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It May Be Time To Raise Your Minimum Wage

Thursday, November 13, 2014   (0 Comments)
Posted by: Krista Chuscavage
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by Edmund B. Ura, JD, President & Senior Consultant, Merces Consulting Group, Inc.

 

The most oft-repeated logical fallacy in the FQHC industry seems to be “we’re not-for-profit, so we have to spend as little as possible.”  The truth is, “not-for-profit” is merely a tax status, and has no meaning whatsoever when it comes to how you need to run your business – because a  health center is just that, and the ones that are most effective at delivering their services are the ones who apply sound business principles to the way they operate. 

 

A better principle to adopt, and one that applies directly to issues of staffing and compensation, might be “we’re not-for-profit, and that leaves us less room for error.”  The truth is, there is not an unlimited supply of money, and we can’t just increase our prices to cover increased costs.  Perhaps it would be better instead to think of how to be smarter with our resources, and with 60 to 70% of expenditures tied up in employment expenses, this is the best place to start.

 

It is also very important to adopt this principle:  “all the programs and policies we have that relate to our people, especially compensation, should be focused on giving the most attention to the people who are doing the work the way we want them to do it.”  Management tends to put about 95% of its effort into the 5% of employees who are doing the least for it.  All the focus and effort on the people who give us the least sends a direct message to those who give us the most.  Further, studies have shown that when better performers perceive that more attention is paid to those not making the right effort, they tend to perform at lower levels themselves.

 

Addressing the “Front Line” Question

 

People in front-line patient contact jobs (front desk, medical assistants, dental assistants, billing clerks, eligibility specialists, outreach workers etc.) make up the largest number of employees in most health centers.  It is not simply rhetorical to ask if these employees are the ones that can make or break the patient experience, and while management frequently says they are our most important people, they are often not treated that way. 

 

Few would deny that the work for front-line employees in a health center is both more difficult and more complex than in most other health care settings.  Health centers typically have less management support, training, sophisticated systems and other tools found in a hospital or in a private practice.  Patients tend to require more assistance, are frequently ill-at-ease in the clinic setting, and many have limited educational backgrounds.  This means a front-line employee needs not only to have a full grasp of the job, but a high level of customer service skill.

 

What are the problems reported by seemingly every health center? 

  • We can’t get the skills we need for what we “can afford”
  • When we find good employees, we can’t keep them, because they leave for somewhere else that pays more
  • Less skilled people cause us to be less efficient, and make us less productive

 

Consider the health center CFO who reported that on a daily basis their schedule was full, but that by 10 AM the lines were out the door, many scheduled patients had just given up and left, and that the providers had seen few if any patients.  The reason?  Front-desk staff who simply did not possess the skill or temperament to do what was needed to get the patients to the medical assistants.  The cost?  Imagine losing the revenue from as much as a quarter of your potential patients every day.

 

Another health center had a staff of fourteen part-time LPNs to cover a workload that could have been handled by three full-time medical assistants and one LPN.  The reason?  Part-time employees weren’t given benefits, and thus the health center “saved money,” and it was possible to find desperate people willing to accept the $9.50/hour they were paid.  The real results?  Turnover of nearly 100% per year, most employees had the skill level and work ethic one would expect of someone willing to work at about half their market value, and many days when patients were sent home because there was no nursing staff.

 

All horror stories aside, the fact is that many health centers are paying little more than levels considered by the Federal government to be at the poverty line.  In contrast with minimum wage jobs at McDonalds, which are never intended to last long or provide for a family, the jobs at health centers are intended to be “careers,” and many employees are raising families, often in single parent settings.  It is little wonder that those who are able to get more, even $.20 or $.50 an hour, have to leave when they can find it.  Front-line employees at health centers learn more than they will need to use in most health care settings, making them highly attractive targets for employers who appreciate well trained employees.

 

Here is an immediate caution to those who think they are competitive in the market because they are close to the median of the surveys they use:  Surveys do not capture the health center premium that comes from more complex and difficult job requirements.  If you think you are paying competitively, but employees are leaving for more pay and to settings that are “easier,” you are not competitive.

 

Raising your minimum wage is not just about morality or ethics, but about good business, and making fewer errors with your limited resources.

 

The True Cost of “Saving Money”

 

Lower wages = more people

 

There are (at least) two results of failing to pay competitive wages, and these interact to form a dangerous downward spiral.  The first impact is long-term, and it is on job design.  Organizations initially develop jobs to perform certain functions, and if these jobs are designed correctly, the organization will run effectively – IF the right people are hired.  If there is a mismatch between job requirements and pay opportunities, leading to an inability to hire the “right people,” the job design fails.

