Technical appendix A
Hospital restructuring levers: definitions and calculation methods
This appendix defines the 27 restructuring levers the model uses to estimate how a hospital might respond if all payers paid Medicare rates, specifies how each lever is calculated, and provides an illustrative calculation for a hypothetical community hospital.
Overview
The model groups potential hospital responses into five categories: workforce configuration, insurance-related
administrative overhead, purchasing, capital and service footprint, and compensation. Each lever represents a distinct
management or policy action, such as converting agency nurses to employed staff, lowering drug acquisition prices, or
reducing physician compensation. The parameters for every lever are stored in assumptions/levers.yaml.
The lever sizes are not drawn from a single published source. They reflect judgments informed by the published ranges described in Appendix C and should be interpreted as plausible scenarios rather than estimates of what any particular hospital could achieve.
Lever parameters
| Parameter | Definition |
|---|---|
| Level (low, base, high) | The size of the action, expressed as a share of the affected cost or revenue; for example, 0.15 denotes a 15 percent reduction. The low level reflects what a typical performance improvement program achieves, the base level reflects a substantial restructuring, and the high level reflects an upper bound that generally requires sector-wide or policy change. |
| Control | Who must act for the lever to be realized. Within hospital control levers can be implemented by a single hospital. Market-wide levers are sustainable only if competing employers make similar changes; otherwise staff leave for other employers. Policy levers require legislation, regulation, or changes in how payers operate. |
| Ramp-up period | The number of years required to reach the full annual effect. Savings increase in equal annual increments; a lever with a two-year ramp-up achieves half its effect in the first year. |
| One-time cost | Implementation costs, such as severance, technology, consulting, and contract termination, expressed as a multiple of the lever's full annual savings and incurred as the lever ramps up. |
| Turnover offset | The share of gross savings lost to resignations, replacement hiring, overtime, and recruitment. The offset applies to compensation and headcount levers for which staff departures are a likely response. |
| Administrative simplification | For insurance-related overhead levers, the level is multiplied by the share of payer administrative complexity that the policy scenario eliminates. This share is 15 percent under Commercial capped at Medicare; 50 percent under All payers at Medicare; 50 percent under All payers, 5-year phase-in; 100 percent under Single payer at Medicare. |
Sequencing
Levers are applied in the order shown in this appendix, and each lever acts on the cost structure that remains after the preceding levers have been applied. Workforce configuration levers precede compensation levers, so that pay reductions apply only to positions that remain. This sequencing ensures that savings across levers are additive and are not counted twice. The annual operating gain attributed to each lever is the resulting change in annual operating income at full implementation, net of any turnover offset.
Illustrative calculations
Each lever description includes an illustrative calculation for the model's hypothetical community hospital, which has annual operating expenses of $499.7 million. The calculations assume the All payers at Medicare policy scenario, with all levers applied at their base levels in sequence. Under this scenario the hospital faces an annual operating loss of $91.6 million before any response; the levers together produce an annual operating gain of $68.2 million at their base levels. The cost to which each lever applies is measured at the point in the sequence where the lever is applied, and is therefore smaller for levers that follow others acting on the same costs. Results at the low and high levels are obtained by repeating the full sequence at those levels. The reports for individual hospitals present results based on each hospital's own cost structure.
Calculation methods
Each lever consists of one or more of the nine operations described below. In the equations, x denotes the lever's level after any adjustment for administrative simplification, a prime (′) denotes a value after the lever has been applied, and loaded cost equals the average wage multiplied by one plus the benefits rate. Some levers apply an operation at a multiple of x; in all cases, the reduction is limited to 100 percent of the affected cost.
Headcount reduction
Reduces the number of full-time equivalent (FTE) positions in the targeted roles. Average wages for remaining staff are unchanged.
Compensation reduction
Reduces the average wage of the targeted roles remaining after the workforce configuration levers have been applied.
Benefits reduction
Reduces the benefits rate, defined as the cost of employee benefits and payroll taxes as a share of wages, for all employees.
Nonlabor price or volume reduction
Reduces spending on the targeted expense lines.
Skill-mix substitution
Shifts work from the source role to the receiving role. Each FTE position eliminated in the first group is replaced by r FTE positions in the second, reflecting the additional hours required.
