New study proves: It’s cheaper to keep them

Retention can save you money

Any good human resources professional knows that retaining existing employees is much easier than recruiting new ones. But now research proves that it’s a much better deal financially, too.

In its study The Business Case for Work Force Stability, VHA, an Irving, TX-based network of community-owned health care organizations, notes that hospitals with high turnover rates can experience an increase in the average cost-per-discharge of patients and a substantial decrease in profitability.

"Work force shortages are threatening the financial viability of many hospitals," says Keith Kosel, PhD, MBA, director of clinical services at VHA. "The domino effect of having fewer workers, more delays in delivering patient care, dissatisfaction among patients and hospital staff, decreasing quality of care, and loss of market share is alarming. Clearly, work force shortages are at the core of health care delivery and must be at the top of every agenda."

Staff turnover rates have a significant impact on hospitals in terms of both time and money. The current turnover rate for all positions in health care staffing is 20.7%. Replacement costs, lost productivity, and temporary staffing cost between 50% and 150% of an individual’s base salary. At a 100% turnover cost factor, a turnover rate of 20% could cost a hospital an average of $5.5 million a year, the report notes.

VHA has created a hypothetical case study of turnover costs for a 180-bed hospital for another of its studies, Tomorrow’s Work Force: A Strategic Approach. At that hypothetical hospital, the total cost of its 31% annual turnover rate is more than $4 million.

High turnover rates also result in:

  • higher average cost-per-discharge — hospitals with a turnover rate of 20% or higher have costs that are 36% higher than hospitals with lower staff turnover.
  • decreased return on assets — hospitals with a 20% or more turnover rate have a 17% return on assets, whereas hospitals with a turnover rate of 4% to 12% have a 23% return.
  • increased risk-adjusted mortality scores and increased severity-adjusted length-of-stay rates — for hospitals with turnover rates higher than 22%, the severity-adjusted average length of stay was 1.2 days higher than for those with the lowest turnover rates.

Nurses represent the single largest labor expense for hospitals. In an attempt to manage costs, many hospitals have, over the years, reduced nursing staff, which in some cases has compromised quality of care and patient safety. Nursing shortages have been shown to contribute to longer lengths of stay in the intensive care unit and increased rates of urinary tract infections and other complications.

According to VHA research, hospitals that improve employee satisfaction witness an average increase in revenue per employee. In hospitals where employee satisfaction is high, the turnover rate is less than 10%. Conversely, hospitals with dissatisfied employees see turnover rates of 25% or more.

"Poor service and loss of patients to other
hospitals ultimately mean lost revenue for a hospital," Kosel says. "Those facilities that find solutions will gain a competitive advantage in their market and achieve solid financial returns."

To view the entire study, contact VHA at or call (972) 830-0000.