DEBUNKING THE FLEXIBLE BUDGET LOGICAL FALLACY IN 2017


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Written by Liz Kirk

For many years, directors and managers of direct care departments have been asked to “flex to budget.”

Simply put, as patient volumes go up or down, the managers need to adjust staffing levels to reflect the actual volume. Wages and staffing expense then go up or down if the actual volume is different from the budgeted volumes.

Hospitals have invested, and continue to invest in, systems that help them “flex better,” or help them hit their productivity goals of budgeted worked hours per unit of service. While this idea is good in principle, it assumes two things. First, that the budgeted hours per unit of service accurately reflect the hours needed. Second, that managers actually will flex up or down their staff as volume changes.

The above statements represent two major flaws in current thinking on productivity improvement — and are the primary reasons why focusing on productivity management does not improve productivity or reduce the cost of providing care.

Here is more insight on why these false assumptions, or logical fallacies, fail to produce desired improvements:

Logical Fallacy No. 1: – Acting as though the budgeted hours per unit of service is accurate.

Ask department directors or the budget director. Ask them how they came up with the budgeted worked hours per unit of service number. The response will typically be “that is what [name that benchmarking organization] shows for a hospital of our size” or “we calculated it from last year’s actuals” or “that’s what it always has been.” Rarely, if ever, will you hear “we looked at active time needed to care for patients in that department and built it from the ground up.”Essentially, this means the budgeted worked hours per unit of service number that is measured monthly and managers are held accountable to is made up? And that systems intended to help you hit those targets are not really increasing efficiency or reducing cost? Yes, that is the case at most healthcare organizations.

Logical Fallacy No. 2: Managers will actively and consistently flex staff hours as volumes change.

The idea is that astute, conscientious managers will cut shifts from the schedule and send people home early without pay (using their PTO) if volumes are less than expected or if they need to get back to budget because they overstaffed earlier in the month. This works in theory, but both managers and staff are humans who have expectations of predictable wages and hours. That’s why so many managers don’t flex. It’s hard to send people home without pay and hard to call people in unexpectedly. Even when flexing does happen, it’s usually the result of filling open shifts or call offs.
There is lot of variability in productivity measures, often because the underlying core schedule isn’t right. The result is that departments sometimes hit budget, sometimes are over and sometimes are under, but it is usually the result of chance rather than strong managers flexing to volume.

There is a better way

A smarter approach to productivity management is staffing to demand. This strategy entails creating a core schedule that reflects fluctuations in seasonal volume, day of the week volume, and even hour by hour volume and activity, such as admissions, discharges and transfers. It is a more sustainable way to actually reduce worked hours per unit service, improve productivity and reduce cost. In addition, this method does not jeopardize quality or patient satisfaction.

By shaping a schedule that mirrors hour-by-hour and day-by-day volume trends, the department will have a core schedule that requires fewer hours to care for the same volume of patients. Then, the department manager can adjust the core staff schedule to reflect this variability in patient volume and activity. With this mindset, unnecessary hours can be cut from the schedule for times when volume is below staff capacity.

For even greater impact, having a standby float pool or an intra-unit floating structure will cover open shifts and volume swings by enabling units to flex up if volume or activity exceed the historical trend or float staff to busier units if activity or volumes lag the historical trend. The benefits of this approach have been demonstrated in many functional areas including surgical services, procedural departments, the ED, environmental services and patient transport.

True staffing to demand in action

We can more clearly illustrate this approach in action by looking at the impact on a surgical floor. Often hospitals have set shifts and set numbers of staff per shift. For example, five RNs start at 7 a.m. and four RNs start at 7 p.m. five days per week. However, when looking at volume trends, it is common that Monday mornings typically have a much lower patient census. Then, around after noon, the census increases as patients come in from the OR. Similarly on Friday, the census will typically drop to very low levels by mid-afternoon as patients are discharged and very few patients come in from the OR. Additionally, afternoons are often quite hectic as new patients are admitted while others are discharged.

In most hospitals, staff schedules do not reflect these rather dramatic shifts in volume or the predictable increases in activity in the afternoon and evenings. Rather, the highly paid RNs have little to do on Monday mornings, struggle to keep up in the afternoons and may be sent home early Friday afternoon with the option of using their PTO or not getting paid. While this may help ensure budgeted productivity standards are met in the short-term, it hurts employee engagement over time.

By varying the start time and length of shifts, managers can better shape their staff schedule to the predictable staffing patterns in a particular department. These small changes in the core schedule can result in hundreds of thousands of dollars saved within a single unit or department. Additionally, staff benefit by not being sent home and can garner additional flexibility in their work-life balance by choosing shifts that better fit with their lifestyle needs.

But most importantly, organizations can drive down costs without jeopardizing quality because the hours are reduced from times when they are in excess, not by increasing ratios or decreasing staff across the board.

While this staffing to demand approach may sound daunting, it becomes much less intimidating when providers realize that they have this much-needed data. It is generated every minute of every day. They simply need technology to help them to leverage that data — and with that technology, they can replace flexing failures with meaningful results that impact the bottom line.


With over 15 years of experience working with healthcare providers both as a hospital administrator and a consultant, Liz Kirk is responsible for developing and managing Continuous Cost Improvement applications and services for Strata Decision Technology. Prior to joining Strata Decision, Liz was responsible for cost reduction and revenue improvement at Northwestern Memorial Hospital in Chicago. Prior to her career at Northwestern Memorial, Liz was instrumental in developing revenue cycle consulting and technology services for large physician practices at Accretive Health and in starting the Revenue Cycle and Financial Improvement practice at GE Healthcare Performance Solutions.

April 18, 2013