Reduce practice labor costs by measuring and improving staff separation rate

It is more cost-effective to retain your current staff than to be stuck on an unnecessary and expensive hiring treadmill.

Issue: August 1, 2006

ByJohn B. Pinto

John B. Pinto

It is well-recognized that support staff are the largest single cost of operating an ophthalmology practice. The typical general/geriatric practice spends about 30 cents out of every dollar it takes in for receptionists, techs, billers, managers and other employees.

This 30% has climbed from lower levels in the past decade, as wage rates for quality workers inexorably rise and as revenue per unit of patient service has come to a plateau.

Unfortunately, as in almost every service sector business, it is difficult for eye care practices to drive greater labor efficiencies. Customers need an irreducible level of human contact with your organization. So it is becoming more critical in a fixed and falling fee environment to keep a ceiling on staffing costs in other ways.

Staffing expenses can get out of control for a number of reasons, including frank over-staffing, if you miscalculate your labor requirements; poor recruitment and selection, if you are inattentive in hiring; poor skills development, if you under-invest in training; poor staff productivity, if you do not adequately supervise your staff; or excessive rates of pay, caused by naive or intentional generosity, or a misunderstanding of local labor rates.

Measuring staff turnover

One of the best overall proxies for these human resource management difficulties is to measure the staff turnover rate in your practice. You can measure the voluntary turnover rate (when staff leave of their own accord for another job or market), involuntary rate (when staff are terminated by you) or a composite of the two, which is called the “separation rate.”

To calculate the overall annual support staff separation rate in your practice, divide the number of voluntary and involuntary departures you have experienced in the past 12 months by the average number of staff members who have been employed by your practice. Then multiply that number by 100 to express it as a percentage.

You can get into the picky nuances of this calculation and express staff in terms of full-time equivalents. But for the purpose of this discussion, let’s keep the math simple and just use raw headcounts without adjusting for full-time equivalent levels.

Here is an example. Over the past year, Dr. Smith’s $1.6 million practice has averaged three receptionists, six techs and two billing clerks, along with an office manager who also handles surgical counseling. Each of these 12 staff members works 40 hours per week. That is a typical staffing level; the practice is driving about $133,000 in annual collections per average lay staff member. During the past year, the practice has had to replace three staff who have left for a variety of reasons. One was fired in the first week. One was a long-term staffer who was recruited away by a competing practice. And one left to follow a spouse to another market. The separation rate in this practice over the past year has been 25% — the three who left divided by the average of 12 staff employed in the past year.

You may find it interesting to do this calculation by department or by satellite office location. I commonly observe client practices where staff separation rates are twice as high in reception positions vs. technician positions. Happy, well-managed satellites can have half the total turnover rate or less compared with poorly managed units within the same practice organization.

Separation, tenure rates

What are the normative benchmarks for this separation rate metric? Let’s start by looking at overall figures for private industry in the United States. The figures for 2004 from the Bureau of Labor Statistics show an overall 37% rate. The rates for nursing aids in elder care facilities is routinely more than 100% — no surprises there. The construction industry is high, at nearly 70%, while retail is 52%; both are seasonal industries, and higher turnover rates are to be expected. The separation rates in state and federal government are far lower, at about 15%. This is no great wonder, given the higher barrier to both entry and exit in such settings. What do I think the percentage should be in the stable, clean, safe, relatively well-paid world of ophthalmology? A figure of plus or minus 25%, such as the Smith practice example, is probably reasonable.

Excessively high separation rates are obviously a serious management problem. But keep in mind that an excessively low figure, as is found in some government offices, may not necessarily be a sign of excellent labor practices. In such settings, workloads, standards and expectations are often kept too low, and there is a resistance to dismiss even the weakest members of the team.

Another helpful way of calculating staffing dynamics is to look at average tenure. This is derived simply. Start with a list of all current staff, showing their date of hire. For each member of your team, calculate the number of years employed. For example, a tech employed for 70 months has been in your practice for 5.8 years. Add up all of the resulting years in service, divide by the number of staff, and you will get the average tenure. In older, well-managed client practices, those making wise hiring decisions, this average figure can be in excess of 8 years. In practices with high turnover rates, the average tenure may be no more than a year or two.

Turnover costs

What is the cost to your practice of insufficient tenure, excessive turnover and separation rates? The American Management Association estimates that turnover costs range from 25% to almost 200% of annual compensation, depending on the job function. Using the low 25% figure and applying this to the typical $45,000 fully burdened cost-per-practice staffer yields, this is a cost of more than $11,000 every time you lose a staff member.

There are numerous direct and indirect drivers of this, including severance and unemployment benefits costs; impact on the morale of remaining staff; lost provider productivity when technical staff are lost; lost contacts and knowledge of departing staff; advertising, agency fees and background checks for recruitment and vetting; overtime costs and lost productivity in other job functions of fill-in staff; transient drops in the quality of customer service, leading to some unhappy or even lost patients; and time of management staff and co-workers to select and train the new worker.

Lowering the turnover rate

Obviously, it is unacceptably expensive to run a practice with excessive turnover rates. Now that you understand a few ways of measuring turnover and retention, let’s discuss what you can do as a practice owner or executive to improve the numbers.

The largest corporations in America have tighter hiring practices than the typical ophthalmologist. They have formal employee retention programs, monitor employee satisfaction and invest in programs to reward their best people. Proportionately more modest but similarly effective tactics are reasonable to adopt in eye care, especially as demands grow for experienced health care workers and low unemployment rates in most markets make it difficult to find talented trainees. There are hundreds of simple tactics used by practices where we find the lowest turnover rates. Here are just a few.

Using real-world, skills-based pre-employment tests to assure that workers have demonstrated an aptitude for the specific job being filled.
Only making a new hire after every potential co-worker of the new employee has interviewed the final candidates.
Understanding the early career history of your potential hire — staff who babysat or cut lawns in their early teens make the best workers.
Understanding the motivation level of your candidates — is it strong enough to stay the course on the difficult days?
Making sure that all doctor-staff interaction is positive and supportive — the highest turnover rates are not found in practices with low wages but in practices where adverse doctor behavior saps morale.
Expressing appreciation often and publicly.
Using surprise bonuses judiciously to reward exceptional performance.
Being strategically intimate with staff, such as sharing your dreams for the practice, so they have a context for coming in and doing their best each morning.
Fostering staff-to-staff relationships — occasional after-hours group socializing, paid for by the practice, helps to connect staff with each other. Hiring the friends of existing staff can be an effective way to bond both parties to the company.

Savvy managers and owners realize they are not only competing with other practices but with the entire local employer base for the best workers. Just as it is easier to retain a patient than find a new one, it is much more cost-effective to retain the staff you have than to be stuck on an unnecessary, expensive hiring treadmill.

For more information:

John B. Pinto is president of J. Pinto & Associates Inc., an ophthalmic practice management consulting firm established in 1979. Mr. Pinto is the country’s most-published author on ophthalmology management topics. He is the author of John Pinto’s Little Green Book of Ophthalmology, Turnaround: 21 Weeks to Ophthalmic Practice Survival and Permanent Improvement, Cashflow: The Practical Art of Earning More From Your Ophthalmology Practice and The Efficient Ophthalmologist: How to See More Patients, Provide Better Care and Prosper in an Era of Falling Fees. He can be reached at 619-223-2233; e-mail: pintoinc@aol.com; Web site: www.pintoinc.com.