Why Nurses Must Be Included In Hospital Cost Savings Conversations
Why Nurses Must Be Included In Cost Savings Conversations featured

This article was written by Jim Cagliostro.

Nurses and Hospital Cost Savings

Healthcare in the United States is expensive. The US health care system spends almost twice as much as any other country without significantly better outcomes to show for it. [1]
In formulating cost reduction strategies, we recommend that nurses must be included in cost savings conversations.

Pressure on hospital finances continues

Many hospitals across the country face increasing regulations, decreasing reimbursement, and growing debt as they struggle to keep their doors open to serve their surrounding communities. At least 30 hospitals entered bankruptcy in 2019. [2]
This pressure is forcing hospital executives to seek out innovative ways to raise money and enhance the quality of care. Temple University Health System’s CEO has a strategy to achieve this goal. [3] Michael A. Young, who was promoted from CEO of Temple University Hospital, focuses on the more efficient delivery of quality care.
His desire is to create 5,000 ‘’cost-conscious champions’’ to save money and improve quality, rather than accept the traditional thinking that fiscal responsibility and decision making should fall on the shoulders of a few managers and administrators.
This is where nurses come in.
Most people would agree with the belief that nurses are essential to the success of healthcare in this country and they are consistently ranked as the most trusted profession.
The notion that nurses are essential to cost savings in healthcare, however, might not be so widely accepted.
Why Nurses Must Be Included In Hospital Cost Savings Conversations

The financial strain on hospitals today

Healthcare in this country has become so expensive for a number of reasons, which include:

  • The rise in administrative costs.
  • The rise of labor costs.
  • The rise of non-labor spend (purchased services).
  • Rising drug costs.
  • Market changes (consolidation of healthcare markets, branding).

The AHA calculated that Medicare and Medicaid underpaid US hospitals by about $77 billion in 2019. [4]
Add to this the continued tightening of regulations and increased penalties that limit reimbursement to hospitals, and the pressure on margins is no surprise.
Through the Hospital Value Based Purchasing Program (HVBPP), CMS adjusts payments to hospitals based on quality care that is both cost efficient and patient and family centered. Here are some factors which can affect reimbursements and payments:

  • The Hospital VBP Program reduces a hospital’s Diagnosis Related Group (DRG) payments by 2% for the applicable fiscal year. Hospitals can earn this money back based on the quality of care they provide.
  • The Hospital Readmission Reduction Program (HRRP) can also penalize hospitals up to 3% for higher than acceptable rates of readmissions.
  • The Hospital Acquired Condition Reduction Program (HACRP) penalizes hospitals that experience preventable conditions at higher than acceptable rates. The HACRP can apply an additional 1% penalty to reduce reimbursement if a hospital is in the worst performing quartile of all total HAC (hospital acquired condition) scores nationwide.

While these numbers may seem negligible, Medicare estimates the penalties from the HRRP alone could cost hospitals $563 million in the current fiscal year.
Medicare estimates that penalties from HRRP could cost hospitals $563 million in the current fiscal year. Click To Tweet
Some hospitals will be affected more than others depending on their quality of care and outcomes. The point is that every hospital is either in or has the potential to be in a financially difficult position. All three of these programs determine reimbursement based on the quality of care being delivered.
Quality of care varies greatly from hospital to hospital. William A. Haseltine, author of “World Class: A Story of Adversity, Transformation, and Success at NYU Langone Health” (Fast Company Press, 2019), recognized the value of high quality patient care for every health system. He concluded, “Quality reduces cost.” In his decades of education, experience, and research, along with his case study of NYU Langone’s financial turnaround, he determined that the most valuable things you can do to reduce costs are, “Get it right the first time. Avoid costly do-overs and customer complaints. Measure progress. Hold people accountable.”
Dr. Robert I. Grossman, who spear-headed the transformation at NYU Langone, attributed the success to answering one question with every decision they made:
Will this improve patient care? [5]
Dr. Grossman also understood that improving quality reduces costs in the long run.

How does poor care lead to higher costs?