Agency labor conversion
Converts agency labor spending into employed staff. Because agency staff cost 1.6 times as much as employed staff, each converted dollar buys the same hours as 62.5 cents of employed labor.
Revenue increase
Increases patient revenue from all payers by reducing claim denials, underpayments, and write-offs.
Capital spending reduction
Reduces capital spending, which affects cash flow but not operating income. In the absence of this lever, the model assumes that annual capital spending equals baseline depreciation.
Service line closure
Closes a share of the hospital's activity equal to x. Closed services are assumed to be paid at 75 percent of the hospital's average payment rate, and 80 percent of their costs can be eliminated; the remainder represents shared overhead. Depreciation and interest are unchanged.
Turnover offset and operating gain
After a lever's operations have been applied, the turnover offset is added back to operating expenses, and the lever's annual operating gain is calculated as the change in operating income.
Workforce configuration
Levers in this category change the number and mix of staff. They are applied before any change in compensation, so that pay reductions apply only to positions that remain. For the illustrative hospital, the six levers in this category produce a combined annual operating gain of $10.6 million at the low level, $20.5 million at the base level, and $35.1 million at the high level.
Convert agency staff to employees
Replaces agency and travel nurses with employed registered nurses. Because agency staff cost about 1.6 times as much as employed staff performing the same work, each dollar of agency spending that is converted reduces costs by roughly 37 cents.
- Level (low / base / high)
- 40% / 60% / 80%
- Parameter key
agency_conversion
Calculation
Converts agency labor spending into employed registered nurses. Because agency staff cost 1.6 times as much as employed staff, each converted dollar buys the same hours as 62.5 cents of employed labor.
Illustrative calculation
At its base level of 60 percent, the lever applies to $15.0 million in costs and increases annual operating income by $3.4 million. Employment rises by 46 FTE positions. At the low and high levels, the annual gain is $2.2 million and $4.5 million, respectively. One-time implementation costs at the base level total $0.5 million, incurred over two years.
Implementation risks. Conversion depends on the hospital's ability to recruit permanent staff, which becomes more difficult if nurse compensation is reduced at the same time.
Align clinical staffing with benchmarks
Reduces nursing, clinical support, and allied health staffing for a given volume of care by shortening lengths of stay, improving patient flow, and aligning staffing with benchmark ratios.
- Level (low / base / high)
- 2% / 4% / 7%
- Parameter key
clinical_productivity
Calculation
Reduces the number of full-time equivalent (FTE) positions in registered nurses; clinical support staff (licensed practical nurses, aides, and technicians); and allied health staff (pharmacy, laboratory, imaging, and therapy). Average wages for remaining staff are unchanged.
Illustrative calculation
At its base level of 4 percent, the lever applies to $138.4 million in costs and reduces operating expenses by $5.5 million before a turnover offset of $0.6 million, for a net increase in annual operating income of $5.0 million. Employment falls by 55 FTE positions. At the low and high levels, the annual gain is $2.5 million and $8.8 million, respectively. One-time implementation costs at the base level total $1.5 million, incurred over two years.
Implementation risks. Lower staffing levels may increase burnout and adverse events, and nurse staffing laws limit reductions in some states.9,10
Shift nursing work from RNs to LPNs and aides
Shifts a portion of nursing work from registered nurses to licensed practical nurses and nursing aides. Each RN position eliminated is replaced by 1.1 support positions, reflecting the additional hours that less specialized staff require for the same tasks.
- Level (low / base / high)
- 4% / 8% / 15%
- Parameter key
rn_skill_mix
Calculation
Shifts work from registered nurses to clinical support staff (licensed practical nurses, aides, and technicians). Each FTE position eliminated in the first group is replaced by 1.1 FTE positions in the second, reflecting the additional hours required.
Illustrative calculation
At its base level of 8 percent, the lever applies to $77.7 million in costs and increases annual operating income by $2.9 million. Employment rises by 5 FTE positions. At the low and high levels, the annual gain is $1.4 million and $5.3 million, respectively. One-time implementation costs at the base level total $0.6 million, incurred over three years.
