Quality of care and the bottom line are often seen as trade-offs. But this can be a false dichotomy. As we shall see, many of the factors impacted by employee engagement-a term that encompasses trust, loyalty, motivation, and cooperative spirit-- contribute to both quality of care and financial performance.
How much is an increase in employee engagement worth to you? $3 million a year, by this conservative estimate. And that doesn't count the value of seeing more smiling faces and listening to fewer complaints. Research has shown that employee engagement has a positive impact on retention, absenteeism, patient safety, patient care outcomes, patient satisfaction, and brand reputation. A few calculations demonstrate that even a small improvement in these performance areas translates to a big improvement in the bottom line.
RETENTION
Reducing Turnover for Fun and Profit
"Historically, HR administrators at hospitals and health systems have used compensation and benefits packages as their primary retention tools. However, these tactics may not promote long-term retention as effectively as tactics regarding communication, culture and management practices… Employee satisfaction is more closely linked to organizational culture, administrative communication and management practices1."
With these words, the Advisory Board Company, a highly respected healthcare research firm, opens its Best Practices in Retention report. The report goes on to cite a study of 3900 healthcare workers conducted by survey research firm Press Ganey Associates, Inc. which identified the factors most highly correlated with overall employee satisfaction. The top three were level of pride felt, communication by administration, and respect shown by manager/supervisor. Satisfaction with salary came in 24th2.
The American Hospital Association has reached similar conclusions. In their call to arms to address the healthcare workforce shortage, entitled In Our Hands, the first two recommendations for improving retention are: "Foster meaningful work," and, "Improve the workplace partnership by creating a culture in which hospital staff are valued, have a sustained voice in shaping institutional policies, and receive appropriate rewards and recognition for their efforts3."
What is the bottom-line impact of a successful retention program?
A number of studies have estimated the cost of replacing wage-earning employees. The estimates are generally in the range of 50-100% of the employees' annual wages, taxes and benefits. For salaried employees, the figure is 100-200% of annual earnings and benefits4.
What accounts for these exorbitant costs of turnover? The Nursing Executive Center, a sister organization of the Advisory Board, estimates that only 21% of turnover costs are visible costs--separation expenses, temporary replacement costs, and expenses related to recruiting, hiring, and orientation. The remaining 79% is the cost of lost productivity. (See chart, below.)
Visible and Invisible Costs
According to a 2001 Unifi Network/PricewaterhouseCoopers study, Total Compensation in Integrated Healthcare Systems, turnover costs a typical hospital $14mm to $27mm a year5. The study's authors wrote, "Organizations within the healthcare industry do not see turnover and retention as costs that affect their bottom line as much as other costs, and don't realize that there are ways to reduce them significantly without affecting quality of service… Improving the cost of retention alone in a typical healthcare system creates some real opportunities that could mean the difference between moving a losing year to break-even, or a break-even year to good year."
How much will an improvement in retention save your hospital?
To be conservative, we will estimate the cost of turnover at 75% of the annual wages of each departing employee, thus disregarding the 150-200% figure for salaried personnel. According to the AHA, a typical large hospital (500 beds, 3500 employees) spends $176.7 million per year on labor6. The AHA estimates the turnover rate for all hospital employees nationwide to be 23%7.
To calculate the savings from a miniscule one-percentage-point reduction in turnover (e.g., from 23% to 22%) for our hypothetical 500-bed hospital, multiply $176.7 million times 75% average turnover cost times 1%. This comes to $1,325,000 a year, or $379 per employee.
We're a third of the way to our target of $3 million already.
To estimate your own savings from a one-percentage point improvement in turnover, simply multiply your number of employees (FTE's) times $379.
PATIENT SATISFACTION
Give the People What They Want
What is the relationship between an engaged hospital workforce and a satisfied patient? A nearly perfect one, according to a 1999 study by survey research firm Press Ganey Associates, Inc. Press Ganey compared the customer satisfaction and employee satisfaction scores of 18 hospitals in their database. The correlation between the scores was .89-close to a perfect correlation of 1.08. (See chart, below.)
