Home / Blog / Changes in Managed Care: The Cost of Doing Business

Changes in Managed Care: The Cost of Doing Business

Written by Whitney Sanders, Operations Administrator & HR Generalist.
Contact her at 1.800.974.4828 x115, or whitney@carenational.com.

CareNational was founded with the goal of assisting Health Plans, Hospitals, and their ACO or HMO-type mixed entities. We do this by providing boutique Medical Management consulting and recruiting support to help our clients properly staff their teams with the best Case ManagersUtilization Review Nurses and Quality Improvement Specialists. Managed Care has always been an evolving industry, today more than ever! Since 2010, we’ve seen tremendous changes within healthcare and we wanted to further that with a discussion of current and future modifications to the industry. We started by asking: What changes in the Managed Care industry are you dealing with on a daily basis, and what do you see on the horizon?

In this installment of our blog, we wanted to shift focus to a hiring-cost perspective and highlight some of the many trends within today’s human resource teams. Perhaps the biggest challenge HR departments within the Managed Care industry are faced with these days is balancing an organization’s need for more nurses, while also dealing with the rising costs of compliance, onboarding, and related administration. Increasing expenditures associated with recent healthcare reform is hardly a new subject. However, in this segment we compare the forecasted need for nurses over the next decade, along with the breakdown of costs associated with onboarding a new employee. We will also address the additional costs that the ACA (aka “ObamaCare”) brings to employers of any industry, healthcare being no exception. Hiring staff is one of the most basic functions of any growing company, but have you considered the actual expenses of hiring a new employee?

Hiring Outlook for Nurses

According to the US Bureau of Labor Statistics, the employment forecast for nurses is looking pretty positive. The employment rate for RN’s is projected to grow 19% from 2012 to 2022! Even higher is the expected growth rate for LPN/LVN’s coming in at 25%, which is much faster than the average for all industries. While these numbers may be reflective of nursing jobs in general; opportunities within the Medical Management niche of Care Management, Utilization Management, and Quality Management have grown at an even greater rate due to healthcare reform. So what is causing this level of expansion? Several factors contribute to these climbing rates: an increased focus on preventative care measures, growing rates of chronic illnesses, new mandates related to electronic health records and their security, and in general a greater demand for healthcare services from the baby boomer generation.

Getting the Right People on the Bus

Most will agree that the long-term value of hiring the right person for the right position (and getting them through the onboarding process quickly) outweighs the initial costs of bringing them on. But exactly how much should we budget for this? Typical hiring costs are a combination of the obvious (tangible) expenses, and the less evident (intangible) costs. The tangible costs like paid advertisements, interview travel and potential lodging expenses, pre-employment compliance checks such as drug and background screens, relocation or sign-on bonuses, etc are all fairly up-front. There are also the intangible costs of paying the salary of recruiting personnel, the time investment to review resumes, conduct phone screens and in-person interviews, and of course the opportunity cost of activities not completed due to time dedicated to these hiring functions. It cannot be emphasized enough that every single one of these dollars spent occurs before a candidate is even hired, let alone actively contributing to your organization’s productivity or revenue stream!

Even after the hiring and onboarding process, there are other items to consider, such as the cost of training, cost of decreased productivity from operations managers assisting in the hiring and training process, paying for salary and benefits, tax burdens, and even the physical costs such as workspace and equipment for employees to complete their job duties efficiently. Beyond those generalities, the healthcare industry often has even more pre-employment regulatory requirements than other industries, such as TB tests, flu-shots, and pre-employment physicals.

There is always going to be a wide range of variance in types of positions and organizations, and determining the costs of any single new team member will never be an exact science. Yet when all is said and done, most business experts estimate that the average cost of hiring and training a fully functioning employee equates to between 1.5x – 3x the first year annual base salary of the employee.

The Affordable Care Act (ACA) and its effects on Compliance Costs

The greatest impact of recent healthcare reforms is an emphasis on value-based care, or making every dollar count for the payers and providers spending it. So with the Managed Care budgets already stretched thin, HR departments are also having to face the costs associated with new ACA mandates. Rolled out at the start of the year, the Employer Mandate specifically states that companies with 50 or more full-time employees (FTE) will need to insure 95% of their full-time workers by 2016. The healthcare industry was not immune to the change, but were a little more ready to adapt to it. Healthcare companies providing low-cost healthcare coverage for their employees is really not too different than other industries offering an employee discount.

So we’re dealing with 2 new areas of costs: increases in required benefits, and the related fees associated with the administration of those benefits. It has been estimated that by 2023 the ACA-mandated requirements could cost large U.S. employers somewhere between $4,800 and $5,900, per employee, according to a study by the American Health Policy Institute (AHPI) completed in 2014. The related administrative costs typically involves new hire paperwork, and the monthly and annual reporting to both employees and the IRS. Employers have the option to pay penalties for not offering the required minimum levels of coverage, but most employers are opting to provide coverage, as the penalties are climbing each year. The companies better able to effectively plan, budget, and forecast staffing needs to meet the growing demand will have the competitive advantage in the end.

How We Can Help

All is not doom and gloom however, as there are many solutions to help Managed Care Organizations balance the need to hire more nurses and keep costs reasonable at the same time. Because of the delays involved with the rollout of the ACA mandates, many employers have had adequate time to prepare and put into place effective budgets that balance overall company needs. Many health plans and hospital systems rely on the partnerships they have in place with staffing firms to help them through the ACA transition and growing industry demands. Third-party recruitment firms and staffing agencies, especially ones as specialized as CareNational within the Medical Management niche, are experts in the hiring of contract and temp-to-hire workers which can lighten the cost burden of bringing on new employees by absorbing the compliance and benefit costs for employers. Even outsourcing the recruitment and compliance aspect of direct hire, permanent employees is a significant time and cost saver.

Paying a search firm a fee up to 20% of the employee’s starting salary may seem like a lot, but re-read that list of tangible and intangible costs. Consider that a search fee includes contingency work from specialized Medical Management recruiters, money to post advertisements, pre-screening activities, post-offer background checks, minimal opportunity costs to your internal staff, and in the end you have an experienced employee needing minimal training. I would argue that a 20% fee to outsource these functions is a bargain when it can potentially reduce that 150%-300% employee onboarding cost by half. Utilizing these partnerships ultimately helps speed up the hiring process and lower the down time from “offer date to start date.” After all, time is money!