Implementation risks. Research has associated a lower proportion of registered nurses in the nursing workforce with higher patient mortality and lower quality of care.11
Substitute NPs and PAs for physicians
Substitutes nurse practitioners and physician assistants for a portion of the work of employed physicians. Each physician position eliminated is replaced by 1.25 NP or PA positions.
- Level (low / base / high)
- 5% / 10% / 20%
- Parameter key
physician_app_mix
Calculation
Shifts work from employed physicians to nurse practitioners and physician assistants. Each FTE position eliminated in the first group is replaced by 1.25 FTE positions in the second, reflecting the additional hours required.
Illustrative calculation
At its base level of 10 percent, the lever applies to $51.8 million in costs and increases annual operating income by $2.9 million. Employment rises by 3 FTE positions. At the low and high levels, the annual gain is $1.4 million and $5.8 million, respectively. One-time implementation costs at the base level total $0.6 million, incurred over three years.
Implementation risks. State scope-of-practice laws limit substitution in some states, and substitution is not appropriate for many procedural specialties.
Reduce management layers
Reduces the number of executive, director, and manager positions by eliminating management layers and widening spans of control.
- Level (low / base / high)
- 8% / 15% / 25%
- Parameter key
mgmt_delayering
Calculation
Reduces the number of full-time equivalent (FTE) positions in executives and managers. Average wages for remaining staff are unchanged.
Illustrative calculation
At its base level of 15 percent, the lever applies to $21.2 million in costs and increases annual operating income by $3.2 million. Employment falls by 14 FTE positions. At the low and high levels, the annual gain is $1.7 million and $5.3 million, respectively. One-time implementation costs at the base level total $1.6 million, incurred over one year.
Implementation risks. Reducing management capacity may impair the hospital's ability to carry out the restructuring itself.
Automate and consolidate administrative functions
Reduces administrative staffing in information technology, human resources, finance, and quality through automation and consolidation, and reduces environmental services, food service, and facilities staffing at 40 percent of that rate.
- Level (low / base / high)
- 5% / 12% / 20%
- Parameter key
back_office
Calculation
Reduces the number of full-time equivalent (FTE) positions in administrative staff (information technology, human resources, finance, and quality). Average wages for remaining staff are unchanged.
Reduces the number of full-time equivalent (FTE) positions in support staff (environmental services, food service, and facilities). Average wages for remaining staff are unchanged.
Illustrative calculation
At its base level of 12 percent, the lever applies to $36.5 million in costs and increases annual operating income by $3.2 million. Employment falls by 40 FTE positions. At the low and high levels, the annual gain is $1.4 million and $5.4 million, respectively. One-time implementation costs at the base level total $1.9 million, incurred over three years.
Implementation risks. Automation requires upfront investment in technology, and savings often materialize later than planned.
Insurance overhead
Levers in this category reduce administrative costs that arise from the number of payers and the differences in their rules. Their effect is scaled by the share of that complexity each policy scenario removes. For the illustrative hospital, the five levers in this category produce a combined annual operating gain of $4.0 million at the low level, $7.6 million at the base level, and $11.9 million at the high level.
Reduce billing and payer administration staff
Reduces billing, coding, and payer administration staff whose work arises from differences in prices, rules, forms, and appeals processes across insurers. Savings are limited to the share of administrative complexity that the policy scenario eliminates.
- Level (low / base / high)
- 25% / 45% / 65%
- Parameter key
bir_staff
Calculation
Reduces the number of full-time equivalent (FTE) positions in billing, coding, and payer administration staff. Average wages for remaining staff are unchanged.
Illustrative calculation
At its base level of 45 percent, reduced to 22.5 percent because the All payers at Medicare scenario eliminates 50 percent of payer administrative complexity, the lever applies to $10.8 million in costs and increases annual operating income by $2.4 million. Employment falls by 34 FTE positions. At the low and high levels, the annual gain is $1.3 million and $3.5 million, respectively. One-time implementation costs at the base level total $1.0 million, incurred over two years.
Implementation risks. Savings depend on payers adopting a common fee schedule and rule set. Coding and compliance functions would remain under any payment system.
Reduce billing and collection vendor spending
Reduces spending on outsourced billing services, claims clearinghouses, and collection agencies as claims processing becomes simpler.