Correlation, of course, does not imply cause. But anyone who has worked in a hospital knows how employee satisfaction impacts patient satisfaction. Every aspect of a patient's care-from admission, to medical procedure, to recovery, to discharge-is delivered or supervised by hospital employees. Engaged, satisfied employees create a positive patient experience, both through greater effort and superior attitude. Disengaged employees create the opposite.
One hospital's investigation into employee attitudes found that dissatisfied workers tended to complain to patients and visitors about problems in the hospital--for example, commenting that a patient might experience delays in response to the call button because the nurses were overworked and the hospital understaffed9. This can be very damaging to patients' perceptions of the quality of their care.
Press Ganey's research identified the top three factors influencing patient satisfaction, as measured by their correlation with overall satisfaction. They were:
- Sensitivity to patient needs (correlation = .84)
- Cheerfulness of practice (.83)
- Care received during visit (.83).10
For patients, employee attitudes are as important as medical care.
What is the bottom-line impact of an increase in patient satisfaction?
This question was addressed by a 1992 study of 15,000 randomly selected patients from 51 hospitals owned by the Hospital Corporation of America11. The study found strong positive correlations between several dimensions of patient satisfaction and several measures of hospital profitability, including return on assets, earnings per bed, and revenues per bed.
Regression analysis determined that 17% to 27% of the variation in these financial measures could be explained by differences in patient satisfaction. According to the study's authors, "Relatively small increases in patient satisfaction are associated with millions of dollars in year-end earnings for the average hospital." At least one other study reached similar conclusions12.
These studies did not claim to explain why this correlation exists, but it's likely that higher patient satisfaction leads to repeat business, increased referrals, and improvements in reputation, all of which increase market share.
To calculate the value to our hypothetical large hospital of an increase in patient satisfaction, we will use the study's revenues-per-bed figure, since it is the easiest measure to generalize. A one-point increase in patient satisfaction on a 5-point scale was associated with a $52,907 increase in annual revenues per bed (in 2001 dollars). On the above chart, moving from a patient satisfaction score of 82 to a patient satisfaction score of 83 is equivalent to an increase of .04 on a 5-point scale, or an increase of $2,116 in net revenues per bed. For a 500-bed hospital, then, increasing patient satisfaction scores by such an amount would be associated with in increase in revenues of $1.1 million.
How much of that would flow to the bottom line? An estimated 58-75% of hospital costs are fixed13, so a $1.1 million increase in revenues would yield $638,000 to $825,000 in additional profit. To be conservative, we will count that as another $635,000 ($1270/bed) toward our $3 million. We're up to $1,960,000 already.
PATIENT CARE OUTCOMES
That's What It's All About
Does the level of employee engagement impact patient outcomes? We have seen that a near-perfect correlation exists between employee satisfaction (a partial proxy for engagement) and patient satisfaction. A similar albeit less perfect connection exists between patient satisfaction and patient care outcomes.
The Rand Corporation studied 2,300 acute myocardial infarction (AMI) patients who were hospitalized between 1996 and 1997 at 23 New Hampshire hospitals14. Participants reported their perceptions of the quality of their hospital care, and their subsequent recovery was monitored for one year. According to the Rand Corporation, "Patients experiencing worse hospital care had lower ratings of overall health and physical health, and were more likely to have chest pains 12 months after their AMI than other patients15."
Studies by Press Ganey Associates have reached similar conclusions16. "Our data shows there's a direct relationship between patient satisfaction levels, the quality of care, and the patient's overall health status," said Irwin Press, Ph.D., president of Press Ganey Associates. "Satisfied patients respond more positively to medical management, experience better clinical outcomes, and result in better financial outcomes for the hospital17."
What is the bottom-line impact of an improvement in patient care outcomes?
One way to estimate this is to calculate the value of a reduction in length of stay (LOS). The obvious caveat is that reducing LOS is beneficial only to the majority of hospitals that receive prospective reimbursement, rather than fee for services.
