PwC Saratoga. 2013/2014 Human Capital Effectiveness Report: Trends for the Healthcare Provider Sector. August

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1 Saratoga 2013/2014 Human Capital Effectiveness Report: Trends for the Healthcare Provider Sector August 2013

2 2013 Healthcare Provider Consortium Benchmarking Survey Saratoga s 2013/2014 US Human Capital Effectiveness Report includes data submitted for calendar year 2012 from US operations for more than 300 organizations representing 12 industry sectors. The healthcare provider sector within this benchmarking database comprises over 60 healthcare systems and represents the single largest dataset of human capital metrics in the healthcare industry. Please note that this executive summary covers a select set of metrics tracked by our healthcare provider consortium members, which represent larger systems/hospitals with a median headcount of 7,000. Benchmarks represented in this report include medians for the healthcare provider sector as well as an all-industry median based on organizations in the 12 industry sectors within Saratoga s national database. The full Saratoga Human Capital Effectiveness report contains thousands of additional benchmark results based on more than 30 demographic segments. The healthcare provider sector within Saratoga s database represents: Over one million employees Healthcare systems from all US geographical regions To learn more about Saratoga s benchmark databases and measurement programs, please visit our website at or contact: Talia Rozensher, Sr. Associate, Saratoga Kristina Dunphy, Sr. Associate, Saratoga Shebani Patel, Director, Saratoga

3 Summary Healthcare Provider Trends Employee productivity continues to improve while labor costs are decreasing Key employee retention is quickly becoming a challenge for organizations Healthcare costs have continued to rise in an uncertain environment Hiring process quality improved, suggesting that healthcare systems are paying closer attention to their hiring and assimilation practices Diversity programs are helping to increase the talent pool for many healthcare systems Investment in HR continues to lag behind other industries Productivity, measured by Revenue per FTE, continued to increase in 2012, suggesting that the workforce is achieving a higher output. In many cases, this improvement is the result of organizations workforce planning initiatives that have aligned workforce supply to the financial objectives of the organization. Furthermore, labor costs are decreasing, suggesting that organizations are closely monitoring their cost structures. Voluntary separation rates are up for the healthcare industry, as are voluntary separation rates for several pivotal roles. These increases could have significant impacts on long-term productivity. Similar to the broader market, healthcare systems are paying increased healthcare costs as employers, and appear to be managing/controlling other benefits to ease the burden (e.g., retirement). Healthcare systems observed a decrease in first year turnover unlike many other industries that continued to experience an upward trend. The decrease in separations for employees in their first year is often related to improvements or strengthening in acquisition, onboarding, and assimilation programs for new joiners. Similar to the overall market, healthcare systems appear to view diversity as a top initiative and are placing more emphasis on strengthening their diverse representation among management and executives. Healthcare systems continue to invest significantly less in their HR functions and programs (less than half of the allindustry median). As healthcare providers face the significant changes within the industry, talent management will be a key factor in continued success. Healthcare systems will need to invest adequately in HR in order to compete effectively. 3

4 Employee productivity continues to rise as the economy recovers Across all industries, employee productivity has been improving since the recession. Similar trends are occurring in the healthcare provider sector, with Revenue per FTE increasing in 2011, and continuing to rise in 2012 to $192,304. Revenue per FTE is an important metric to assess as organizations conduct workforce planning exercises. This measure can help provide an indication of the balance between work structure/levelling and the financial objectives for the organization. Ongoing changes in the industry including evolving delivery models leave future trends related to productivity uncertain for healthcare systems. It is critical for HR functions within healthcare to help drive strategy and programs that retain and engage the key talent that will have the largest impact on diving ongoing financial stability and operational effectiveness. $200,000 $190,000 $187,168 $189,479 $192,304 $180,000 $180,536 All Industry: $370,399 $170, Revenue per FTE Revenue per FTE = Revenue / Regular FTE Revenue The total sales and service earnings (pre-tax) for the survey period. Regular FTE The equivalent of one non-contingent employee working 40 hours per week for a total of 2080 hours per year. Parttime employees are converted to full-time equivalents. Exclude time not worked such as vacation, holiday, sick time, and leave of absence. 4

