The South Florida Hospital and Healthcare Association (SFHHA) recently distributed a 2008 update to their previously conducted Community Benefits and Economic Impact Study that summarized healthcare demographics for the South Florida region. The following statistics were presented for the 47 hospital members of the SFHHA:

• SFHHA member hospitals directly employ approximately 50,848 people.
• The total payroll of SFHHA member hospitals in 2006 was about $2.6 billion.
• Hospital workers are highly skilled and highly paid, with an average salary of $55,381 (about $15,600 higher than Florida’s average wage).
• The “ripple” effects of member hospital activities translate into an additional 85,000 jobs (a $4 billion payroll).

These statistics do not include non-member hospitals, physician practices, outpatient facilities, or non-member firms that provide goods and services to the healthcare industry.

It is obvious that the economic impact of the healthcare industry in our region is very significant. Given the fact that we will continue to face economic pressures unlike anything we have seen in recent years, we are fortunate to have a vibrant, growing healthcare industry in South Florida. That’s the “good” news.

The “not so good” news is what it is costing these hospitals to recruit, hire, train, and retain employees. It is not uncommon for a hospital to have annual percent turnover rates at 20%, or higher. Take a couple of minutes to think about all of the costs that are incurred to replace a terminated employee. This is not theory; these are the real costs, some of which as Dr. W. Edwards Deming was fond of telling me, are “unknown and unknowable”. Consider the cost of:

• Temporary employees.
• Overtime.
• Lost productivity of the departing employee.
• Exit interviews.
• Termination administrative logistics.
• Severance/benefits continuation.
• Lost knowledge and skills.
• Unemployment insurance premiums.
• Advertising, recruiting, and interviewing.
• Screening and background checks.
• New hire administration logistics.
• Orientation and department training.
• Supervisory time devoted to new employee.
• Lost productivity of new employee.

A standard rule of thumb estimate puts the replacement cost of a terminated employee at 1.5 times average annual compensation. For our regional hospitals that works out to a cost per termination of about $83,000. If you do the math just for SFHHA members (50,848 employees), we are talking about 10,170 people a year through the revolving doors of 47 regional hospitals at a cost per hospital of $17.9 million. Some of those costs are controllable by the hospital and some are not.

If you don’t believe those numbers, let’s look at the problem (opportunity) using a much more conservative approach. For the sake of illustration, let’s take a look at an “average” hospital of 1000 employees with annual attrition of only 12%. At that turnover rate the hospital would have to replace 120 people every year. Assume that the standard rule of thumb is wrong and that it only costs $40,000 per termination for a total cost for this hospital, every year, of $4.8 million. Furthermore, let’s assume that the vast majority (90%) of the people who terminate leave for reasons that are desirable or outside of the hospital’s control (poor performance, relocation, etc..). This still leaves a controllable cost (10%) on the table of $480,000, every year (by the way, your real number is much higher than this).

In any case, to save some or all of the $480,000, you would buy all of the tools you could to improve hiring practices, you would have an effective mentoring program, you would demand a formal retention strategy, and you would probably elevate the importance of the issue by appointing a Chief Retention Officer (with accountability for analyzing and reducing attrition). In fact, if it cost you as much as $200,000 (which it won’t) to put these programs in place, you would earn a very attractive return on your investment in the first year and an even more attractive return in subsequent years.

It seems to me that this is a great business opportunity that deserves a hard look. If nothing else, you should complete a cost of attrition analysis for your facility and you should review the effectiveness of your retention program to make sure that these dollars are not slipping through your fingers.