What Does FQHC Employment, Salary Expense and Pay Data Tell Us?

Posted August 15, 2014

Repeat after me the following:

“Not-for-profit” is only a tax status, not a state of mind.
“Not-for-profit” does not mean “cheap.”

It is unlikely that any health center has in their mission statement something like this:

Our mission is to deliver whatever level of care we can come up with to people who come here because they don’t have any other option, by paying our employees the least we can get away with and still have warm bodies in the building.

The truth is that a health center that really wants to achieve its mission has to have the right structure in place with the right people in the right jobs, and it needs to pay them the right way. As we work with health centers across the country, it has become clear that those who take the “cheap” approach to pay have the most problems, whether it comes to clinical outcomes, productivity, employee dissatisfaction or any other measure of performance. What has also become clear is that hiring under-skilled and poor performers at the bottom of the labor market means the organization ends up needing more people to do the work that could have been done by fewer people, paid correctly. Effectively, what these “cheap” organizations do is spend the right amount in total, but spread it over too many people.

We wanted to do more than just tell you that from our experience, and set out to prove it, at least to a level of confidence that the point could be made. So what do we know? Well, here are some very solid findings we can provide after studying the IRS Form 990s of more than 1,100 FQHCs this summer:

Salaries and benefits make up an average of 64% of total expenses in FQHCs, with a middle 50% range of 60% to 71%.
The percentage of salaries and benefits to total expenses cannot be predicted by the size of the health center, measured either in revenues or employment. That is, there is effectively no correlation between these measures.
Financial performance (as measured by two-year average net income percentage) does not predict the percentage of salaries and benefits to total expenses. That is, how well you use your revenues appears to have more to do with how you spend your non-employment expenses.

Well, if the business models are so similar, how can some organizations perform well and pay competitively, while others tell us “it just isn’t possible!” We should start with the big question:

“How many employees should we have?”

This question almost always comes up in one forum or another, certainly at conferences, and it has been asked on various LinkedIn discussion boards, where the typical answer is either “look it up in UDS” or “read a journal article on staffing in hospitals or group practices.” As it turns out, the simple answer is that employment in FQHCs is pretty easy to predict. With the caveat that “correlation does not equal causation,” but with a pretty good correlation coefficient of just under 0.9, pull out your calculator and do the following:

Take your annual revenue, in thousands, and multiply it by .01. Then add 38.

For example, if your health center has revenue of 10,000,000:

(10,000 X .01) + 38 = 138

Now, of course, there is a reasonable amount of variation (“standard error”) around that prediction, but let’s leave that for a more scholarly forum.

Prediction doesn’t answer the question what “should” we have, but actually says what we are “likely” to have, given our size and given the business model of most every FQHC.

At this point, we can start looking at what variations in employment from the prediction mean. To do this, we created five categories, based on how much actual employment varied from the employment levels predicted by our analysis. It turns out that about 23% of FQHCs have employment levels within 10% of the prediction, with more than half within 25% of the prediction. Of the remainder, it is much more common (72%) to have <25% employees than predicted, than it is to have >25% than predicted. Probably no one would be surprised to see who the lower-staffed organizations are — more than 70% of all organizations with actual employment 25% lower than predicted employment are in the “under $5 million” revenue category.

How does having too many or too few employees affect pay?

What we know is that the effect of having too many employees is that pay levels are lower, and that the amount is significant. Average FQHC employee annual pay is just under $37,800. The pay of the roughly 12% of health centers with >25% more than predicted employment averages $30,600, 19% less than the overall average. For reference, having fewer employees does not result in significantly higher pay, those with <25% than predicted employment pay about $40,000, less than 6% more than overall. These relationships hold regardless of the size of the organization.

What else could it be?

It is likely that the first reaction is for someone to say “it’s not too many people, it’s just that we have a lot of part-timers.” It is true that we were unable to account for “full-time equivalent” employment numbers, and that there will be health centers with large numbers of part-time employees that seem to inflate employment. However, another characteristic of “cheap” employers is to use more part-timers, ostensibly to save on benefits costs and sometimes for more “flexibility.” The truth is that overall part-time employees are more difficult to manage and schedule, have higher turnover, and exhibit less dedication to their employers. Poorly paid part-timers are even less likely to contribute to the organization’s success.

WHAT SHOULD YOU DO?

The data from this study cannot answer all the questions, but it clearly shows the trends. Our contention remains that nearly every health center can pay competitively, given the right structure and staffing levels. What stops them may be nothing more than a bad business philosophy. Look at your employment numbers compared to the prediction, and if you are among the roughly half of FQHCs more than 25% off, consider that you may have room for improvement.

The first step for any health center looking at pay and staffing is to gather some basic data and make some comparisons:

What are the raw numbers and ratios in various functions? How many nurses to each provider, how many billers for the volume of billing? How many receptionists to the number of patients? For many of these statistics, there are comparisons that can be made to published data, or experts to be consulted to answer quick questions.
How does the use of part-time employees impact staff scheduling? For example, in several cases we have seen that the inability to schedule part-timers in the nursing staff meant that the organization used an inappropriate balance of LPNs to MAs.
How does pay for employees in each job compare to the market? Are there jobs where pay is significantly below the market, and what does that mean for both hiring qualified staff and retention?
How many jobs have been created around the abilities of employees, and how many employees have lower expectations than they should?
Have you simplified jobs because of an inability to find qualified staff at the levels you are paying? It is very common for organizations to split jobs into pieces because the people they have can’t handle the whole job. This is a common trait of employers with too many employees.
Are you missing entire levels of management and professional support? For example, are there managers responsible for 20 or 30 employees, or CFOs with many accounting clerks with no professional accountants?
How many “multiple hat” managers do you have? Cheap organizations tend to have managers or professionals with too many, too different responsibilities. This may seem to be a characteristic of organizations with too few employees, and it is. However, it is also a characteristic of organizations that spend too much on too many entry level staff, leaving insufficient funds for professional and management functions.

For some organizations, the issues will be across the board; that is, the same problems will be seen in management, professional, clinical and entry level staff. In others, there may be key places where it is possible to make changes. When you have the information you need, consider some of the following suggestions:

Get off site for half a day with your best people — don’t feel the need to include people just because they are at a certain level of the organization chart — just get the people who understand the organization and its mission. Ask them what they think the problems are, and whether there are solutions that they’ve thought about, but have never been tried.
Assess the performance of every staff member against the real responsibilities of the job, not what has become the expectation over time. Is your nursing staff correctly filling out the forms, or are your providers doing re-work or starting from scratch. Does everyone at the front desk have the ability to do everything that should be done at the front desk?
Ask your management staff a question about their functions — particularly as it relates to “entry level” positions — if money was not an object, how many people would we need to perform the functions. What would the jobs look like? Write the descriptions for those new jobs and compare them to the market. Find out if the model done right could actually cost less than the way it’s being done now.
When you see things that can be changed, go ahead and change them. You don’t need to wait for a grand re-organization to take care of everything at the same time.

The information from this study is not designed to give you the answer to what you should look like, but it should give you an idea of the direction you need to take.

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For more information, contact Ed Ura of Merces Consulting, at ebura@mercesconsulting.com