- Level (low / base / high)
- 30% / 50% / 70%
- Parameter key
bir_vendors
Calculation
Reduces spending on billing, clearinghouse, and collection vendors.
Illustrative calculation
At its base level of 50 percent, reduced to 25 percent because the All payers at Medicare scenario eliminates 50 percent of payer administrative complexity, the lever applies to $6.0 million in costs and increases annual operating income by $1.5 million. At the low and high levels, the annual gain is $0.9 million and $2.1 million, respectively. One-time implementation costs at the base level total $0.2 million, incurred over two years.
Implementation risks. Existing vendor contracts may include termination penalties or minimum terms.
Reduce clinician time on payer requirements
Converts time that physicians, nurse practitioners, physician assistants, and nurses currently spend on prior authorization and other payer requirements into a reduction in clinical positions.
- Level (low / base / high)
- 1% / 2% / 4%
- Parameter key
clinician_admin_time
Calculation
Reduces the number of full-time equivalent (FTE) positions in employed physicians, nurse practitioners and physician assistants, and registered nurses. Average wages for remaining staff are unchanged.
Illustrative calculation
At its base level of 2 percent, reduced to 1 percent because the All payers at Medicare scenario eliminates 50 percent of payer administrative complexity, the lever applies to $132.2 million in costs and increases annual operating income by $1.3 million. Employment falls by 8 FTE positions. At the low and high levels, the annual gain is $0.7 million and $2.5 million, respectively. One-time implementation costs at the base level total $0.1 million, incurred over two years.
Implementation risks. Time freed from administrative tasks produces savings only if it results in fewer positions or additional billable services.
Eliminate payer contracting and related marketing
Eliminates managed care contracting and payer-specific finance and information technology functions, and reduces marketing directed at commercially insured patients. Marketing is reduced at ten times the lever's rate, so the base level eliminates 40 percent of marketing spending.
- Level (low / base / high)
- 2% / 4% / 6%
- Parameter key
payer_contracting
Calculation
Reduces the number of full-time equivalent (FTE) positions in administrative staff (information technology, human resources, finance, and quality). Average wages for remaining staff are unchanged.
Reduces spending on marketing.
Illustrative calculation
At its base level of 4 percent, reduced to 2 percent because the All payers at Medicare scenario eliminates 50 percent of payer administrative complexity, the lever applies to $21.3 million in costs and increases annual operating income by $1.0 million. Employment falls by 4 FTE positions. At the low and high levels, the annual gain is $0.5 million and $1.4 million, respectively. One-time implementation costs at the base level total $0.3 million, incurred over two years.
Implementation risks. The reduction in marketing assumes that hospitals no longer compete for commercially insured patients.
Reduce claim denials and underpayments
Increases collections by reducing claim denials, underpayments, and write-offs when all payers follow a common set of rules. The model represents this as a small increase in patient revenue.
- Level (low / base / high)
- 0.3% / 0.7% / 1.2%
- Parameter key
denials_recovery
Calculation
Increases patient revenue from all payers by reducing claim denials, underpayments, and write-offs.
Illustrative calculation
At its base level of 0.7 percent, reduced to 0.4 percent because the All payers at Medicare scenario eliminates 50 percent of payer administrative complexity, the lever increases patient revenue and annual operating income by $1.4 million. At the low and high levels, the annual gain is $0.6 million and $2.4 million, respectively.
Implementation risks. Medicare also audits and denies claims, so the gain reflects only the difference from current commercial practice.
Purchasing
Levers in this category reduce the prices the hospital pays for drugs, devices, supplies, services, insurance, and facilities. For the illustrative hospital, the seven levers in this category produce a combined annual operating gain of $7.3 million at the low level, $17.0 million at the base level, and $36.9 million at the high level.
Lower drug acquisition costs
Lowers drug acquisition costs through group purchasing, formulary management, and biosimilar substitution and, at the high level, through national drug price regulation.
- Level (low / base / high)
- 5% / 12% / 30%
- Parameter key
drugs
Calculation
Reduces spending on drugs.
Illustrative calculation
At its base level of 12 percent, the lever applies to $42.0 million in costs and increases annual operating income by $5.0 million. At the low and high levels, the annual gain is $2.1 million and $12.6 million, respectively. One-time implementation costs at the base level total $0.3 million, incurred over two years.
