Abstract
Nursing costs account for over 50% of Health Service Organizations budgetary expenses. In a financially contracting Healthcare market that is amidst the focus of current National and International economic concerns and political agenda, here a counter-intuitive method to minimize exposure to rising nursing costs. Healthcare’s conundrum is marked by rising nursing costs, growing patient population, rising uninsured rates and decreasing insurance reimbursements. Participants traditionally focus on nurse staffing to minimize costs, but in its inextricable link to scheduling, budgets are often inaccurately projected as compared to actual staffing quantities and costs; this is largely due to front-line staffing policies and unpredictable nursing rates. This paper presents a nationwide experimental and empirical study of ten healthcare participants in a cross market “Hedging” application in Nursing Services as an approach to reduce exposure to rising nursing costs based on nursing rate volatility notwithstanding nursing quantity needs and day-to-day staffing decisions, and considering Options as a primary hedging approach to reduce budget disparity and yield nursing expense savings. Nursing monthly costs and demand were collected for all participants over varying range of time periods. A correlation analysis indicated that total nursing costs are highly correlated to nursing rate change, differing across participant types. Additionally, the data was analyzed for “asset” and “options” applicability, as well as tested for appropriateness of the Black-Scholes model for options pricing. The analysis concluded that nursing service qualifies as an underlying asset for options as a hedging technique and may be priced using the Black-Scholes model. The approach was tested on one of the participants, and indicated a savings of over 11% in nursing expenses and a decrease in budget disparity of approximately 14%. Hypothetical application across the non-tested participants alludes that the implementation results are likely to be sustainable across participant with dissimilar demographics.