For example, 2 percent of responding hospitals reported turnover rates of 50 percent or higher (The HSM Group, 2002). Turnover rates among nursing staff in nursing homes are even greater. A national survey conducted in 2001 by the American Health Care Association (AHCA) revealed annual turnover rates of 78 percent for nursing assistants (NAs), 56 percent for staff RNs, 54 percent for licensed practical nurses (LPNs)/licensed vocational nurses (LVNs), and 43–47 percent for directors of nursing and RNs with administrative duties (AHCA, 2002).

Turnover of nursing staff exacts a high price on HCOs. Estimates of the replacement cost per nurse range from “a conservative estimate” of $10,000 per RN (The HSM Group, 2002) to approximately 100 percent of a nurse’s salary ($42,000–$46,000 per year for medical–surgical and other non–intensive care unit nurses to $64,000 for critical care and other specialty care nurses (Kosel and Olivo, 2002) VHA Inc. estimates that, assuming an average cost of $64,000 to replace a nurse, an HCO with an RN workforce of 600 full-time equivalents (FTEs) and an annual turnover rate of 20 percent would spend $5.52 million a year to support its turnover. Cutting the turnover rate to 15 percent (a 25 percent reduction) would result in direct savings of $1.38 million per year (Kosel and Olivo, 2002). The Advisory Board estimates $800,000 in savings to a 500-bed hospital from reducing RN turnover from 13 to 10 percent (Advisory Board Company, 2000 as cited in Aiken et al., 2001). Likewise, a 2001 study conducted by VHA Inc.’s Consulting Services showed that organizations with higher turnover rates (21 percent or greater) had a 36 percent higher cost per discharge than those with a turnover rate of 12 percent or less. In a separate study of 235 hospitals, low-turnover organizations (those with turnover rates of 4–12 percent) were found to average a 23 percent return on assets, compared with a 17 percent return for organizations with turnover rates of more than 22 percent (Kosel and Olivo, 2002). JCAHO (2002) has concluded that there is a strong business case for actions that increase nurse retention.

There also is evidence that adopting health care practices that increase safety can decrease some HCO costs. Increased patient safety has obvious advantages to society and the economy at large, but the financial (business) advantage to an HCO is not always as visible. In case studies of the business case for four medical interventions (i.e., use of a lipid clinic, diabetes management programs, a smoking cessation program, and a workplace wellness program), favorable benefits were estimated to accrue to patients and society at large, but effects on the provider of care generally were judged to be financially unfavorable (Leatherman et al., 2003). However, these case studies did not analyze the costs to HCOs due to errors in health care that might have taken place in the absence of these interventions (i.e., lipid clinic, diabetes management programs, a smoking cessation program, and a workplace wellness program).