The per-diem cost of hospitalization, as measured by room and board and inpatient physician visits only, is estimated to be $693.50 . According to the website of the National Center for Health Statistics, the average hospital length of stay in the U.S. was 4.9 days in 2000. Multiplying 4.9 times 693.50 = $3398. This is the average cost per admission for room and board and inpatient physician visits-the expenses which are directly and irrefutably affected by LOS.
A typical U.S. hospital has an average of 37 discharges per bed per year. For a 500-bed hospital, that comes to 18,500 discharges per year. At an average cost of $3398 per discharge, a total of $62.9 million of expenses can be directly impacted by reducing LOS. A one-percent reduction in LOS would thus save our hypothetical 500-bed hospital $630,000 ($1260/bed) in per diem costs alone.
We just broke the $2 million mark: $2,590,000.
Is a one-percent reduction in LOS an aggressive goal or a conservative one? To answer that question, one need only note that Delnor Hospital in St. Charles, IL, achieved a 9% reduction in LOS in a single year by introducing a proven stress-reduction program.
PATIENT SAFETY
Make No Mistake About It
According to the Institute of Medicine, human error is the greatest contributor to accidents in the workplace. Although this generalization has not been tested in the healthcare industry, it is widely assumed to hold true. One analysis of anesthesia found that human error was involved in 82 percent of preventable incidents20. The Institute goes on to recommend changes in hospital procedures to prevent errors, including:
- Developing a working culture in which communication flows freely regardless of authority gradient
- Improving auditory communication
- Promoting effective team functioning21
What is the bottom-line impact of a reduction in medical errors?
According to a large study conducted at two teaching hospitals, preventable adverse drug events (an important subset of medical errors) occur in almost 2% of admissions. These adverse events, on average, increased hospital costs by $4700 per admission, or about $2.4 million annually for a 700-bed hospital22.
Two large studies examined the frequency of all medical errors as a percentage of total admissions. One study found a rate of 2.9% and the other 3.7%23 --45% to 85% higher than the rate of adverse drug events. If we assume that each medical error costs on average the same as a preventable adverse drug event, the total cost of medical errors at the 700-bed teaching hospital would be $2.8 million increased by 45-85%. Taking the midpoint of 65%, the annual cost of medical error would be approximately $4.62 million, or $6600 per bed. Therefore, the cost of medical error at our hypothetical 500-bed hospital would be $3.3 million, and savings from a 5% reduction in medical errors would come to $165,000.
The hospital would reap additional savings on malpractice insurance. According to the U.S. General Accounting Office, "Hospital and physician insurance coverage and costs can vary greatly… Several factors influence the cost of purchased malpractice insurance. The number of claims and the average cost per claim are the primary factors24." A call to Chubb Insurance's med-mal department confirmed that reducing claims would reduce a hospital's malpractice premiums.
According to a study conducted by the New Jersey Hospital Association, hospitals in that state paid an average of $942,500 in malpractice premiums in 200225. A study reported in the Federal Register generally corroborates this average expenditure amount26. The average U.S. hospital has 170 beds. Scaling this $942,500 figure up for a 500-bed hospital would yield a figure of $2.77 million. This would of course vary widely from state to state and from specialty to specialty. Using a conservative figure of $2 million for a typical 500-bed hospital, a 5% reduction in medical errors which resulted in a 4% reduction in med-mal premiums would save a hospital $80,000.
Total annual savings from a 5% reduction in medical errors would thus be $165,000 + $80,000 = $245,000, or $490 per bed. Our running total is up to $2,835,000.
ABSENTEEISM
Empty Desks, Empty Suits
Tired of my long-winded explanations? This one is simple: According to the 1999 Health and Productivity Management Benchmarking Study, unscheduled absences cost U.S. employers an average of $810 per employee per year27. Thus, the total cost of absenteeism at our 3500-employee hospital would be $2.8 million, and a 5% reduction would save $140,000, or $40 per employee. Add that to our running total of $2,835,000, and we reach our grand total of $2,975,000.
