Kaiser Permanente’s Northern California region did just that in July 2006, with spectacular results. The vacancy rate for registered nurses is down by more than 40 percent since the reorganization. The pharmacy vacancy rate has dropped from 16 percent to 5.6 percent.
Cost-per-fill fell well below the industry average to $1,512 by the end of 2006 and is now trending toward $1,400. Time-to-fill is down 10 percent in nursing and pharmacy and plans are in place to reduce it by 20 percent to 30 percent by the end of 2007. Spending for temp labor averaged $300,000 a month before the July 2006 change but is now down to $14,000 a month.
Kaiser Permanente, headquartered in Oakland, California, is the nation’s largest not-for-profit health plan, with 8.6 million members in eight states, including 3.3 million in Northern California. Kaiser Permanente employs 13,000 physicians and 153,000 technical, administrative and clerical employees and caregivers. Operating revenue for 2006 was $31.1 billion.
The Northern California region incorporates 20 hospitals and numerous medical offices and is consistently recognized as one of the best health care programs in the state. With more than 60,000 employees in the region, recruiting is a huge operation. Almost 5,000 jobs are currently posted on the Kaiser Permanente Web site. In FY 2006, the recruiting function for Northern California completed 9,952 external hires and processed 11,250 internal transfers.
Labor shortages across the health care sector and inefficiencies in the Kaiser Permanente recruiting function forced the July 2006 reorganization. "Recruitment was at a crossroads," says Jason Phillips, Kaiser Permanente’s director of recruitment services for Northern California. "Leadership was frustrated by high vacancy rates. With two major competitors operating in the immediate area, recruiting was a constant challenge." In addition, Kaiser Permanente was moving into a 10-year expansion program that called for opening a new facility every year.
The new structure
In 2006, Kaiser Permanente hired Phillips away from Deloitte, where his primary responsibility was rebuilding recruiting processes for large companies. After a week of touring all of the Northern California facilities, he launched the recruitment function reorganization. "It’s hard to scale for growth and it’s difficult to fix recruiting infrastructure," he notes. "We had to do both at the same time."
Recruiting was completely decentralized. The entire function operated with one director who had 18 direct reports, each of whom operated independently in a specific geographic area. There was no standardization across the region; no end-to-end process management; no marketing and campaign plan; no KPI metrics; no ability to forecast needs; and no hiring targets.
Huge disparities marked recruiting across the region. At any given time, some recruiters had 12 requisitions; some had 198. Before the 2006 reorganization, recruiters had scheduled more than 500 recruiting events for 2007. "There’s no way you can hold that many events with the kind of quality you need to produce results," Phillips notes.
Spending for temp labor was out of control. "We knew we had to get our arms around a portfolio of vendor capabilities and install master agreements," Phillips says. "Millions of dollars were leaking out through the organization."
The July 2006 reorganization also had to change the distribution of requisitions so that Kaiser Permanente could focus the best recruiters on the most difficult positions. It had to build KPIs and an end-to-end process and create transparency in recruiting spending. "In other words, we had to rebuild the recruiting process," Phillips says.
The new structure puts responsibility for the region in the hands of two directors—one for recruitment operations and one for recruitment services—and a full-time recruiting staff of 240, including 74 recruiters. Recruiters are based in each of the 20 medical centers. Under the new service delivery model, the recruitment operations segment includes recruiters, coordinators and front-desk receptionists.
The recruitment services segment includes a new "Center of Excellence" dedicated to vendor management, process improvement, marketing and campaigns, academic relations and market research. One full-time employee is charged with generating competitive intelligence. If, for example, any area hospitals are slipping into financial trouble, Kaiser Permanente is aware of the situation and prepared to pick up staff that may be laid off from the competitor.
Another key component under the new organizational structure is the Transfer and Processing Center, where 42 support personnel facilitate more than 90,000 internal transfer requests per year. "We are so big that people join the organization just to get a foot in the door," Phillips notes. "There’s a lot of movement. We embrace mobility."