Implementation risks. The high level assumes international reference pricing. Lower acquisition prices would also reduce 340B program savings for eligible hospitals, an effect the model does not capture.
Lower device and implant costs
Lowers implant and device costs by standardizing physician preference items and, at the high level, through price transparency or reference pricing.
- Level (low / base / high)
- 5% / 12% / 30%
- Parameter key
devices
Calculation
Reduces spending on devices and implants.
Illustrative calculation
At its base level of 12 percent, the lever applies to $22.0 million in costs and increases annual operating income by $2.6 million. At the low and high levels, the annual gain is $1.1 million and $6.6 million, respectively. One-time implementation costs at the base level total $0.3 million, incurred over two years.
Implementation risks. Savings require physicians to agree to standardized products, and the high level assumes price transparency or reference pricing requirements.
Lower medical and surgical supply costs
Lowers medical and surgical supply costs through product standardization, group purchasing, and waste reduction.
- Level (low / base / high)
- 3% / 8% / 15%
- Parameter key
supplies
Calculation
Reduces spending on medical and surgical supplies.
Illustrative calculation
At its base level of 8 percent, the lever applies to $30.0 million in costs and increases annual operating income by $2.4 million. At the low and high levels, the annual gain is $0.9 million and $4.5 million, respectively. One-time implementation costs at the base level total $0.2 million, incurred over two years.
Implementation risks. Most hospitals already purchase through group purchasing organizations, so many of the most readily available savings have been realized.
Renegotiate or insource purchased services
Lowers the cost of contracted services, such as staffing, information technology, laundry, food service, and consulting, through renegotiation or insourcing.
- Level (low / base / high)
- 5% / 10% / 18%
- Parameter key
purchased_services
Calculation
Reduces spending on purchased services.
Illustrative calculation
At its base level of 10 percent, the lever applies to $44.0 million in costs and increases annual operating income by $4.4 million. At the low and high levels, the annual gain is $2.2 million and $7.9 million, respectively. One-time implementation costs at the base level total $0.4 million, incurred over two years.
Implementation risks. Vendors face the same labor cost pressures as hospitals, and multiyear contracts delay savings.
Lower malpractice and insurance costs
Lowers malpractice and other insurance premiums. The high level assumes enactment of tort reform.
- Level (low / base / high)
- 0% / 5% / 20%
- Parameter key
liability
Calculation
Reduces spending on malpractice and other insurance.
Illustrative calculation
At its base level of 5 percent, the lever applies to $9.0 million in costs and increases annual operating income by $0.5 million. At the low and high levels, the annual gain is $0 and $1.8 million, respectively.
Implementation risks. The high level depends on enactment of tort reform.
Lower utility, lease, and facilities costs
Lowers utility, lease, and facilities costs through energy contracting, space consolidation, and lease terminations.
- Level (low / base / high)
- 2% / 5% / 10%
- Parameter key
facilities
Calculation
Reduces spending on utilities and facilities.
Illustrative calculation
At its base level of 5 percent, the lever applies to $14.0 million in costs and increases annual operating income by $0.7 million. At the low and high levels, the annual gain is $0.3 million and $1.4 million, respectively. One-time implementation costs at the base level total $0.1 million, incurred over two years.
Implementation risks. This category accounts for a small share of hospital spending, which limits potential savings.
Reduce discretionary spending
Reduces discretionary spending, including travel, training, professional dues, community programs, and miscellaneous expenses.
- Level (low / base / high)
- 5% / 10% / 15%
- Parameter key
other_expense
Calculation
Reduces spending on other expenses.
Illustrative calculation
At its base level of 10 percent, the lever applies to $14.0 million in costs and increases annual operating income by $1.4 million. At the low and high levels, the annual gain is $0.7 million and $2.1 million, respectively.
Implementation risks. Reductions in training and community programs may affect workforce development and community benefit activities.
Capital and footprint
Levers in this category reduce capital spending and close service lines that generate the largest operating losses. For the illustrative hospital, the two levers in this category produce a combined annual operating gain of $2.5 million at the low level, $4.8 million at the base level, and $6.0 million at the high level.