BRAND REPUTATION
Employer of Choice, Provider of Choice
Your employees are your ambassadors to the community, for better or for worse. What they say to their friends and neighbors about the working conditions and quality of care at your facility carries more weight than any advertising campaign. Engaged employees are the best salesmen for your reputation. Disengaged employees are downright destructive.
Improving employee engagement will enhance brand reputation directly, as above, and also indirectly as we have seen, through improvements in patient satisfaction, patient safety, and patient care outcomes. Enhanced brand reputation leads to increased market share and increased revenues and profits. Since we have already counted the bottom-line impact of increased patient satisfaction, we won't estimate additional gains from enhanced brand reputation. Besides, we've already reached our target of $3 million.
HARVESTING YOUR SAVINGS
Don't Fear the Reaper
Satisfaction is only part of engagement. Engagement includes motivation, loyalty, trust, and cooperative spirit. In today's healthcare environment, the difference between average and excellent performance depends on the level of extra effort employees are willing to make. Satisfied workers may continue to show up for work, but only engaged workers make the discretionary efforts that drive an organization to top performance.
Workforce Engage, through its research and years of hands-on experience, has identified seven practices which lead to a highly engaged workforce:
Establish an Open Learning Environment
Nourish Teams and Networks
Generate a Sense of Community
Arrange Work to Minimize Stress & Maximize Balance
Grow Exceptional Managers and Supervisors
Embrace Personal Strengths
Develop Pride and Confidence
Increasing employee engagement begins with measuring an organization's performance on these seven practices. Workforce Engage utilizes its benchmarked assessment system, Workforce Engage™.
Measuring and Enhancing Employee Engagement
The Workforce Engage process is centered on a web-based employee survey. But that is only one part of a larger process. Before conducting the survey, Workforce Engage begins the process of building commitment to change. A cross-departmental implementation team is established to define strategic goals and performance metrics, and ensure organizational preparedness. To overcome employee cynicism and maximize participation in the survey, senior management makes a compact with employees pledging to pay heed to survey results, engage in dialogue with employees about the implications, and take action to address identified priorities.
When the survey is complete, the employees are included in the interpretation of survey results, the selection of key areas for improvement, and the identification and implementation of solutions. Because the ideas are coming from the employees themselves, the workforce is engaged in the process of improvement. Instead of being a source of inertia, employees become a force for change. The result is greater cohesion among leadership, managers, and employees; and ultimately, better performance.
Other resources for organizations seeking to build engagement include Workforce Engage's workshops, leadership coaching, and peer coaching networks.
CONCLUSION
All's Well That Ends Well
A demonstrable link exists between an engaged workforce on the one hand, and improved retention, increased patient satisfaction, better patient outcomes, fewer medical errors, reduced absenteeism, and enhanced brand reputation and market share on the other. Engaging your workforce pays handsome dividends, dividends that can be estimated with a few simple calculations.
Workforce Engage
An innovative provider of proven community-building strategies, best of class automated tools and interactive learning & coaching to optimize performance
An organization dedicated to improving employee engagement in healthcare settings through its new enterprise-wide system, WORKFORCE ENGAGE
A team of nationally acclaimed trainers and coaches working with hospitals and health organizations
For more information about engaging your workforce or for a free assessment of the ROI of engaging your workforce, contact the author of this article at, please contact Matt Simon at 239 482-8173 (e-mail:
1The Advisory Board Company, Best Practices in Retention, July 26, 2000.
2"The Satisfaction Report: A Publication Highlighting the Latest Trends in Health Care Satisfaction." Press, Ganey Associates, Inc. (1999).
3American Hospital Association, In Our Hands, 2002.
4Myla Wagner, "Retaining and Motivating Your Employees." G.E. Medical Systems Healthcare Library, 2002. Cites research that estimates turnover costs at 75% to 150%. See also, Cardinal Healthcare, Inc. corporate website. Estimates turnover cost at 150%. See also The Medstat Group, The Institute for Health and Productivity Management, and the American Productivity & Quality Center, 1999 Health and Productivity Management Benchmarking Study. Press release dated 4/10/2000 from Medstat Website. This study estimates turnover cost at 50% to 100% for U.S. businesses as a whole. Hospital turnover costs are likely to be much higher due to manpower shortages.