5 Labor costs decrease, driven mainly by compensation costs Labor Costs per FTE, which includes a combination of compensation and benefits, has decreased from 2011 to Looking more closely at labor costs for healthcare systems, it appears that the compensation component is driving this decrease, while the cost of benefits has remained fairly stable over the past few years. Anecdotally, some causes of this decrease include an increased emphasis on performance management and pay for performance. Additionally, a heightened focus on staff composition in terms of full-time, part-time, structural levels, and per diem employees in conjunction with a focus on cost control have also contributed to the decrease in Compensation Costs per FTE. $120,000 $80,000 $85,910 $78,997 $92,712 All Industry: $101,566 $87,221 $66,724 $64,144 $72,032 $65,829 $40,000 All Industry: $79,916 $12,650 $13,348 $14,588 $14,394 $- All Industry: $17, Labor Cost per FTE Average Benefits per Employee Compensation Costs per FTE Labor Cost per FTE = (Total Benefit Costs + Regular Compensation Cost) / Regular FTE Compensation Costs per FTE = Regular Compensation Cost / Regular FTE Average Benefits per Employee = Total Benefit Costs / Regular Headcount Regular Compensation Cost The total compensation costs incurred during the survey period for non-contingent employees. Include base and overtime pay, pay premiums, commissions, cash performance related bonuses, sign-on and referral bonuses, profit sharing, payments for time not worked, and severance pay. Exclude any stock or employee stock purchase plan (ESPP) payouts and deferred compensation. Total Benefit Costs The total employer amount paid during the survey period for non-contingent employees for legally required payments, retirement and savings plan payments, life insurance and death benefit payments, healthcare benefit payments, and miscellaneous benefits. 5

6 Employee retention poses a bigger challenge as the market improves Voluntary turnover continued to increase in 2012, now at 9.5% within the healthcare provider sector. This is similar to the overall market. With the improving economy, job opportunities are starting to increase, leading employees to explore alternative options. It is important for organizations to understand the primary drivers of engagement and turnover in an effort to minimize the costly consequences of losing talent. 10.0% 9.5% 9.0% 8.0% 8.4% 8.7% 8.9% All Industry: 8.4% 7.0% Voluntary Separation Rate Voluntary Separation Rate = Total Voluntary Separations / Regular Headcount Total Voluntary Separations The total number of non-contingent employees who voluntarily terminated from the organization during the survey period. Include regular retirements and employees taking early retirement packages. Exclude college interns who left the organization. Regular Headcount The average number of non-contingent employees reporting to the organization during the survey period. Include employees on leaves of absence and disability. 6

7 Turnover rises for several key populations As turnover within the industry increases, healthcare systems will need to pay special attention to the key roles where performance is integral to patient satisfaction and other business outcomes. A few roles that are typically tracked within the industry are Bedside Nurses, Physicians, and Bedside Nurse Manager. Similar to the voluntary turnover rates for healthcare systems overall, voluntary separation rates for these roles are generally trending upward. Bedside Nurses have the highest voluntary turnover of these groups, increasing to 9.6% in Physicians and Bedside Nurse Managers both rose as well, to 6.3% and 5.3% respectively. As healthcare systems face the challenges associated with increased competition for talent and a transforming industry, it will be important to drill into pivotal roles and determine these individuals main drivers of engagement and retention. 10.0% 8.0% 9.1% 9.6% 6.0% 6.1% 6.3% 4.0% 5.1% 5.3% Bedside Nurse Voluntary Separation Rate Physician Voluntary Separation Rate Bedside Nurse Manager Voluntary Separation Rate High Performers Saratoga defines high performers as those within the top~20% of an organization s performance management system Bedside Nurses Direct care RNs whose primary responsibility is direct patient care. This includes bedside nurses in an outpatient environment and Nurse Supervisors that have bedside care responsibilities. Exclude LPNs, nursing assistants CRNAs, nurse practitioners, nurse anesthetists, case managers, head nurses, and nurse management. 7