Defer capital spending
Reduces capital spending on buildings and equipment. Cash savings begin immediately, with capital spending falling by 2.5 times the lever's rate, while depreciation expense, and therefore operating income, adjusts gradually.
- Level (low / base / high)
- 5% / 12% / 20%
- Parameter key
capex
Calculation
Reduces spending on depreciation.
Reduces capital spending, which affects cash flow but not operating income. In the absence of this lever, the model assumes that annual capital spending equals baseline depreciation.
Illustrative calculation
At its base level of 12 percent, the lever applies to $28.0 million in costs and increases annual operating income by $3.4 million. In addition, capital spending declines by 30 percent, which improves cash flow but not operating income. At the low and high levels, the annual gain is $1.4 million and $5.6 million, respectively.
Implementation risks. Deferral improves cash flow quickly but affects operating income only gradually, and deferred investment in facilities and equipment creates future obligations.
Close service lines with the largest losses
Closes the service lines with the largest operating losses, which typically include obstetrics, behavioral health, pediatrics, and trauma care. The hospital forgoes the revenue from these services and eliminates most, but not all, of their costs.
- Level (low / base / high)
- 2% / 4% / 8%
- Parameter key
service_exit
Calculation
Closes a share of the hospital's activity equal to x. Closed services are assumed to be paid at 75 percent of the hospital's average payment rate, and 80 percent of their costs can be eliminated; the remainder represents shared overhead. Depreciation and interest are unchanged.
Illustrative calculation
At its base level of 4 percent, the lever applies to $452.6 million in costs and reduces operating expenses by $13.4 million. After accounting for the revenue the closed services generated, annual operating income increases by $1.4 million. Employment falls by 69 FTE positions. At the low and high levels, the annual gain is $1.1 million and $0.4 million, respectively. The gain is smaller at the high level because the preceding levers, also applied at their high levels, leave less cost to eliminate, while the revenue forgone remains proportional to the share of services closed. One-time implementation costs at the base level total $0.7 million, incurred over two years.
Implementation risks. Closures reduce community access to affected services, and shared overhead costs remain after a service closes.
Compensation
Levers in this category reduce wages and benefits for the staff who remain after the workforce configuration levers have been applied. For the illustrative hospital, the seven levers in this category produce a combined annual operating gain of $6.0 million at the low level, $18.2 million at the base level, and $34.7 million at the high level.
Reduce executive and management compensation
Reduces compensation for executives and managers who remain after management positions have been reduced.
- Level (low / base / high)
- 10% / 20% / 35%
- Parameter key
exec_comp
Calculation
Reduces the average wage of executives and managers remaining after the workforce configuration levers have been applied.
Illustrative calculation
At its base level of 20 percent, the lever applies to $17.4 million in costs and reduces operating expenses by $3.5 million before a turnover offset of $0.2 million, for a net increase in annual operating income of $3.3 million. At the low and high levels, the annual gain is $1.8 million and $4.9 million, respectively.
Implementation risks. Executive compensation reductions are often a precondition for broader concessions from staff, but they produce relatively small savings.
Reduce employed physician compensation
Reduces compensation for employed physicians.
- Level (low / base / high)
- 5% / 15% / 30%
- Parameter key
physician_comp
Calculation
Reduces the average wage of employed physicians remaining after the workforce configuration levers have been applied.
Illustrative calculation
At its base level of 15 percent, the lever applies to $44.7 million in costs and reduces operating expenses by $6.7 million before a turnover offset of $1.0 million, for a net increase in annual operating income of $5.7 million. At the low and high levels, the annual gain is $2.0 million and $9.7 million, respectively. One-time implementation costs at the base level total $0.3 million, incurred over two years.
Implementation risks. Physicians generate referrals and admissions. The high level would bring compensation closer to levels in other high-income countries and assumes that all employers in the market make similar reductions.
Reduce NP and PA compensation
Reduces compensation for nurse practitioners and physician assistants.
- Level (low / base / high)
- 0% / 5% / 10%
- Parameter key
app_comp
Calculation
Reduces the average wage of nurse practitioners and physician assistants remaining after the workforce configuration levers have been applied.