5Press release, Unifi Network, August 15, 2001.
6AHA research service, which cited AHA's Hospital Statistics, 2002 Ed.
7AHA research service, which cited Hospital & Healthcare Compensation Service, 2001-2002 Hospital Salary & Benefits Report. Oakland, NJ, 2001. P 25. (Also 2000-2001 report, p. 26.)
8Dennis O. Kaldenberg, PhD, and Beth Regrut,, "Do Satisfied Patients Depend On Satisfied Employees? Or, Do Satisfied Employees Depend On Satisfied Patients?" The Press Ganey SATISFACTION REPORT, Spring 1999, Volume III.
9The Jackson Organization, "Achieving Total Quality Can Give You The Competitive Edge You Need." Newsletter, 8/01.
10Maxwell Drain, "Patient Satisfaction in Primary Care: An overview of Recent Findings." Press Ganey Satisfaction Monitor, January/February 2001.
11Nelson, Eugene C., et al: "Do Patient's Perception of Quality Relate to Hospital Financial Performance?" Journal of Health Care Marketing, December, 1992.
12Kaldenberg, Dennis, "The Relationship Between Patient Satisfaction and Financial Performance." Press Ganey Satisfaction Measurement, November/December 1997.
13Roberts, Rebecca, et al: Distribution of Variable vs. Fixed Costs of Hospital Care. JAMA, 2/17/99.
14Fremont, A.M., Cleary, P.D., Hargraves, J.L., Rowe, R.M., Jacobson, N.B., and Ayanian, J.Z. "Patient-centered Processes of Care and Long-term Outcomes of Myocardial Infarction," Journal of General Internal Medicine, Vol. 16, No. 12, December 2001, pp. 800-808. Abstract available from World Wide Web: (http://www.rand.org/cgi-bin/health/hilite.pl?key=2001_217&hi=fremont).
15Ibid, abstract.
16Maxwell Drain, "Patient Satisfaction in Primary Care: An overview of Recent Findings." Press Ganey Satisfaction Monitor, January/February 2001.
17Press release: "Press Ganey Associates and The MEDSTAT Group Announce Strategic Partnership to Link Patient Satisfaction and Clinical Outcomes Data." Ann Arbor, Mich., October 12, 1999.
18Cost-effectiveness of Gemifloxacin: Results From the Globe Study, Michael T. Halpern, et al. American Journal of Health System Pharmacy, 59(14):1357-1365, 2002.
19According to the Healthcare Cost and Utilization Project (HCUP) 2002 Survey, conducted for the AHRQ, total number of inpatient discharges in the U.S. = 36,417,565, including 861k deaths. (Total outpatient department visits = 83.3mm in 2000, according to National Center for Health Statistics website. This site puts inpatient discharges at 31.7mm in 2000.) Since there are 984,000 hospital beds in the U.S., the number of inpatient discharges per bed per year = 37.
20Kohn, Linda, et al, "To Err Is Human." The Institute of Medicine, Washington DC, 1999. Chapter 3.
21Ibid, chapter 8.
22Ibid, page 23
23Ibid page 22
24Appendix II: Hospital and Physician Malpractice Insurance Polices and Costs; GAO/AIMD-95-169 Medical Liability
25NJHA Medical Malpractice Survey, 2002. PDF posted on the NJHA website.
26Federal Register, Vol. 67, No. 148/Thursday, August 1, 2002. P50034-36. This study found that 0.84% of hospital expenditures went to malpractice insurance in 2001. According to the AHA, total hospital expenditures in 2001 amounted to $395.4 billion. Multiplying this figure by .0084 = 3.32B. Divided by 5810 hospitals = $571.7k per hospital. This is consistent with the NJ figure for 2001. The 2002 figure was $942,500.
271999 Health and Productivity Management Benchmarking Study, conducted by Medstat Group, the Institute for Health and Productivity Management, and the American Productivity & Quality Center. Press release dated 4/10/2000 from Medstat Website.