 

A perfect example of this is the front-desk receptionist.  There are several tasks to be performed when a patient arrives for an appointment.  In most situations it is most efficient for one person to do as much of the initial patient interaction as possible, to make the patient feel attention is being paid to them, to minimize errors during handoffs and to ensure that patients aren’t lost in the system altogether.  However, if the organization does not provide pay opportunities large enough to attract front desk staff capable of performing all the tasks, the process will become very inefficient, and lines will back up.  The typical response is to reduce the complexity of the job to the perceived level of workforce capability, invariably resulting in more jobs, and more people, to do the same amount of work.   What is the end result?

 

  • More people.  It is simple to do the math and to see that a smaller number of staff members at a higher wage will cost less than larger number of staff members.  Even if the wage cost was “break-even” it is much more difficult to manage a larger, lower-skill workforce than one that is smaller and performs at a higher level.

  • Inefficiencies caused by both a more complex process and the ineffectiveness of lower skilled staff.  This problem is really exponential – we are asking people with less ability to undertake a multi-step process and coordinate their own activities, resulting in more opportunity for things to go wrong.

  • Decreased patient satisfaction.  No one likes to be shuffled from person to person, being asked to give their names half a dozen times in a situation where they are likely already uncomfortable.  Inevitably the process will take longer, leading to longer patient processing time and even problems with scheduling.

 

As jobs are simplified, there may be a point where the job requirements match pay opportunities, but all the organization has achieved is creating that match – not creating an effective process or a satisfied workplace.  The frustrations of management and the additional costs of training are other burdens that must be undertaken

 

Lower wages = higher turnover cost

 

Paying lower wages results in the creation of a “training ground,” and consequently high levels of turnover.  Numerous studies show the negative impact of turnover on organizational performance.  Where does it appear to hurt the most?  Smaller service organizations, especially healthcare.  Turnover costs much more than most people imagine – it might not be seen everywhere in the income statement, but it will be found:

 

  • In inefficiency when understaffed and unable to provide the services that are expected
  • In additional staff required to “cover” for expected absences for prolonged understaffed situations
  • In higher training costs and more down-time
  • In lost time of supervisors and managers who cannot perform their jobs because they are working on the floor, or stuck in seemingly endless training

 

The truth is, the shorter the average tenure of your staff, the more likely it is that they will not be able to meet expectations.  If your front office needs three people full-time to perform efficiently, three new people will simply not be able to catch up.  This means help has to come from somewhere, or patients will not be seen the way they should.

 

Lower wages = a lower skilled workforce

 

When an organization’s pay opportunities do not match the cost of the skill sets in the market, it ends up without the ability to either attract or retain the staff it needs.  The flip side of this, of course, is that what it may end up retaining are the very people who are not attractive to other employers and unable to find higher-paid employment.  The net result is people taking up space that could be given to someone with more potential.  If all of this suggests a breeding ground of despair for management and providers, it should not be a surprise. 

 

The end result of all of this?  Too many people, costing too much, and not providing the best possible service.  The result of being “thrifty” is an ineffective waste of limited resources – not thrifty at all.

 

 

HOW TO INCREASE PAY OPPORTUNITIES

 

The answer is not just to give raises (assuming the ability to do so).  Increasing the pay of those who do not deserve it does not increase performance, but rather validates past performance.  This will also send a clear message to employees doing the job well – that there is no point in continuing to do so. Increasing pay opportunities, on the other hand, will provide motivation for some employees and allow the organization a chance to hire from a more qualified pool of potential employees.  Like any other business strategy, there is a need to see where the problems are, and formulate a long-term strategy to get to where you want to go.

 

It is important then, first and foremost, to know whether your pay opportunities meet your needs.  If supervisors keep telling you “if we’d just pay a couple dollars an hour more, we could get what we need,” that is a signal.  They are the ones who are closest to the ground and likely know best.  In the absence of any easy answer, however, there are steps that should be taken to both find out the situation and find out where the resources will come from.

 

Develop a Compensation Program

 

Every organization should have a formal compensation program, whether it can afford competitive pay or not.  A program tells an organization what it needs to expect.  A compensation program is not a “salary survey.”  A salary survey is a collection of data that will tell you what some others pay to people in certain identifiable benchmark jobs.  It does not tell you what you should pay to your employees, or to the employees in all the jobs not found in a published survey. 

 

In contrast to a salary survey, an effective “compensation program” has three essential components:

 

  • an objective method for assessing the contribution of each job to the organization, and how pay opportunities should be set relative to other positions (pay grades);
  • a link to the appropriate labor market, to ensure competitiveness (pay ranges); and
  • a method to tie the long-term performance of individuals to an appropriate position in the pay ranges.

