Cost of Labor Continues to Increase Amid Ongoing Health Care Workforce Crisis

Base payroll expense, when adjusted for growth in headcount, has increased by 7.1%

CHICAGO, Feb. 21, 2023 /PRNewswire/ -- SullivanCotter, the nation's leading independent consulting firm in the assessment and development of total rewards programs, workforce solutions, and data products for health care and not-for-profits, has released findings from its 2022 Workforce Metrics Benchmark Survey.

Health care organizations are in an ongoing workforce crisis, and they continue to struggle with high turnover, employee burnout, wage pressure and other recruitment and retention challenges – all of which have driven up the cost of labor, increased the competition for talent and forced organizations to consider the relationships between workforce design, talent, compensation and performance management.

Year-over-year comparisons indicate that annual base payroll expense, which constitutes the vast majority of an organization's overall yearly expenditures, has gone up almost 10% from 2021 to 2022. Further analysis shows that 7.1% of this is not attributable to full-time equivalent (FTE) headcount increases which have grown only modestly between 1.9% and 2.6% for the overall health care workforce. For the average participating organization with an annual base payroll expense of $1.6 billion, this has added almost $115 million dollars to the bottom line.

Diving deeper into these findings – including data reported on multiple job families and demographic groupings throughout different career level stages – provides insight into how organizations may need to adjust their planning and distribution efforts to help offset rising costs and create a more affordable and sustainable workforce architecture.

Assessing Workforce Cost and Structure

Although this past year has seen almost double-digit growth (9.3%) in base salary expense for Individual Contributors, driven in part by minimum and living wage increases, many hospitals and health systems are experiencing potentially unsustainable growth across multiple career stages. Salaries for Managers and Directors have grown by 13.7% and 14.8%, respectively, which has added to overall cost concerns. Additionally, headcount growth for the overall leadership structure – particularly in newly identified roles such as population health, value-based care and health equity – is far outpacing that of Individual Contributors by increasing at rates between 3.5 times and 5.5 times higher.  

"While the significant growth and diversity of expertise in Manager and Director ranks may produce positive results in some clinical settings, it also requires greater investment. Organizations are going to have to rebalance the size and shape of their workforce to help create a more sustainable model. For instance, we see many organizations focusing more on leadership roles in order to optimize oversight ratios, expand the span of control, and isolate areas of role and title inflation that have been occurring since 2020," said Tim Pang, Principal, SullivanCotter. Nearly 70% of survey participants have formally reviewed, or soon expect to review, the size, structure or management spans of control of their leadership group.

Understanding workforce growth and distribution across different job families is also important and can play a key role in effective workforce planning. From 2021-2022, Nursing and Human Resources saw the most notable drops in headcount at the largest organizations (those with more than 30,000 FTEs) with decreases of 8.8% and 8.3%, respectively. Legal and Compliance, conversely, has seen large increases in their populations at smaller and mid-size organizations with 20%-25% growth.

Workforce Demographics – Gender, Race and Age

As important diversity, equity and inclusion (DE&I) initiatives remain a top priority for health care organizations nationwide, many are looking for greater insight into the diversity of their employee populations as represented across race, gender and other demographic characteristics.

Across the 10 job families included in the survey, gender representation is highly skewed with females representing 75.3% of the workforce in 2022. This is highest in Financial Services, Nursing, and Care Management – with all three job families at over 80% representation. While the three job families with the highest male populations are Facilities, Information Technology and Emergency Medical Services, these are more evenly split and range from 47.3% - 56.2% males.

When analyzing by career stage, female representation at the Manager level is strong at 72.4%, but steadily declines to just under 50% for Executive roles.

"Demographic shifts will create an opportunity to impact workforce diversity and equity. By the end of 2023, a significant number of leaders at all levels will become retirement eligible. With the added focus on broader workforce diversity in race and gender, organizations are being more deliberate in tracking and sourcing wider representation in their candidate pools as they look to support strategic DE&I initiatives," said James Roth, Managing Principal, SullivanCotter.

Although minority representation by race from 2021 to 2022 remains stable across all career stages – including Individual Contributors (up 0.3%), Managers (up 0.7%), and Directors (no change) – year-over-year growth is highest at the Executive level with a 1.6% increase.

Planning Considerations for 2023 and Beyond

Driven by a number of competing forces, the health care talent market continues to be increasingly dynamic. Organizations looking to remain competitive should consider a number of critical workforce structure improvements to help offset rising labor costs and better define future roles and career pathways.

These considerations include:

Address rising payroll expense by investing in technology, improving key processes, and rebalancing the size and shape of the workforce to create a more sustainable and affordable model moving forward.

• Focus on the centralization of Shared Services to help manage rising costs. Large multi-site systems that have not fully harmonized can centralize core support functions as a way to achieve standardization, reduce total delivery costs, leverage remote staffing models and offer a broader range of career pathways.
  
  
• Support greater employee engagement. Compensation interventions alone are not always adequate – culture, career growth, development, recognition, and health and well-being are also critical components of an evolving workforce strategy.
  
  
• Reconsider the utilization of remote work structures where possible to create greater work-life balance and more flexible staffing models. This will also help to expand the labor pool and improve cost management.
  
  
• Remain committed to critical DE&I initiatives. While racial representation at the executive level has improved, stagnation at the Director-level and an across-the-board reversal on gender representation can be improved with regular benchmarking, the establishment of more formalized targets, and a greater focus on talent acquisition and talent management planning.

"It is important to note that while there is value to be gained by reassessing workforce design to leverage cost savings and build a more effective leadership structure, managing the size and shape of the workforce alone will not transform the organization. Understanding how workforce design, talent management and compensation strategy work together to influence system-wide performance is critical in today's environment," said Ted Chien, President and Chief Executive Officer, SullivanCotter.

SullivanCotter's 2022 Workforce Metrics Benchmark Survey includes critical benchmarking data across 10 job families, 6 career-level categories and 3 demographic groupings to provide insight into the following metrics:

• SIZE: Number of FTE headcount
• SHAPE: Career stage distribution of FTE headcount
• COST: Annualized base payroll expense of FTE headcount
• DEMOGRAPHICS: Gender, racial and generational representation
• OVERSIGHT: Management direct span of control

For more information on SullivanCotter's surveys, please visit our website at www.sullivancotter.com, or contact us via email or by phone at 888.739.7039.

About SullivanCotter

SullivanCotter partners with health care and other not-for-profit organizations to understand what drives performance and improve outcomes through the development and implementation of integrated workforce strategies. Using our time-tested methodologies and industry-leading research and information, we provide data-driven insights, expertise and data products to help organizations align business strategy and performance objectives – enabling our clients to deliver on their mission, vision and values.

Note to media: Additional data and interviews are available on request.

Contact: Becky Lorentz
SullivanCotter
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314.414.3719

Jenni Bowring
Padilla
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651.226.3858

SOURCE Sullivan, Cotter & Associates Inc.