8 Quality of hire improves for healthcare systems overall Although the First Year Turnover Rate for the healthcare provider sector remains higher than the rate across other industries, it has improved from This improvement potentially highlights progress being made in the quality of hire, which often manifests itself in turnover within the first year. The causes of departure for individuals who leave an organization within this time period are often linked to the hiring process, assimilation into the organization s culture, and the effectiveness of the organization s onboarding program. A polling question among clients across sectors revealed that over half have onboarding programs that last one week or less (25% of them have a one day program), with questionable long-term impact and effectiveness. The first year of employment is critical for employees and therefore, healthcare systems must closely evaluate their current programs and assessment of those programs to help minimize the negative (and expensive) effects that result from high turnover in the first year. Through exit surveys and onboarding surveys, organizations can gather more detailed factual data and evidence relating to the quality of hire, the hiring process, assimilation of newly hired employees, and reasons employees depart in the first year of employment. 35.0% All Industry: 22.6% 30.0% 26.7% 26.2% 28.3% 27.0% 25.0% 20.0% 25.2% 19.2% 22.2% 22.7% 15.0% All Healthcare System Employees Bedside Nurses First Year Turnover Rate = Total Turnover with 0 to 1 Year of Service / Regular Headcount with 0 to 1 Year of Service Total Turnover with 0 to 1 Year of Service The total number of non-contingent employees with less than one year of service who voluntarily or involuntarily terminated employment during the survey period. Exclude college interns who left the organization. Regular Headcount with 0 to 1 Year of Service The average number of non-contingent employees with up to one year of service during the survey period. Include employees on leaves of absence and disability. 8

9 Healthcare systems fill positions internally at a growing rate The healthcare provider sector has experienced a steady increase in filling vacancies with internal talent, as demonstrated by the rising Internal Hires Percent. Healthcare systems increasing reliance on their internal pipelines to fill roles within their organizations can have many beneficial effects, including providing developmental opportunities for their current talent pool as well as positively impacting the first year turnover challenges many organizations face. While the rate of internal fills continues to increase, it is worth noting that the majority of hires are still acquired externally. Organizations must pay careful attention to how this hiring strategy impacts: Opportunities for current talent Expenses related to hiring externally Assimilation of talent that is not familiar with the culture Labor cost investments 40.0% All Industry: 36.8% 37.5% 35.0% 36.5% 36.4% 37.3% 34.5% 32.5% All Healthcare Systems Internal Hires Percent = Internal Hires / Total Hires Internal Hires The total number of non-contingent candidates hired from inside the organization to fill existing requisitions during the survey year. A requisition must be filled for an employee to be recognized as a hire. Exclude agency hires. 9

10 Ethnic diversity measures rebound As highlighted by the sharp increases in Ethnically Diverse Management and Executive Headcount Percents from 2011 to 2012, healthcare systems are increasingly aiming to employ and maintain a diverse population many wanting to mirror the communities that they serve and from which they are recruiting. Diversity is no longer viewed simply as a compliance measure; it has evolved into a way for organizations to strengthen their employee value proposition, marketplace reputation, and patient experience. 15.0% All Industry: 15.1% 12.6% 12.5% 10.0% 10.4% 8.4% 5.0% 8.2% 7.2% 6.7% All Industry: 10.5% Ethnically Diverse Management Headcount Percent Ethnically Diverse Executive Headcount Percent Ethnically Diverse Management Headcount Percent = Ethnically Diverse Management Headcount / Management Headcount Ethnically Diverse Executive Headcount Percent = Ethnically Diverse Executive Headcount / Executive Headcount Ethnically Diverse Management Headcount The average number of non-contingent ethnically diverse employees classified as Management (Manager or Executive in accordance with EEO1 guidelines). Exclude project managers. Include employees on leaves of absence and disability. Ethnically Diverse Executive Headcount The average number of non-contingent ethnically diverse employees classified as Executive (in accordance with EEO1 guidelines). Include employees on leaves of absence and disability. 10

