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Hospitals should focus on ‘labor ratio’


Steven Berger, the founder of data-analytics company Healthcare Insights, says that the most important benchmark related to hospital operations is the labor ratio.

Labor ratio — a hospital’s total labor costs divided by total revenue — “should be the most important metric you use in doing your budget every year,” Berger told a session at the American College of Healthcare Executives 2015 Congress.

Labor is hospitals’ largest expense, and each incremental improvement in the labor ratio goes straight to the bottom line, he notes. And many hospitals can  improve, considering the wide variation in performance on this metric.

Mr. Berger said that the median labor ratio for U.S. hospitals is 55 percent, but the highest and lowest performers  can vary by 20 percentage points.  “Best practice is about 45 percent,” he said.

He said that many rely on full-time-equivalent per occupied bed to benchmark productivity, but this metric fails to account for FTE and contract labor costs, said Mr. Berger.

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