Budget Analysis presentation

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UTILIZATION OF TRAVEL NURS- ES continues to grow in the healthcare industry. It is one of the fastest growing

segments of temporary staffing, although all segments continue to experience expansion (Gregoire et al., 2018). The growth of travel nursing results from the dramatic expansion of healthcare demand that has occurred since the end of the recession, coupled with work- force preferences and shortages in virtually all healthcare fields. With the aging of the U.S. population and growth in overall employ- ment, it is expected that demand for all types of nurses will contin- ue to expand, and travel nurse uti- lization will remain robust.

In this environment, health- care organizations need to be able to accurately determine cost of travel nurses in comparison to the full cost of core staff to achieve

greater precision in budgeting and planning for their clinical work- force.

Building a Full-Cost Comparison Estimates of correlated costs

between travel nurses and core staff nurses often compare the bill rate for travel nurses to the pay rate for core staff nurses during regular work hours. However, such comparisons are incomplete and do not accurately reflect the true costs to healthcare organiza- tions for employment of core staff nurses, and in fact, typically underestimate this cost.

The U.S. Bureau of Labor Statistics (2018) found that employ- er costs, including paid leave, sup- plemental pay, insurance, retire- ment/pension, and legally required benefits, averaged 35.2% of total compensation for registered nurses working in private industry hospi-

Marcia Faller Bob Dent

Jim Gogek

The ROI of Travel Nursing: A Full-Cost Comparison of Core Staff Pay Rates to Travel Nurse

Bill Rates

MARCIA FALLER, PhD, RN, is Chief Clinical Officer, AMN Healthcare, San Diego, CA.

BOB DENT, DNP, MBA, RN, NEA-BC, CENP, FACHE, is Senior Vice President, Chief Operating, and Chief Nursing Officer, Midland Memorial Hospital, Midland, TX.

JIM GOGEK, MA, is Senior Writer, AMN Healthcare, San Diego, CA.

EXECUTIVE SUMMARY The growth of travel nursing results from the dramatic expansion of health care demand that has occurred since the end of the recession, coupled with workforce prefer- ences and shortages in virtually all healthcare fields. Healthcare organizations need to accurately determine the cost of travel nurses in compar- ison to the full cost of core staff to achieve greater precision in budgeting and planning for their clinical workforce. When full costs are included in the cost of core staff nurses, and when core staff overtime is used as the basis for compari- son, the cost of travel nurses is often lower than the cost of core staff nurses in the hospital units examined in this study. This result contradicts the pre- vailing assumptions that it is more expensive to contract for travel nurses than to utilize core staff nurses.

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tals in March 2017. These amounts vary by geographical location and by the value of benefits packages, and therefore can be significantly higher. In addition, costs of over- time, premium pay, hire-on bonus- es, and shift bonuses for core staff also should be included when com- paring their full costs to the hourly rate for travel nurses.

Should Travel Nursing Costs Compare with Staff Overtime?

A true and complete cost com- parison with travel nurses begins with an examination of the appro- priate and typical uses of travel nurses. Comparing the hourly bill rate of travel nurses to the fully burdened regular pay rate of core staff nurses is largely inaccurate, in part because regular work hours are covered by core staff nurses, including float pool nurses. Travel nurses cover the nonproductive hours of core staff, such as educa- tion and training, extended ill- nesses, jury duty and paid time off, as well as during other situa- tions that require short-term addi- tions to staff such as seasonal cen- sus fluctuations, electronic med- ical record (EMR) implementa- tions, and opening of a new facili- ty or unit. These situations would otherwise be covered by core staff overtime, not regular time, so the cost of travel nurses should be compared to fully burdened core staff overtime costs.

There are ample reasons for using travel nurses to cover over- time beyond the amount budgeted for core staff. Research into the effects of excessive overtime hours on nurses reveals that long work hours can contribute to higher costs due to errors (Bae, 2013), nurse injuries (Bae, 2012), patient dissat- isfaction, and turnover (Stimpfl, Sloane, & Aiken, 2012). The aver- age cost of turnover associated with one staff registered nurse is estimat- ed to be from $37,700 to $58,400 (Nursing Solutions, Inc., 2016). Acceptable levels of overtime per unit or per nurse, to avoid increased attrition or burn out, have

not been firmly established. Anecdotally, nursing leaders have told the authors that core staff over- time is typically budgeted at 3%- 5% of total hours, though there is no evidence about whether these levels are safe. Actual overtime hours can often reach double-digit percentages.

This study develops a more complete and accurate portrayal of the return on investment (ROI) for travel nurse utilization by examining a hospital’s full costs for core staff nursing, not just the pay rate component for regular hours. This requires defining the type of core staff work hours that are appropriately covered by trav- el nurses, such as nonproductive time, seasonal census coverage, etc. Since these types of work hours otherwise would be covered by overtime, a valid comparison can only be made between the full-cost overtime rate of core staff and the bill rate for travel nurses. All of the benefits and taxes enu- merated for core staff nurses are covered by the travel nurse organ- ization and are rolled into the sin- gle hourly bill rate that is paid by the healthcare organization.