11 Investment in HR dips slightly While HR has typically been characterized as a transactional support function within the healthcare provider industry, this characterization appears to be rapidly changing as HR is focusing more on delivering on strategic initiatives (e.g., succession planning, career management, performance management, etc.). As many HR functions consider the benefits of a Center of Excellence (COE), shared services organization and a strategic business partner model, HR leaders will need to take into consideration the skills and capabilities required of the new business partner role as it develops its recruiting and training agenda. The goal is ultimately to direct transactional activities to the shared service center and for the business partner to help their work groups on key initiatives related to talent management, succession planning, leadership development, etc. areas that may be newer to many business partners that had been operating in a more transactional manner in the past. As such, we anticipate that over time, HR will continue to increase its investments made to deliver on these strategic initiatives as well as structural changes and training required. $1,000 $867 $750 $806 $794 $701 All Industry: $1,923 $ All Healthcare Systems HR Costs per Employee = Direct HR Costs / Regular Headcount Direct HR Costs The total internal and external costs incurred DIRECTLY by HR during the survey period. This includes compensation and benefits, outsourcing costs, consulting and contractor expenses, technology and systems expenses, overhead allocations, and miscellaneous costs such as travel, legal and court fees. Saratoga excludes costs related to learning & development, security, safety functions, payroll, medical & childcare centers, and cafeteria from our definition of HR. 11

12 Conclusion As healthcare systems face increasing challenges related to implementation of the Affordable Care Act, talent will be a large focus to keep expenditures low and productivity high. HR will need to work to engage and retain their key employees high performers and those within pivotal roles to help brace for these changes. This will be difficult, however, in the face of an improving economy. Employees are reacting to more job opportunities in the market, resulting in increased voluntary turnover. This is also seen among key healthcare roles, such as physicians, bedside nurses, and bedside nurse managers. Healthcare systems do seem to be addressing some of these obstacles by focusing more on hiring quality, as evidenced by the decline in turnover for first year employees. Like in the broader marketplace, there also seems to be a growing emphasis on ethnic diversity within management in the healthcare provider sector, suggesting that organizations are focusing on growing and maintaining a diverse talent pool. HR investments in the healthcare system community continue to lag behind other industries though this may reverse as organizations try to become more strategic by making structural or programmatic changes. 12

