary concern in the US healthcare industry has been the increasingly growing cost of care. Part of this stems from the cost of sustaining the workforce required to deliver care to patients. Notably, maintaining this cost at manageable levels is instrumental in ensuring continued healthcare improvement in the country. The two goals underpinning healthcare provision include enhancing the quality of care provided while minimizing costs to ensure efficiency.

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Key Drivers of Labor Cost within a Hospital

According to a 2017 research by the Journal of American Medical Association, healthcare (JAMA) spending has increased over the past few decades. Three key drivers of labor cost within health facilities include labor supply, healthcare finance and delivery, and technology (Fraher & Fried, 2018). According to Fraher and Fried, in the past three decades, America has seen a rise in population growth, coupled with increased disease prevalence. Notably, for healthcare facilities to effectively address the pattern, they are forced to source more labor.  An increase in the number of personnel translates to increased healthcare workforce costs.

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Secondly, the fee-for-service (FFS) model used by hospitals generates a strong incentive for healthcare facilities to provide a high volume of services. The increased productivity by the healthcare workforce translates to increased cost (Iserson, 2020). According to Iserson, the complex payment and service delivery model leads to a need for more administrative resources, which in turn raises provider and payer costs. Thus, overly focusing on increasing productivity while overlooking efficiency can be a crucial driver of cost within a hospital.

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Lastly, a hospital can also experience an increase in healthcare workforce costs due to rapid advancements in medical technology. Like any other industry, the healthcare industry is characterized by competition among the players. One way of remaining ahead of the competition is by being up-to-date with technological advancements (Iserson, 2020). Notably, this comes with other costs, such as employee training and development, to familiarize them with the new technologies.

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Current Industry Solutions or Remediation Activities

            The primary industry solution geared towards addressing the above-discussed three key cost drivers is reform towards value-based care. In today’s America, many hospitals have shifted their focus from the fee-for-service to other approaches that ensure the increased quality of care at minimized cost (Feeley & Mohta, 2018). This entails using evidence-based practices to commensurate the healthcare workforce’s cost with the level and quality of care provided.   An initiative that can accelerate the solution is a federal policy requiring hospitals to shift from the fee-for-service model to value-based care. Notably, value-based care emphasizes quality of care as opposed to the quantity. As such, healthcare providers receive compensation based on the outcome (Feeley & Mohta, 2018). As such, the model will ensure that the healthcare workforce’s cost matches the quality of services they provide; thus, ensuring efficiency.

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