Reducing Burn Care Unit Operating Costs Essay

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Strategic Recommendations for a Reduction of Operating Costs for Burn Care Unit

Burn Care Unit is a healthcare organization operating the 40-bed unit. Since its formation, Burn Care Unit business has been profitable with an increase in revenues, however, the organization has faced challenges in recruiting the professional nurses, which forces them to adopt the Baylor plan. The plan is an overtime policy that adopts 36 hours pay for nurses who work for 24 hours on the weekend. Nurses who work for 60 hours in the weekdays are paid the equivalent of 70 hours. However, the company has recorded high cost of operations because of the policy. Moreover, Burn Care has incurred $800,000 in nurses' payrolls because of the Baylor plan, and based on the recent increase in the costs of operations, the accountant has suggested that the CEO should discontinue the Baylor Plan to reduce the costs of operations. While this option will assist the organization to record a significant reduction in the operating expenses, the option will provoke the nursing strikes, which may make some nurses leaving the organization. Since this strategy is not cost-effective, the study evaluates other options to reduce the operating expenses.

The objective of this report is to evaluate different alternative strategies that will assist Burn Care to reduce the operating expenses by $500,000 without provoking the nursing strike. The report evaluates an improvement of information systems or adoption of the outsourcing strategy. The outsourcing strategy involves transferring the non-core activities of the Burn Care Unit to a third party. The study reveals that the organization can outsource non-core activities such as housekeeping, food services, facility management, and Bio-Med. Burn Care Unit can also outsource IT services that include scanning/imaging services, mail services, document processing, storage and retrieval services. The adoption of the outsourcing strategy will assist Burn Care Unit to realize cost savings of $2.99 Million yearly. The downside of this alternative is that the organization can face resistance from the affected staff, which may provoke a strike from non-clinical staff. Moreover, some outsourcing vendors are not reliable. Burn Care can face a disappointment from the outsourcing contract if the contract agreement is not drawn by a professional. Thus, the study does not recommend the outsourcing strategy as the best alternative to realize cost savings from operating expenses.

An improvement of the information systems is another viable strategy that the organization can employ to reduce the operating expenses. This option involves upgrading the company information systems and integrating electronic medical records. This strategy will assist Burn Care Unit to record a significant costs savings because the organization will perform the large volume of operations with fewer resources. Moreover, the strategy will improve the efficiencies of nurses, and enhances the organization quality of care. The EHRs will assist the organization to realize costs savings from a reduction in transcription services, a reduction in pulling paper charts, and eliminating the paper medical records. The system will also allow the nurses to create a template for ordering medications and type in notes. While Burn Care will invest $700,000 to upgrade the information systems, the organization will record one- time savings of $375,800 with annual savings of $541,662 from the alternative strategy. Moreover, Burn Care will realize $2,000,787 from business and IT savings within three years.

The report recommends that Burn Care Unit should choose an improvement in the information systems because this is the only viable strategy that will assist the organization to record cost savings without provoking the nursing strikes or conflict within the organization. However, the report suggests that the Burn Care should outsource some aspect of the IT services to enjoy significant costs savings. However, choosing a right vendor to upgrade the information systems may still be challenging. The organization should choose a reputable vendor that has experience in the IT to enjoy full costs saving benefits from the information system improvements.

Problem Analysis

A multi-unit corporation in Georgia has been recognized nationally for its Burn Care Program.

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The corporation established the program in 1978 with 20 beds in 1978. However, the units were able to expand the facilities to 40-bed units making the program to be highly financially rewarding. Nevertheless, the hospital has faced challenges in the last three decades because the unit has experienced the nursing shortages, moreover, the burn care program also suffered the staffing problems. The issues made Burn Care Unit to implement the Baylor Plan designed for nurses 12-hour shift every weekend, and weekdays. Nurses who worked for 24 hours get paid for 36 hours with full benefits based on overtime policy. Thus, nurses who worked on weekends are prohibited from working on weekdays. During the weekdays, nurses are paid with full-time benefits based on overtime policy. Moreover, nurses who assigned the work weekdays for 5 continuous days were off for next two weeks (next 9 days). Since the introduction of Baylor Plan, the hospital is experiencing rising costs with the operating costs totaled $800,000 in nursing payrolls. Thus, the management has decided to reduce the operating expenses without jeopardizing the quality of care.

The objective of this project is to implement is to develop a strategy to reduce the operating costs by $500,000 without provoking the nursing strikes.

1. Estimating the Hospital Annual labor cost of Operating the Unit

The report estimates the annual labor operating costs by calculating the number of hours of three groups of nurses. The study makes the following assumptions to estimate the total number hours all employees work last year:

First, the paper assumes that HN worked 168 (1*12*14) hours per year pay period. The USs worked 672 (4*12*14) hours per year pay period. Thus, the report calculates the remaining hour based on the percentages of the different nursing category:

• 76.0% to RNs,

• 16.0% to LPNs, and • 8.0% to NAs.

For agency hours, and flex-pool, the paper assumes the same percentage distributions.

The study also assumes that FTE (full-time equivalent) employees work 40 hours weekly or 80 hours per pay period. The FTE data for last year was taken from the "Census and Acuity Data by Pay-Period" (Shukla, 2000 p 2) table to estimate the number of hours worked for each pay period. Thus, the hourly rates for the hospital regular staff is assumed as follows:

Baseline Cost Estimate

Hourly Rate REGULAR Staff

6 am-2pm

2 pm -6pm

6 am-10 pm

10 pm -6 am
























Based on the calculation, the hourly rate between 6 am and 6 pm is 8 hours. Thus, the average hourly rate for 6 am -- 6 pm group is based on 8 hours at the first rate and 4 hours at the second rate divided by 12; while the average hourly rate for the 6 pm -- 6 am groups is based on 4 hours at their first rate and 8 hours at their second rate divided by 12." (Shukla, 2000 p 2). The table 2 below reveals the proportion of a number of hours worked on the first shift (6 am -- 6 pm) and on the second (6 pm -- 6 am) shift.

Table 2:

Daily Staffing Pattern (in hours, by shift)

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Hillestad, R., James, H. B., Katya, F. et al. (2005). Health Information Technology: Can HIT Lower Costs and Improve Quality?. Santa Monica, CA: RAND Corporation.

Hillestead, R. Bigelow, J.H. Bower, A.G. (2005). Can Electronic Medical Record Systems Transform Health Care? Potential Health Benefits, Savings, and Costs. Health Affairs, 24 (5):1103-1117.

Hsiao, C. Pai, J. & Chiu, H. (2009). The study on the outsourcing of Taiwan's hospitals: a questionnaire survey research. BMC Health Services Research.9:78.

Roberts, J. G. Henderson, J.G. Olive, L.A. et al. (2013). A Review of Outsourcing of Services in Health Care Organizations. Journal of Outsourcing & Organizational Information Management.

Shukla, R.K. (2000). Burn Care Unit. The Electronic Hallway University of Washington's Daniel J. Evans School of Public Affairs.

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