Illustrative calculation
At its base level of 5 percent, the lever applies to $13.4 million in costs and reduces operating expenses by $0.7 million before a turnover offset of $0.1 million, for a net increase in annual operating income of $0.5 million. At the low and high levels, the annual gain is $0 and $1.2 million, respectively. One-time implementation costs at the base level total less than $0.1 million, incurred over two years.
Implementation risks. Reductions may conflict with a strategy of relying more heavily on nurse practitioners and physician assistants.
Reduce registered nurse compensation
Reduces compensation for registered nurses.
- Level (low / base / high)
- 0% / 5% / 15%
- Parameter key
nurse_comp
Calculation
Reduces the average wage of registered nurses remaining after the workforce configuration levers have been applied.
Illustrative calculation
At its base level of 5 percent, the lever applies to $68.5 million in costs and reduces operating expenses by $3.4 million before a turnover offset of $0.9 million, for a net increase in annual operating income of $2.6 million. At the low and high levels, the annual gain is $0 and $6.8 million, respectively. One-time implementation costs at the base level total $0.1 million, incurred over two years.
Implementation risks. Nurses may leave bedside practice or the profession, collective bargaining agreements may limit reductions, and higher vacancy rates may increase reliance on agency staff.10
Reduce allied health and clinical support compensation
Reduces compensation for allied health professionals (pharmacy, laboratory, imaging, and therapy) and clinical support staff (licensed practical nurses, aides, and technicians).
- Level (low / base / high)
- 0% / 3% / 8%
- Parameter key
other_clinical_comp
Calculation
Reduces the average wage of allied health staff (pharmacy, laboratory, imaging, and therapy) and clinical support staff (licensed practical nurses, aides, and technicians) remaining after the workforce configuration levers have been applied.
Illustrative calculation
At its base level of 3 percent, the lever applies to $56.6 million in costs and reduces operating expenses by $1.7 million before a turnover offset of $0.4 million, for a net increase in annual operating income of $1.3 million. At the low and high levels, the annual gain is $0 and $3.3 million, respectively. One-time implementation costs at the base level total $0.1 million, incurred over two years.
Implementation risks. Wages for aides and technicians are already close to those in retail and warehouse employment, which gives these workers ready alternatives.
Reduce administrative and support staff compensation
Reduces compensation for billing, administrative, information technology, human resources, and support staff.
- Level (low / base / high)
- 0% / 3% / 8%
- Parameter key
nonclinical_comp
Calculation
Reduces the average wage of billing, coding, and payer administration staff; administrative staff (information technology, human resources, finance, and quality); and support staff (environmental services, food service, and facilities) remaining after the workforce configuration levers have been applied.
Illustrative calculation
At its base level of 3 percent, the lever applies to $39.9 million in costs and reduces operating expenses by $1.2 million before a turnover offset of $0.2 million, for a net increase in annual operating income of $1.0 million. At the low and high levels, the annual gain is $0 and $2.3 million, respectively. One-time implementation costs at the base level total less than $0.1 million, incurred over two years.
Implementation risks. Administrative and support skills transfer readily to other industries, which increases the risk of turnover.
Reduce employee benefits
Reduces employee benefits, including retirement contributions, the employer share of health insurance premiums, and paid time off. The model applies this as a reduction in the benefits rate for all employees.
- Level (low / base / high)
- 5% / 10% / 20%
- Parameter key
benefits
Calculation
Reduces the benefits rate, defined as the cost of employee benefits and payroll taxes as a share of wages, for all employees.
Illustrative calculation
At its base level of 10 percent, the lever applies to $43.2 million in costs and reduces operating expenses by $4.3 million before a turnover offset of $0.4 million, for a net increase in annual operating income of $3.9 million. At the low and high levels, the annual gain is $2.2 million and $6.4 million, respectively.
Implementation risks. Benefit reductions affect all employees at once and may increase turnover across the workforce.
Summary of lever parameters
Table A1 summarizes the parameters for all levers and the annual operating gain for the illustrative community hospital at the base level.
