ECG Management Consultants

Labor Cost Reduction

In an environment of increasingly constrained resources, responsible management of expenses is critical to a hospital’s financial health. Labor costs, which typically account for up to 60 percent of a hospital’s total expense structure, must be a top priority for expense management. At the same time, initiatives regarding labor cost reduction are among the most organizationally challenging activities that hospital leadership can undertake, due their emotional impact on all involved. ECG can provide valuable assistance in your efforts toward labor cost reduction to help ensure that you meet your immediate targets and that your results are sustainable in the long term.

We start with the premise that labor cost reduction does not necessarily begin with workforce reduction. The key is to change how the work is done so you can reduce labor costs while simultaneously sustaining or even improving performance with respect to other important measures, such as quality and service. We offer tools and methodologies to help you make fundamental changes to work processes and structures, eliminate waste and non-value-added steps, and significantly reduce your labor costs in responsible and lasting ways. Our approach engages your physician leaders to own and oversee the cost-reduction efforts, ensuring accountability throughout the process and after our role ends.

ECG can assist you with the following components of your initiatives for labor cost reduction:

  • Organization-wide or departmental benchmarking of labor cost per unit of service.
  • Establishment of aggressive yet realistic targets for labor cost reduction.
  • Development of performance dashboards to measure and track outcomes.
  • Process redesign to eliminate waste and inefficiencies (using Lean, Six Sigma, and other process improvement techniques).
  • Skill mix redesign.
  • Premium pay reduction (agency and overtime usage, etc.).
  • Analysis and streamlining of organizational structure and management span of control.
  • Optimal use of technology to reduce labor costs.

In today’s competitive environment, it is more important than ever that you manage your labor costs aggressively and responsibly. Our labor cost experts can assist you to change work processes and structures in ways that ensure your reductions in labor costs are prudent and sustainable.


Selected Projects


Conducting hospital-wide cost benchmarking and developing expense-reduction action plans for high-priority areas. Expand Minimize

Facing unprecedented volume declines and financial challenges due to the recent economic downturn, a community hospital asked ECG for assistance in a significant cost-reduction initiative. We began by conducting organization-wide benchmarking of cost per unit of service, which resulted in an expense-reduction target of 9 percent of total operating costs, 64 percent of which was in labor. We then partnered closely with operational leadership in selected departments to develop detailed action plans to achieve high-priority savings in the first year of the initiative. Targets were incorporated into the hospital’s operating budget, and the organization is on track to meet its expense goals.

Assisting with a labor-productivity initiative aimed at reducing 200 FTEs. Expand Minimize

In response to unfavorable operating and financial trends, a three-hospital system in a large urban area asked ECG to assist with an initiative to improve labor productivity and reduce the total FTE count by 200 in a sustainable fashion. We conducted an accelerated benchmarking assessment of labor cost per unit of service, identified potential FTE reductions, and assisted the organization with development and implementation of a labor-reduction action plan. Our work enabled the organization to exceed its labor-reduction target and implement a productivity-improvement strategy that met its financial and strategic goals.