13 About the Saratoga Healthcare Provider Consortium The purpose of the Saratoga Healthcare Provider Consortium, also known as the Saratoga Hospital Consortium, is to bring together healthcare systems to focus on the unique challenges of the healthcare provider industry and to provide a forum through which workforce and HR topics can be benchmarked. Membership in the consortium includes participation in an annual human capital benchmarking survey and access to benchmark results, access to webcasts on human capital topics, and the opportunity to poll members on key issues. In addition to the metrics covered in the executive summary, the consortium focuses on the following metrics: Retention and Separations Bedside Nurse First Year of Service Voluntary Separation Rate Bedside Nurse Five to Ten Years of Service Voluntary Separation Rate Bedside Nurse Manager Voluntary Separation Rate Bedside Nurse More than Ten Years of Service Voluntary Separation Rate Bedside Nurse One to Three Years of Service Voluntary Separation Rate Bedside Nurse Three to Five Years of Service Voluntary Separation Rate Bedside Nurse Voluntary Separation Rate Graduate Bedside Nurse Voluntary Separation Rate Per Diem Voluntary Separation Rate Physician Voluntary Separation Rate Voluntary Separation Rate Voluntary Separation Rate (Excluding Per Diems) HR Cost and Structure HR Costs per Employee HR Headcount Ratio Learning & Development Investment per Employee Workforce Productivity and Profitability Average Benefits per Employee Bedside Nurse Labor Cost per Hospital Bed Bedside Nurse Overtime Pay Percent Bedside Nurse Paid Time Off Days per Employee Bedside Nurse Per Diem Costs as a Percent of Total Costs Bedside Nurse Sick Days per Employee Healthcare Costs per Active Employee Labor Cost per FTE Total Cost per FTE Bedside Nurses per Hospital Bed Workforce Diversity Average Retirement Age Ethnically Diverse Headcount Percent Percent of Employees Eligible for Retirement within Five Years Percent of Executives Eligible for Retirement within Five Years Percent of Bedside Nurses Eligible for Retirement within Five Years Promotion Rate Talent Acquisition 90 Day Turnover Rate Bedside Nurse 90 Day Turnover Rate Bedside Nurse First Year of Service Turnover Rate Bedside Nurse Time to Accept Bedside Nurse Vacancy Rate Cost per Hire (Excluding Relocation) Ethnically Diverse External Hiring Percent First Year of Service Turnover Rate First Year of Service Voluntary Separation Rate Internal Hires Percent Offer Acceptance Rate Per Diem Turnover Rate Rehire Percent Time to Accept Turnover Rate Vacancy Rate Span of Control and Succession Planning Bedside Nurse Manager Span of Control 13

14 Saratoga Service Offerings Metrics, Benchmarking & Training Largest global database of metrics Workforce & HR department metrics Approximately 2,000 clients globally Well developed industry consortia across 8 major sectors Measurement programs in the US, Europe, Latin America, and Asia Metrics 101 and Metrics 200 courses Custom training sessions Dates and locations available at workshops New Joiner/Onboarding Evidence based framework to assess and improve the new joiner experience Unique survey at critical 60 /180 days to gauge orientation and assimilation processes Identify root causes of new joiner turnover Improve the orientation, engagement and productivity of new employees Dashboards/ Scorecards HR/Workforce dashboard content Dashboard prototypes & mock-ups Roadmaps and technology planning Data assessments Roll out and communication planning Integration with business intelligence systems HR Voice of Customer & X-Ray Analysis HR department customer satisfaction survey Full scope activity analysis/time & motion study Integrated HR department analysis - department benchmarking, customer satisfaction and activity analysis Employee Engagement Turnkey capability to design, collect and analyze employee engagement survey data Global deployment ranging from 100 to 100,000 employees in any language Robust web-based data collection, reporting and action-planning tools Linkage to workforce and business outcomes Manager level reporting and training to drive change and organizational improvement Predictive Analytics Statistical modeling of employee, workforce, customer and business data Output helps clients proactively manage human capital initiatives and determine their impact on operations and business performance Delivery of client focused predictive models that assess attributes of high performers, retention risk, quality of hire source, etc. Exit Survey/Turnover Analysis Turnkey, technology driven process to collect, aggregate and report exit survey data Established processes to collect survey results from employees pre or post departure Establishes re-recruitment opportunities and alumni network Link survey results to turnover metrics/benchmarks to establish size and scope of issues Additional Offerings Financial Fitness Survey Diversity survey/benchmarking Talent assessment Conjoint analysis IFRS surveys Customer engagement Expatriate benchmarking Wide array of custom surveys Ability to provide technology infrastructure as an in-house solution 14

15 Contact Details PricewaterhouseCoopers LLP 488 Almaden Boulevard San Jose, CA T: (408) Shebani Patel PricewaterhouseCoopers LLP 300 Madison Avenue New York, NY T: (646) Talia Rozensher PricewaterhouseCoopers LLP 488 Almaden Boulevard San Jose, CA T: (408) Kristina Dunphy 15

16 PricewaterhouseCoopers LLP. All rights reserved. refers to the United States member firm, and may sometimes refer to the network. Each member firm is a separate legal entity. Please see for further tails. This document is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

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