Methodology For this study, data were ex -

tracted over a period of 24 months beginning in October 2013 through September 2015 from four nursing units (critical care, medical, post- surgical, and ortho/neuro) at a mod- erately large community hospital in the southern United States. The hos- pital is representative of regional providers at the urban-rural inter- face, and is in one of the fastest- growing regions in the country, with an estimated population of just over 300,000 (U.S. Census Bureau, 2016). As such, it shares the characteristics of a healthcare provider with high urban demand and wide rural cov- erage.

Data were collected from pay- roll records for all core staff RNs who worked in the hospital units. Travel nurse bill rates and hours were collected from travel nurse

companies for the same time peri- od. An initial comparison of the volume of utilization of core staff vs. travel nurses was completed, and four units were included in the study as a result. Other units had minimal utilization of travel nurses and, for the purposes of this study, did not warrant inclu- sion. Nonproductive hours were identified in the hospital payroll data and were analyzed according to volume of activity, and com- pared with travel nurse, core staff regular time, and core staff over- time utilization. Average core staff regular time and overtime rates were calculated and adjusted for benefit load, and compared to average travel nurse bill rate by unit. (Benefit load was applied fully to the regular rates at 27.28%. Only the tax load of 7.65% was applied to the differ- ence between overtime rates and regular rates.)

In this study, average regular pay rate was calculated for core staff by dividing total cost of regu- lar time worked by the total num- ber of hours worked during the period. The average overtime rate was calculated in the same man- ner. To keep the calculation sim- ple and isolate only overtime costs, other premium pay cate- gories, including shift bonuses, workers’ compensation, and pro- fessional liability insurance were excluded.

The study was approved as an exempted review through the healthcare organization’s institu- tional review board.

Though the results of this study cannot be extrapolated to produce universal estimates of the cost of travel nursing, they con- tribute to the knowledge of travel nursing ROI by examining specific work records at a fully operational hospital.

Results Full costs included for core

staff nursing. For accurate com- parisons of travel nurse and core staff nurse costs, all employer

179NURSING ECONOMIC$/July-August 2018/Vol. 36/No. 4

costs need to be included when calculating a healthcare organiza- tion’s true total expenditures for core staff nurses. These actual costs (see Figure 1) were included in the calculation of the full cost of core nursing staff for four units examined over a period of 24 months. For the organization, the applied benefit and tax load was 27.28% (workers’ compensation and professional liability insur- ance excluded).

It is important to note the calcu- lation of full costs in this study does not include indirect costs of core staff nurses. These costs may be part of operational budgets. Some por- tion of them is expended at virtually every healthcare provider, although they can differ widely by organiza- tion and from one budget cycle to the next at the same organization. • Recruiting • Advertising • Hire-on bonus • Initial interview and screen • Unit interview • Credentialing and background

check • Reference check • Onboarding • Turnover and lost productivi-

ty from vacancies • Coverage for vacancy • Average days-to-fill

If these costs were measured and included in the cost compari- son between travel nurses and core staff nurses, costs of core staff would be even higher.

Travel nursing covers for over- time, not regular time.Comparisons of core staff pay rates to travel nurse bill rates should be based on the fact that travel nurse utilization serves as a replacement for the hours that would be worked as overtime by core nursing staff. In addition, travel nurses may be uti- lized when core staff nurses are unavailable for reasons that include: • Nonproductive hours • Coverage for census spikes

and other high-volume and high-acuity patient events

• Opening a new unit or facility

• EMR implementation • Replacing overtime utilization

greater than 3%-5% of total core staff worked hours

• Shortage of specialized nurses Travel nurses are often utilized

in the situations described above due to the unavailability of core staff. Core staff may have availabil- ity to cover some of these hours, but often at an overtime rate because they have already met their regularly scheduled hours.

Some amount of overtime is appropriate for core staff nurses. However, utilization of core staff overtime above budgeted amounts of total worked hours may stretch core staff too thin. Approximately 3%-5% of total worked hours is the generally accepted standard

for core staff overtime in operating budgets at hospitals. Use of travel nurses to cover core staff overtime greater than 5% of total worked hours is therefore appropriate to avoid unwanted turnover, and provide high-quality and safe care for patients.

Overtime on the four compar- ison units. For the four units at the hospital, a comparison was made of travel nurse bill rates to the fully adjusted overtime pay rates for staff nurses. To focus the analy- sis on those units with meaningful levels of travel nurse utilization, units with less than 5,000 hours of travel nurse coverage over the 2- year period were eliminated from the analysis.

