NR 517 Week 6 Staffing Economics Case Study Example

Staffing Economics Case Study: Why a 28-Bed Orthopedic Unit Keeps Paying $95 an Hour for an Agency Nurse on Nights, Worked Backward From the Payment That Makes It Sensible

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College of Nursing, Chamberlain University

NR 517: Policy & Economics of Healthcare Delivery

Instructor Name

Month Day, Year

Staffing Economics Case Study: Why a 28-Bed Orthopedic Unit Keeps Paying $95 an Hour for an Agency Nurse on Nights, Worked Backward From the Payment That Makes It Sensible

The Scenario

A 28-bed orthopedic unit at a community hospital staffs nights at one registered nurse for every five patients, which requires six nurses on a full unit. One night position has been vacant for nine months. The manager fills it with an agency nurse at $95 an hour, a rate set in the agency contract. A staff nurse at the national median wage of $46.90 an hour (U.S. Bureau of Labor Statistics, n.d.), with a 30% load for benefits and payroll taxes assumed by the hospital's finance office, costs $60.97 an hour. The finance committee has asked why the unit keeps paying the agency premium and whether the position should simply be left empty. All figures other than the national wage are from the case and are illustrative.

The Arithmetic Everyone Sees

One night post runs 12 hours a night, 365 nights a year, or 4,380 hours. At the agency rate, that is $416,100 a year. At the loaded staff rate, the same hours would cost $267,049. The agency premium is therefore about $149,051 a year for one post. On the staffing grid, that is the number the committee sees, and it looks like waste.

Working Backward to the Revenue

The staffing grid is a financial document, but it shows only costs. To see why the agency nurse makes sense, the case has to be read against how the unit's patients are paid for. Most of them are older adults with Medicare, admitted for hip and femur fracture repair or joint replacement. For each inpatient stay, Medicare pays the hospital a fixed amount set by the diagnosis-related group, regardless of the nursing hours used. Nursing hours are therefore pure cost. They do not generate revenue by the hour.

What generates revenue is an occupied bed with a patient whose stay is paid as a case. If the vacant post is left empty, the unit cannot safely staff all 28 beds at one nurse for five patients, and the house supervisor will close five beds on nights, which in practice means those beds cannot accept admissions. At the case's occupancy of 85% and an average stay of four days, each bed serves about 78 patients a year, so five closed beds turn away about 388 cases. If each case contributes $3,000 above its variable costs, a figure from the case's finance summary, the unit would lose roughly $1.16 million a year in contribution to cover the hospital's fixed costs. Against that, a $149,051 agency premium is the cheaper choice. The decision is arithmetically sensible before anyone argues about patient safety.

The Option the Committee Is Really Asking About

The committee's question has a third option hidden in it: keep all 28 beds open and stretch the remaining five night nurses to cover them, moving from one nurse for five patients to about one for six. That saves the whole $416,100 and loses no revenue. It is the option that looks best on paper.

It is also the option the evidence warns against most. In a study of nearly 198,000 admissions to 43 hospital units at a large academic medical center, Needleman et al. (2011) reported that exposure to a shift at least eight nurse-hours below the unit's target went with roughly a 2% higher hazard of death for each such shift, and each high-turnover shift with a 4% increase. An orthopedic night shift one nurse short falls squarely in that category, and hip fracture patients are elderly, often delirious and at risk of complications that nurses are the first to notice.

The committee may also ask whether the unit could close beds only on the nights the post is not covered. That option sounds flexible but is hard to run: admissions from the emergency department and operating room arrive at all hours, and a bed that is open at 1900 and closed at 2300 creates exactly the kind of high-turnover shift, with patients arriving and leaving in quick succession, the same study linked to worse outcomes, and it leaves night nurses guessing which beds they are responsible for.

What Changes Under the Episode Model

Since January 2026, the hospital has also participated in Medicare's Transforming Episode Accountability Model, which compares total Medicare spending for the 30 days after discharge for surgical hip and femur fracture treatment with a target price (Centers for Medicare & Medicaid Services, n.d.-b). That adds a cost to understaffing that the old arithmetic missed. A complication caused or missed on a short-staffed night, such as a fall, a pressure injury or delirium, can extend the stay, send the patient to a longer skilled nursing facility stay or bring them back as a readmission. Under the fixed case payment, most of that cost fell on Medicare. Under the episode model, part of it now comes back to the hospital. Understaffing has become more expensive for the hospital itself.

A Better Answer Than the Agency

The agency nurse is the rational short-term choice, but it is not the cheapest long-term one. An incentive rate of time and a half for staff nurses picking up the shift would cost about $91.45 an hour loaded, $401,000 a year if every shift were covered that way, only slightly less than the agency and with the risk of tiring the existing staff. The real saving comes from filling the position. The committee should compare the agency premium, about $149,000 a year, with what it would cost to recruit and orient a new night nurse, including a sign-on bonus and a twelve-week orientation. If that one-time cost is well below $149,000, the committee should spend it this quarter.

The case shows why nurses should learn to read the staffing grid as a financial document. The same numbers that make an agency nurse look wasteful make a vacant post look dangerous once the payment arrangement is on the table, and a nurse who can explain both will be heard in the room where the decision is made. The unit's own nurses are also the best source of the figures the committee lacks: how often short nights end in a fall or a missed change, and how many experienced staff are considering leaving because of them.

References

Centers for Medicare & Medicaid Services. (n.d.-b). Transforming Episode Accountability Model (TEAM). Retrieved September 30, 2026, from https://www.cms.gov/priorities/innovation/innovation-models/team-model

Needleman, J., Buerhaus, P., Pankratz, V. S., Leibson, C. L., Stevens, S. R., & Harris, M. (2011). Nurse staffing and inpatient hospital mortality. New England Journal of Medicine, 364(11), 1037-1045. https://doi.org/10.1056/NEJMsa1001025

U.S. Bureau of Labor Statistics. (n.d.). Registered nurses. Occupational Outlook Handbook. Retrieved September 30, 2026, from https://www.bls.gov/ooh/healthcare/registered-nurses.htm