At the start of the COVID-19 pandemic, healthcare providers quickly encountered dramatic cost increases to ensure the safety of their staff and community. Unit rates and adequate supply of personal protective equipment became an immediate challenge.
Additionally, labor costs and benefit and support programs to ensure adequate staffing during and after the pandemic added to the challenge—both in spite of plummeting volumes. For Wisconsin-based Froedtert Health, incremental direct supply and equipment costs incurred from March through June 2020 amounted to nearly $17 million alone. Enhanced analytics, management tools and focused innovation were needed to identify cost mitigation strategies as the pandemic continued.
In Kaufman Hall’s research report by Lance Robinson, 2020 State of Healthcare Performance Improvement Report: The Impact of COVID-19, a survey of hospital and health system leaders found the top three cost-reduction measures implemented during the pandemic were supply reprocessing, furloughs and salary reduction/freeze. Froedtert Health implemented tactics within all three of these measures and paired its action plans with enhanced management reporting tools to monitor the results.
Supply Reprocessing and Reusables
The rapid rise in the demand for PPE, paired with a global shutdown of economic and manufacturing activity, made acquisition at any cost a challenge. For two items in particular, isolation gowns and N-95 masks, Froedtert Health implemented a reusable strategy.
Isolation Gowns
By April, it became apparent that Froedtert Health’s approach to using disposable isolation gowns as a means to reduce the load on our laundry processing vendor was coming to an end. During the pandemic, unit pricing exceeded six times the contracted pricing for disposable gowns, with delivery times exceeding three months. Additionally, with much heavier utilization of this product, the environmental impact of disposables would be significant.
Froedtert Health’s conversion to reusable isolation gowns took less than four months. We made several large gown purchases, while also providing our vendors enough time to ramp up their operations. With much of the industry’s continued focus on acquiring disposable gowns, Froedtert Health was able to acquire product at a per-unit price that approximated pre-pandemic rates. The break-even investment is expected to be less than 12 months, with annual savings of $70,000 over previous disposable gown pricing. Additionally, the environmental impact will be far less.
N95 Masks
Masks, particularly National Institute for Occupational Safety and Health approved N95s, proved to be the greatest procurement challenge. Froedtert Health had long-standing, dual source relationships for masks. Yet, global product shortages led suppliers to a proportional distribution approach that set amounts at a maximum level of historical purchases.
An alternative procurement option to purchase from noncontracted suppliers at six to nine times the normal price was accompanied with concerns about quality and delivery certainty. Froedtert Health pursued all options to acquire NIOSH-approved masks, including extensive conservation efforts led by the health system’s Quality and Patient Safety Department, with uncompromising focus on staff and patient safety. A comprehensive review of mask-wearing guidelines led to science-driven mask utilization and conservation. Additionally, Froedtert Health deployed ultraviolet germicidal irradiation units to allow staff to self-reprocess masks, enabling several days’ use of the same mask.
In addition, the organization purchased several thousand reusable elastomeric respirators and masks in three sizes. Froedtert Health’s investment in elastomeric masks provided cost avoidance savings approaching $500,000 from the noncontracted alternative and post pandemic, replacing N95 masks at pre-pandemic pricing with elastomeric masks offers a payback of less than one year.
Though conversion to reusable supply helped acquire product, a critical companion to this strategy was the development of a PPE calculator. Froedtert Health developed this predictive modeling tool to determine use rate and inventory levels for each type of PPE by care setting. This PPE calculator was incorporated into the organization’s COVID-19 incident command structure, so that PPE needs were in sync with surge planning decisions regarding bed changes, staff redeployments and case volume setting changes or deferrals. Together, these actions allowed Froedtert Health’s steadfast focus on the safety of its workforce and patients, while optimizing recovery planning, mitigating PPE acquisition costs, and positioning the enterprise for significant cost savings post pandemic.
Furloughs and Low Census Staffing
With volumes declining by as much as 70% across different care settings within a matter of weeks, many in the health system’s workforce directly experienced the financial impact of the pandemic. The industry’s long-standing practice of low census staffing had deeper and longer impacts then previously seemed plausible while furloughs made it possible for staff to get unemployment benefits until recovery. Froedtert Health implemented low census staffing and furloughs, with the latter occurring primarily within corporate services functions from March through June 2020, impacting 4,366 staff members and representing 31% of our workforce, leading to a cost reduction of about $16 million.
In an effort to support staff and patient safety efforts, Froedtert Health made the decision to provide full compensation to staff who reported out of work due to COVID-19 without requiring them to use their paid time off. This encouraged immediate sheltering and reporting of possible exposure, thereby reducing potential spread. Decisions like this have helped strengthen workforce loyalty, which is even more important as Froedtert Health tries to avoid escalated external staffing costs to respond to additional COVID-19 surges.
To balance low census staffing and furlough measures taken with the volatility of volumes, Froedtert Health developed a redeployment management tool as part of its surge planning. The tool included an inventory of clinicians and staff with associated care setting proficiencies. It allowed Froedtert Health to dynamically assign workforce across its care settings based on volumes being seen and predicated and for staffing callouts. Post pandemic use of redeployment tools with volume forecasting and productivity reporting offers promise for more cost optimization opportunities.
Salary Reduction/Freeze
Similar to most Kaufman Hall survey respondents, Froedtert Health implemented a compensation reduction plan for all leaders and physicians via eliminating all incentive payments for its fiscal year ended June 30, 2020. Froedtert Health’s compensation philosophy for leaders and physicians is based on an at risk for performance component that ranges between 10 to 50%, depending on the employee's role. For Froedtert Health’s fiscal year 2020, the impact of eliminating these incentives amounted to $20 million. In fiscal year 2021, Froedtert Health implemented a $15 minimum wage and provided an annual compensation adjustment for all staff, measures that will help recruit and retain the workforce needed as volumes recover and exceed pre-COVID-19 levels.
The challenge moving forward is to take these largely unique, one-time, cost-saving tactics and turn the accelerated, balanced decision-making lessons learned during the pandemic into repeatable, actionable operational management processes aimed at balancing and enhancing overall performance.
Cathy Jacobson is president and CEO, Froedtert Health, Milwaukee, and an ACHE Member (cathy.jacobson@froedtert.com). Scott Hawig is executive vice president of administration, CFO and treasurer, Froedtert Health (scott.hawig@froedtert.com).