The four nursing units consis-

Figure 1. Employer Expenditures Calculated in Fully Adjusted Core

Staff Nurse Costs

Payroll Benefits (health insurance, retirement, paid time off)

Medicare taxes Social security taxes

Figure 2. Core Staff Overtime as Percentage of Worked Hours

on Nursing Units

0

2%

4%

6%

8%

10%

12%

14%

Post-SurgicalOrtho/NeuroMedicalCritical Care

11% 12%

8% 8%

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nurse costs are substantially high- er. There are two apparent reasons why this belief is incorrect. 1. The true total cost of core staff

nurses is not widely known because many of the costs are hidden or overlooked in the healthcare organization’s opera - ting budget, whereas the trav- el nurse bill rates are very transparent to the healthcare organization.

2. The most valid comparison is between core staff overtime costs (not regular time) and travel nurse costs, because travel nurses can be utilized to cover time that would normal- ly be covered by core staff overtime. Imbalances in travel nurse uti-

lization. A critical area for utiliza- tion of travel nurses and other con- tingent nurses is for covering non- productive time by core staff. Overall, in the 2-year period ana- lyzed at this hospital, total number of hours core staff were unavailable at the bedside closely matched contingent nursing hours: 71,557 to 72,575 hours respectively. However, when examined unit by unit (see Figure 4), this correlation was not as apparent. Large differ- ences existed in core staff nonpro- ductive hours, overtime hours, and contract hours, revealing contin- gent labor is often either severely underused or overused on a unit- by-unit basis. Improved workforce planning could balance use of trav- el nurses with core nonproductive hours at the unit level.

Conclusion When full costs are included

in the cost of core staff nurses, and when core staff overtime is used as the basis for comparison, cost of travel nurses is often lower than the cost of core staff nurses in the hospital units examined in this study.

This result contradicts pre- vailing assumptions that it is more expensive to contract for travel nurses than to utilize core staff

Figure 3. Full-Cost Staff Overtime Pay Rate Compared to Travel Nurse Bill rate (averaged over 2 years)

$90 $80 $70 $60 $50 $40 $30 $20 $10 0

Critical Care Medical Ortho/Neuro Post-Surgical

9.6% 9.6% 5.5% -6.1%

Staff OT Rate Travel Rate % Difference

Figure 4. Overuse and Underuse of Contract Nursing

Post-Surgical

Ortho Neuro

Medical

Critical Care

0 10,000 20,000 30,000 40,000 Contract Hours Overtime Hours Core Unavailable Hours

tently utilized overtime at higher percentages than the typically budgeted staff overtime of 3%-5% of total core staff worked hours (see Figure 2). It is relatively com- mon for hospital nursing units to exceed the budgeted amount for overtime.

Full-cost comparison shows higher core staff nurse costs. When the overtime costs were adjusted for benefits and taxes, a full-cost comparison was made

with the fees paid for travel nurses on the four units (see Figure 3). The comparison showed that full- cost staff overtime pay rates were higher in three of the four units when compared to travel nurse bill rates. In two units, core staff rates were nearly 10% higher. In one unit, travel nurse bill rates were higher than full-cost staff overtime pay rates.

This result runs contrary to the commonly held belief travel

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nurses. The ROI for utilizing trav- el nurses can be more accurately assessed when it is recognized these additional costs for core staff nurses are covered by the health- care organization, while the same costs for travel nurses are includ- ed in the single travel nurse bill rate paid by the healthcare organi- zation.

The ROI for utilization of trav- el nurses can differ depending on the healthcare organization’s spe- cific pay practices, value of the entire benefits program, and local and state taxes. In this study, because of the cost differential between the travel nurse bill rate and the fully adjusted overtime rate, travel nurse utilization is supported for the following rea- sons: coverage of nonproductive time, seasonal census spikes, reduction in overtime by core staff to budgeted levels, and other events that require a short-term need for nursing staff.

This analysis also shows the real total costs for core staff nurs- ing can be calculated by hospitals, health systems, and other health- care facilities, and then accurately compared to their costs for travel nurses, thereby greatly enhancing the accuracy of staffing cost pro- jections in operating budgets and supporting the utilization of travel nurses as a workforce strategy.

This study is the first to exam- ine ROI for travel nurses at specif- ic units and has exposed several gaps in the research literature. There is no research to date on the appropriate utilization of core staff overtime on a unit and the correlated impact on patients, staff, and organization. In addi- tion, reports on the appropriate percent utilization of travel nurses and other contingent labor are also absent in the literature.

Limitations This study is for one hospital

only, covering actual hours of work performed by core staff nurs- es and travel nurses. As such, these data cannot be extrapolated

to universal comparisons between the costs of core staff and travel nursing. However, this analysis adds data from actual hours worked to the larger studies of national datasets on comparisons between core staff and contingent nursing. More research is needed to further understand travel nurse contributions to an organization’s financial success.

Also, this study enumerates costs associated largely with pay- roll and benefits. A larger study should be done to include recruit- ing, vacancy, onboarding, work- ers’ compensation, professional liability insurance, and other indi- rect costs for staff nursing, which can be substantial. $

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Stimpfl, A.W., Sloane, D.M., & Aiken, L.H. (2012). The longer the shifts for hospi- tal nurses, the higher the levels of burnout and patient dissatisfaction. Health Affairs, 31(11), 2501-2509.

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