Also, under the new structure the recruiting function uses outside agencies only for high-level executive searches. Kaiser Permanente now tracks the return on every investment in recruiting.
The Kaiser Permanente recruiting function reorganization also installed a new recruiter accountability program with a scorecard that breaks down recruiting activity into four categories: internal and external fills and core (full-time regular) and noncore (on call, per diem) hires. Before the new accountability program, these categories were not distinguished, so what looked like solid recruiter performance may have been all transfers or per diem staff only.
The accountability program also added time-to-fill metrics for all four categories. In addition, Kaiser Permanente now uses a customer satisfaction survey to document internal satisfaction with each recruiter’s performance in all four categories. "When we complete the survey, we have a really hard conversation with each recruiter about the numbers," Phillips reports.
Before the new accountability program, year-end performance evaluations occurred in the context of subjective feedback that reflected an entitlement mentality. Now, year-end performance and merit increases are based on performance measures and objective results.
A new strategic workforce management dashboard updates data every month and shows all core recruiting measures, including vacancy rates by position and department, requisition loads and time-to-fill. The dashboard also displays data on voluntary and involuntary terminations, internal transfers and key demographic data, including the number of terminations before two years of service and the percentage of the workforce by job category with less than five years to retirement.
Kaiser Permanente also overhauled its marketing plan. It initiated a ZIP code analysis of the pool of unemployed nurses and now conducts its hiring events in the areas where the nurses are concentrated. This change has produced a 40 percent increase in attendance at hiring events.
The integrated marketing plan includes 12 large-scale metropolitan hiring events per year across all of Northern California and monthly educational "brown-bag" informational sessions for interested candidates. The plan also incorporates an employee referral program for hard-to-fill positions with an average payout of $3,500. Additional RN and allied health targeted events are based in each medical center but tied to broader local and regional business goals. Kaiser Permanente uses sign-on bonuses and relocation allowances but maintains flexibility on the amounts allocated.
Bracing for bad markets
The initial results from Kaiser Permanente’s recruiting reorganization indicate that health care organizations can manage vacancy rates and generate recruiting efficiencies with the right recruitment function structure and new accountability programs. All health care organizations will have to step up their own market analysis and rescale their recruiting functions to meet the new demands of the market in the context of an increasingly severe labor shortage.
A 2006 Bernard Hodes Group survey of 138 health care recruiters found that the average RN turnover rate was 13.9 percent, the vacancy rate was 16.1 percent and the average RN cost-per-hire was $2,821. These already high numbers will rise as the market continues to tighten.
The U.S. health care industry employs 12.9 million workers, including 4.5 million hospital workers and 3 million nursing home and residential care facility workers. Only 195,000 health care workers—a slim 1.5 percent of the workforce—are currently unemployed and looking for work, according to the Bureau of Labor Statistics. Within this already tight market, the greatest shortage lies in registered nursing, where 17 percent of all jobs will remain unfilled by 2010, according to the U.S. Department of Health and Human Services.
Growth in entry-level baccalaureate nursing enrollment rose sharply from a 3.7 percent increase in 2001 to 16.6 percent in 2003, but plummeted to 5 percent in 2006, according to the American Hospital Association. At the other end of the supply equation, the average age of registered nurses is rapidly rising and mass retirements are projected from 2011 to 2020, according to survey data from the Bernard Hodes Group.
In addition to reorganizing the recruiting function for maximum effectiveness, health care organizations will have to bolster their efforts to accommodate both new graduates and older nurses. Careful market analysis and segmentation of the workforce to meet specific employee needs can reduce turnover and improve recruiting results.
It is important to note, however, that the health care labor shortage will become so acute over the next decade that greater recruiting efficiencies will not be able to breach the growing gap between supply and demand. Health care organizations will have to take a more aggressive collective approach at the national level to increase federal funding for training programs and substantially increase the size of the candidate pool.