Unfortunately, there are many ways that lead to lower quality of care:

  • Safety issues related to falls, injuries, needlesticks, staff injury, etc.
  • Readmissions.
  • Wasted supplies, linens, surgical instruments, etc.
  • Poor patient experience (also directly affects reimbursement).
  • Lack of useful technology or innovation.
  • Poor discharge planning leading to complications, readmissions, or a return to surgery.
  • Failure to consider SDOH or connect patients with community resources.
  • Poor patient engagement (lack of shared decision-making between patients and clinicians).
  • Poor leadership (business people making business decisions or healthcare people making healthcare decisions).
  • Poor care collaboration among clinicians and all staff members.
  • Complacent culture (no motivation for continuous improvement).
  • Failure to rely on evidence based practice (poor training, continuous education, or emphasis on best practices).

The National Database of Nursing Quality Indicators (NDNQI), established by the American Nurses Association (ANA), is the leading quality improvement and nurse engagement tool in the nation.
Its mission is to aid the registered nurse in patient safety and quality improvement efforts by providing research based national comparative data on nursing care and the relationship to patient outcomes.
The NDNQI also sheds light on specific areas of care that should be prioritized. These include:

  • CAUTI (Catheter-Associated Urinary Tract Infection).
  • CLABSI (Central Line-Associated Bloodstream Infections).
  • Surgical site infections.
  • Patient falls (and associated injuries).
  • Pain assessment/intervention.
  • PIV infiltration.
  • Use of physical restraints.
  • Ventilator associated pneumonia.
  • Pressure ulcers.
  • MRSA & C-Diff infections.
  • Readmission rates.
  • RN turnover rates (high cost, lower quality, agency RNs, unfamiliarity, training).
  • RN education/certification.

To illustrate the importance of NDNQI and the need to improve the quality of care for these indicators, it helps to know that a CAUTI is associated with anywhere from $7,670 to $10,197 in inpatient and outpatient costs to Medicare. [6]
A CLABSI is associated with $100,980 and a mortality rate of 12-25%. High quality care minimizes the occurrence of these events and their associated high costs, both financial and in terms of human life.
Registered Nurse education and turnover rates directly affect quality and cost of care.
Each 10% increase in the proportion of nurses with a degree in a hospital is linked to a 7% decline in mortality after common surgery. Click To Tweet
The emphasis on increasing RN education and decreasing RN turnover rates are directly connected to quality and cost of care as well.
According to one study, each 10% increase in the proportion of nurses in a hospital with a bachelor’s degree is associated with a 7% decline in mortality following common surgery.
More education, and particularly university education, enhances critical thinking.  Professional nurses are called upon to quickly synthesize a large amount of clinical information relating to acutely ill patients, process this information in the context of scientific evidence, reach evidence based conclusions, communicate salient information and their conclusions to physicians, and act in the absence of a physician at the bedside. That absence can be the majority of time nurses spend at the bedside of their patients. [7]
Staff turnover rates among nurses are a growing concern among health systems. Nurses often experience high rates of burnout. [8]
According to the American Federation of State, County, & Municipal Employees (AFSCME), replacing a medical-surgical nurse can cost up to $47,403, while replacing a specialty nurse can cost up to $85,197.
When turnover rates are high, quality suffers. The need to hire, train, and orient new nurses requires time, staffing, and money. It also lowers the quality of care because unfamiliarity with environment and fellow staff members can lead to delayed care and inefficient teamwork. In turn, that can result in poor outcomes and even medical errors.

Why nurses are ideally positioned to enact change

Aided by frontline nursing staff, the areas of greatest waste can be transformed into the areas with the greatest potential savings.
“Nurses remain uniquely situated to shape healthcare due to their team approach, proximity to the bedside, and understanding of patient care within the hospital and the community.” [9]
If health systems are to achieve real cost savings without compromising the quality of care, nurses must have a voice.
Many organizations have, in recent years, seen a noticeable rise in nurses filling leadership roles.  Their knowledge and experience are vital to the planning of programs and implementation of change in hospitals that will lead to financial savings, improved quality of care, and better outcomes.
The formation and promotion of shared governance committees in recent decades demonstrate recognition of the importance of nurse input in decisions that impact the clinical environment.
Research suggests that organizations that promote employee engagement through the use of shared governance committees outperform other facilities in areas such as job satisfaction, nurse retention, performance (including a better patient experience) – and profitability. [10]
The need for strong nurses at the bedside will always remain and the value of a health system implementing change as a direct result of input from nurses cannot be understated.
Why Nurses Must Be Included In Hospital Cost Savings Conversations