Table A1. Restructuring lever parameters
| Lever | Category | Control | Level (low / base / high) | Ramp-up (years) | One-time cost (× savings) | Turnover offset | Annual gain, base level ($M) |
|---|---|---|---|---|---|---|---|
| Convert agency staff to employees | Workforce configuration | Hospital | 40% / 60% / 80% | 2 | 0.15 | — | $3.4 |
| Align clinical staffing with benchmarks | Workforce configuration | Hospital | 2% / 4% / 7% | 2 | 0.3 | 10% | $5.0 |
| Shift nursing work from RNs to LPNs and aides | Workforce configuration | Hospital | 4% / 8% / 15% | 3 | 0.2 | — | $2.9 |
| Substitute NPs and PAs for physicians | Workforce configuration | Hospital | 5% / 10% / 20% | 3 | 0.2 | — | $2.9 |
| Reduce management layers | Workforce configuration | Hospital | 8% / 15% / 25% | 1 | 0.5 | — | $3.2 |
| Automate and consolidate administrative functions | Workforce configuration | Hospital | 5% / 12% / 20% | 3 | 0.6 | — | $3.2 |
| Reduce billing and payer administration staff | Insurance overhead | Policy | 25% / 45% / 65% | 2 | 0.4 | — | $2.4 |
| Reduce billing and collection vendor spending | Insurance overhead | Policy | 30% / 50% / 70% | 2 | 0.1 | — | $1.5 |
| Reduce clinician time on payer requirements | Insurance overhead | Policy | 1% / 2% / 4% | 2 | 0.1 | — | $1.3 |
| Eliminate payer contracting and related marketing | Insurance overhead | Policy | 2% / 4% / 6% | 2 | 0.3 | — | $1.0 |
| Reduce claim denials and underpayments | Insurance overhead | Policy | 0.3% / 0.7% / 1.2% | 2 | 0 | — | $1.4 |
| Lower drug acquisition costs | Purchasing | Policy | 5% / 12% / 30% | 2 | 0.05 | — | $5.0 |
| Lower device and implant costs | Purchasing | Hospital | 5% / 12% / 30% | 2 | 0.1 | — | $2.6 |
| Lower medical and surgical supply costs | Purchasing | Hospital | 3% / 8% / 15% | 2 | 0.1 | — | $2.4 |
| Renegotiate or insource purchased services | Purchasing | Hospital | 5% / 10% / 18% | 2 | 0.1 | — | $4.4 |
| Lower malpractice and insurance costs | Purchasing | Policy | 0% / 5% / 20% | 3 | 0 | — | $0.5 |
| Lower utility, lease, and facilities costs | Purchasing | Hospital | 2% / 5% / 10% | 2 | 0.2 | — | $0.7 |
| Reduce discretionary spending | Purchasing | Hospital | 5% / 10% / 15% | 1 | 0 | — | $1.4 |
| Defer capital spending | Capital and footprint | Hospital | 5% / 12% / 20% | 5 | 0 | — | $3.4 |
| Close service lines with the largest losses | Capital and footprint | Hospital | 2% / 4% / 8% | 2 | 0.5 | — | $1.4 |
| Reduce executive and management compensation | Compensation | Hospital | 10% / 20% / 35% | 1 | 0 | 5% | $3.3 |
| Reduce employed physician compensation | Compensation | Market | 5% / 15% / 30% | 2 | 0.05 | 15% | $5.7 |
| Reduce NP and PA compensation | Compensation | Market | 0% / 5% / 10% | 2 | 0.05 | 20% | $0.5 |
| Reduce registered nurse compensation | Compensation | Market | 0% / 5% / 15% | 2 | 0.05 | 25% | $2.6 |
| Reduce allied health and clinical support compensation | Compensation | Market | 0% / 3% / 8% | 2 | 0.05 | 25% | $1.3 |
| Reduce administrative and support staff compensation | Compensation | Market | 0% / 3% / 8% | 2 | 0.05 | 20% | $1.0 |
| Reduce employee benefits | Compensation | Market | 5% / 10% / 20% | 1 | 0 | 10% | $3.9 |
| All levers | $68.2 |
Source: Model calculations for the illustrative community hospital under the All payers at Medicare scenario, with levers applied in sequence at their base levels. Dollar amounts are in millions.
Note: This appendix is generated from the model's assumption files (assumptions/*.yaml) and source code (model/) by run.py --docs, and reflects the parameter values in effect on November 12, 2026.