Study: Retention of nurses tied to profitability

Michelle Swafford

Friday, June 11, 2004 | 10:38 a.m.

If hospitals focused more on retaining nurses, the quality of patient care and the hospitals' profitability would improve, a union-financed study released Thursday by University of Nevada, Las Vegas, researchers says.

The Services Employees International Union Local 1107, which represents about 4,000 nurses at four of the Las Vegas Valley's 11 hospitals, commissioned the study to raise awareness about the value of retaining nurses when it comes to patients and profitability.

"By hospitals, being more profitable, they can hire more staff (and) provide better patient care," said Chris Salm, research director for the SEIU Local 1107.

"Part of the purpose of the whole thing is to raise the issue of retention," Salm said. "You can recruit all the nurses you want, but if you can't keep them what good is it?"

The study looked at state and federal data and other nursing studies before concluding that hospital operators could save substantial money by investing in their nurses through retention rather than recruiting new nurses and hiring temporary-agency nurses.

Three of King of Prussia, Pa.-based Universal Health Services Inc.'s hospitals in Las Vegas, Valley, Summerlin and Desert Springs, were used as an "illustrative example" of the savings that hospitals could generate if they focus on their nurses, said Alan Schlottmann, professor of economics at UNLV and a co-author of the study.

"Hospitals are always struggling with profits," Schlottmann said. "I'm not saying anybody is good or bad. Revenue is a tough nut to crack so the only real nut to crack is labor costs, and labor costs are nursing costs."

Hospitals are limited in what they can charge patients because of insurance, Medicare and Medicaid contracts; and they're limited in the number of patients they can treat, so they look to cut operational costs to improve their revenue, he said.

Nurses account for about 20 percent of hospitals' costs and represent an average of 40 percent of hospitals' employees, the study said.

Because there are not enough nurses working in hospitals, nurse turnover leads to an increase in nurses working overtime, the study said.

"Overtime is expensive," Schlottmann said. "That's time and a half. Every time a nurse works 27 hours of overtime, that's the same as a nurse working 40 hours. That's 13 less hours there's a nurse there. If there's less nurse time, that could lead to more errors."

The study reports that nurses at Desert Springs, Summerlin and Valley hospitals worked a total of 42,884 hours of overtime in the fourth quarter of 2003, which is 58.2 percent of the total overtime hours worked at the hospitals during that period.

The overtime hours increased the cost of staffing by 10 percent at the three Universal Health hospitals, the researchers said.

Reducing the number of overtime hours at all of Universal Health's could increase earnings for the hospitals' parent company, the study said.

Desert Springs and Valley's turnover rates have ranged from 25 percent to 33 percent, based on SEIU data provided to the UNLV researchers. Reducing turnover could also improve profitability, the researchers said.

Hypothetically, if all of Universal Health's more than 60 hospitals had an average turnover rate of 20 percent and took steps to reduce it to 17 percent, that could result in a 2.5 percent reduction in Universal Health's total costs, which could increase Universal Health's annual earnings per share by 7.5 percent, or 17 cents, the study said.

If only the three Las Vegas hospitals referenced in the study reduced their turnover rates to 17 percent, Universal Health could reduce its staffing costs by 1.2 percent and increase annual earnings per share by 3.5 percent, or 8 cents, the study said.

Universal Health Services declined to comment on the study.

The study did not address how hospitals could better retain nurses as much as how their current practices are hurting patient care and their profitability.

It's estimated that 716 additional nurses are needed each year to offset population growth and attrition and the Nevada nursing programs graduate an average of 280 nurses each year, leaving a 435-nurse shortfall, the study said.

As of 2000, there were about 2,000 nurses in Nevada with inactive nursing licenses, which represents about a five-year supply of nurses that could be retained, Schlottmann said.

Schlottmann and his colleagues, Robert Schmidt and Paul Thistle, concluded that data shows nurse retention is a critical means of improving hospital profitability, but is not a top management priority within the industry.

When hospitals don't retain their nurses, they not only increase the risk of errors in patient care, but also increase the risk of litigation and hefty liability insurance premiums, the study said.

"I think that nurse retention matters for both hospital profitability and quality patient care," Schlottmann said. "There are very few times in life when there's a win-win, but this is a win-win."

Bill Welch, president and chief executive of the Nevada Hospital Association, said his group agrees that retention is an important issue in patient care and more work needs to done in that area, but it's part of a larger solution.

"Retention by itself is not enough when you don't have enough nurses to fill all the slots," Welch said. "We would be doing a disservice to the community in terms of care if we weren't equally focused on the recruitment."

Welch said he was not aware of the UNLV study and was not contacted about nursing retention in hospitals even though his group represents the hospital industry.

He said each of his hospital members has assigned a chief retention officer to help nurses and other employees voice concerns and learn about available training programs.

Fran Brown, dean of the Division of Health Sciences at the Community Colleges of Southern Nevada, said she couldn't comment on the financial implications of nurse retention, but it is one of three areas Nevada health care leaders are focusing on.

Brown is a member of the Nursing Institute of Nevada, which is made up of educators, hospital chief executives and political leaders who are looking at ways to improve nursing conditions and staff levels in the state.

She said the institute's belief is that retention is one of three areas that Nevada must focus on to maintain patient care and address nurse staffing concerns. The other two areas are recruitment and professional development and training.

"Hospitals don't want to lose their staff," Brown said. "It costs a lot to hire new people and train them. If you can keep the people you have it's a good thing."

But, nurses leave hospitals for many reasons including to work in other nursing fields or to be full-time parents, she said.

The Community Colleges of Southern Nevada had 61 nursing students graduate in May and another 30 will graduate in August. More than 200 nursing students are enrolled in the two-year program. The Nevada Legislature required nursing programs to double the number of nursing student positions to expedite the education process.