 

 

A properly designed and implemented compensation program will provide the organization with a full understanding of what it needs to pay to achieve its objectives, as well as putting a “price tag” on the pay of each employee.   

 

Test the Current Workforce

 

Conduct a real assessment of your current compensation practices.  To do this, you will need the real compensation program described above – one that captures where each job fits in the organization structure, that reflects the competitive market, and that accounts for the performance of individuals.  Assess each employee’s performance, and compare that to what an employee “should” be paid.

 

What you are likely to find is that there are employees paid both above and below what your model suggests.  If the organization’s history has been to give annual increases “across the board,” it is likely that many if not most of the employees will fall outside of the model.  The reason is illustrated in the graphic below:

 

  


Most learning and development occurs early in an employee’s time on the job.  Few would argue that a receptionist should take two years to learn how to perform the job the way it should be performed.  The minute that receptionist has learned to perform the job, he or she is then capable of earning competitive pay in the market.  The practical point to be made is that in order to avoid unnecessary pay-related turnover, the organization must get pay from wherever it started to the competitive rate in a relatively short time. 

 

The exhibit above shows the unfortunate reality of most approaches to pay.  With market rates and pay rates assumed to be at a constant rate over time, the inability for the pay program to account for development is apparent.  Whenever the blue line is above the yellow line, the organization is at risk of losing the employee to a competitor.  When the blue line is below the yellow line, pay is above what is appropriate.  There are only two times pay is “right” – when the employee is hired, and at some theoretical point about 19 years in the future.

 

When you examine your pay-related turnover, you will probably find that much of it occurs in years 2 through 5, when the employee can command a full market rate, but the pay system has not rewarded it.  This test will also likely show that about 8 to 10% of your base pay dollars are not allocated in the right way.  While pay above target may not be fully sufficient to balance pay below target, it is also likely that you will find yourself not far behind.  Of course, it isn’t simply a matter of moving pay from one person to another – but the important finding is that the organization can actually afford to pay what their employees are currently providing.

 

Where to Find the Money

 

Develop a better model

 

There are no quick fixes or easy answers, but given the cost implications, it would be wise to invest significant time to identify the changes that will make the organization more effective, and create the opportunity to set compensation levels more likely to attract, retain and motivate talent. Start by taking a critical look at the duties and responsibilities of all jobs – but start carefully with a blank sheet of paper, and make no assumptions about people.  Assume all duties will be performed the way they should be, and assume that all the people will be reliable and show up to work as they should.  How many people will you need at the front desk for your patient load?  How many medical assistants for the number of providers, or dental assistants for the number of chairs?  For that matter, how many billing clerks are really needed for the volume of work they have after EHR implementation?  How many managers and supervisors are really needed, assuming they are not continually filling in for other staff?

 

Once you have your numbers of boxes on the organization chart, determine the real cost of the model.  Use the compensation program to tell you the “price tag” of each proposed employee in each job.  While cost might increase in some functional areas, it is very likely to decrease in others.  Take the following over-simplified example:

 

There are three check-in stations in a clinic.   It was originally intended that three front-desk staff could process a patient, performing four different tasks.  However, the organization determined that at the $9/hour it was offering, the people it could hire could only perform two tasks, or could do all four, but at about twice the required time.  Either way, this translated to six people instead of three.  Experience and the results of a study concluded that front desk people available at $14/hour could do the job as originally designed.  The result of a change?  Current: 6 X $9 X 2080 = $112,300.  Potential: 3 X $14 X 2080 = $87,360.  Just under $25,000 in savings, half the benefits cost, and fewer people to manage.

 

Let improved productivity cover the costs until savings are achieved

 

The provider is typically the last person in a chain of events who has control over his or her productivity.  Patients need to be scheduled effectively, processed at the front desk, set up in a room and readied to be seen by the provider.  Breakdowns or inefficiencies at any of these steps means patients aren’t seen on the schedule, or aren’t seen at all.  It may be providers waiting for patients backed up in the reception area, or delayed because no one is available to give an injection.  It could be patients that don’t show up because reminder calls aren’t made, or referrals that aren’t processed, or even bills that aren’t sent out, making it appear that patients are delinquent.

 

Common sense, as well as the experience of well-run health centers, tells us that employees performing at a higher level will be more productive and that the organization will be more effective at achieving its mission.  The realities of the labor market tell us that, up to a point, individuals with higher levels of skill and performance can command higher levels of pay.  Rather than throwing up your hands in dismay and frustration because “we can’t do it,” consider taking a new approach – because you can.

 


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