The benefits of nurses

Nurses bring many benefits to a hospital as they:

  • Understand the value of teamwork in healthcare (they must coordinate the many moving parts of a patient’s care on a daily basis).
  • Are at the frontline of care (they see how changes directly impact patient care/outcomes).
  • Understand how healthcare outside the hospital is just as important as inside.
  • Understand the needs and risks that patients are faced with upon discharge (optimizing Bundled Payments for Care Improvement (BPCI) and Accountable Care Organizations (ACOs) to arrange not just appropriate care but the best care for each patient.
  • Are one of the few healthcare professions who visit patients in their homes, giving them a better appreciation for the specific needs and challenges of each patient outside the hospital.
  • Are one of the biggest proponents of preventative health, which minimizes the need for costly care later.
  • Understand the importance of evidence-based practice and best practices/staying up-to-date (along with measuring data).
  • Have historically exhibited a genuine concern for the health of their patients and the populations they serve (eg, Campaign for Action, volunteer nurses).


The healthcare industry is recognizing the value that nursing brings to the table and the positive influence nurses have on numerous health systems. As a result of their frontline experience, nurses are best positioned to understand and successfully navigate the complexities of care coordination for the sake of the patient. Higher levels of education also prepare them for effective program planning and policy-making with the patient always in mind.
As mentioned above, they were ranked the most trusted profession for the 19th consecutive year in 2019. This historic combination of expertise, influence, and trust must be considered as hospitals seek to improve the quality of care and the patient experience while lowering costs.
Earlier, we noted that Dr. Grossman from NYU Langone Health attributed their extraordinary financial turnaround to answering one question with every decision they made:
“Will this improve patient care?” 
Even the greatest financial minds or the most successful marketing firms would fall short in answering this question.  Nurses more fully understand the far reaching effects of poor care and the need to keep the patient at the center of every hospital decision.
Nurses understand the far reaching effects of poor care & the need to keep the patient at the center of every hospital decision. Click To Tweet
They know firsthand the importance of prioritizing Nursing Quality Indicators (NQIs) and how decisions can directly impact the quality of patient care and outcomes.  The belief that higher quality leads to lower costs can be confirmed by these professionals on the frontlines.
Nurses are indeed essential to the success of healthcare in this country moving forward, but their influence does not end at the bedside. They are truly fit to be the “cost-conscious champions” that modern healthcare needs, capable of simultaneously saving money and raising the quality of care.
In conclusion, nurses must be included in the cost savings conversation. Schedule a call with Lisa Miller to learn how to formulate cost reduction strategies with the nurses at your hospital.
[1] https://jamanetwork.com/journals/jama/article-abstract/2674671
[2] https://www.bloomberg.com/news/articles/2020-01-09/hospital-bankruptcies-leave-sick-and-injured-nowhere-to-go
[3] https://www.inquirer.com/business/health/temple-university-health-system-new-ceo-mike-young-20200206.html
[4] https://www.businessinsider.com/us-hospital-financial-woes-unlikely-to-subside-in-2020-2020-1
[5] https://www.statnews.com/2019/04/05/high-quality-care-lower-costs/
[6] https://ojin.nursingworld.org/MainMenuCategories/ANAMarketplace/ANAPeriodicals/OJIN/TableofContents/Vol-24-2019/No2-May-2019/Affordable-Care.html#Hollenbeak
[7] https://www.nurse.com/blog/ratios-of-bsn-prepared-nurses-affect-patient-mortality-rates/
[8] https://www.aacnnursing.org/news-information/fact-sheets/nursing-shortage
[9] https://ojin.nursingworld.org/MainMenuCategories/ANAMarketplace/ANAPeriodicals/OJIN/TableofContents/Vol-24-2019/No2-May-2019/Affordable-Care.html#Hollenbeak
[10] https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5117656/

Jim Cagliostro
Jim Cagliostro
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Learn how to maximize your hospital's profitability while enhancing patient care.
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A strategy developed from analyzing over 5,000 hospitals

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A simple step-by-step plan in plain language

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Proven processes to organize and motivate your team to find savings