The operating and capital costs of an occupational health service depend upon the size and design of the facility and the services provided. Ideally, the budget for a corporate or for a plant occupational health service is based on a realistic work plan and established goals and is developed and administered by the supervising occupational health professional. It is prepared with the help of the company's financial personnel and final approval is given by the senior company official responsible for the service.
Since construction and equipment costs vary from place to place and change with time, no estimates are given here for initial or replacement capital expenses. It is important, however, that the facility and equipment chosen be appropriate to the facility's objectives or the company's needs and financial status. Most often the best prices are obtained by using a competitive bidding process. Advice from consultants in both architecture and occupational health is always prudent before construction and purchase.
The following costs elements and the estimated percent of the total operating budget given are fairly typical of occupational health services in industry.
1. Compensation (60%)
The staff of an occupational health service may include a variety of different professional and administrative personnel. Any or all of them may be employed on a full or part-time, salaried or contract basis. The level of compensation should reflect the qualifications, experience and level of responsibility. Table 11.1 presents representative levels of compensation for various staff in greater detail.
2. Employee Expenses (5%)
Salaried employees should have good support for continued professional and related training. Contract employees, as part of their contract arrangement, may be supported in this way, however, as a general rule this is not the case.
Table 11.1. Approximate Levels of Compensation of Personnel. Position Salary Range Contract Fee Occupational $70, - $130,000 $75 - $100/hr. Physician Fee-for-service according to medical association recommended schedule of fees. Retainer fees vary and may be in addition to hourly or fee-for-service. Occupational Health $30, - $60,000 $l5 - $25/hr. Nurse(Certified) Other: Equivalent to similar Psychologists and positions in other physiotherapists have - Technicians settings. associations that set recommended fee schedules. - Psychologists - Physiotherapists - Nutritionists - Clerks - Receptionists - Administrator
3. Facility & Equipment (25%)
In some situations rent, light, heat, water and cleaning costs may be included in overhead costs and therefore may not form an identifiable part of the operating budget. However, these costs will have to be considered along with equipment maintenance and repair costs in calculating the total cost of the facility.
4. Supplies (5%)
Administrative supplies such as files, paper, and postage along with medical supplies such as bandages, table paper and gowns, and drugs must be included. Many medical items have a relatively short shelf life.
5. Telephone and Communications (1%)
This item should always be considered, but may vary greatly depending upon such things as long distance charges.
6. Computer Services (3%)
This item may or may not be critical. In some organizations it may form a much larger proportion of the budget, or may not be relevant at all.
7. Miscellaneous (1%)
Many items too numerous to itemize should be budgeted here. It is important to include some support for documentation reproduction, audio visual aids and minor expenses best handled on a petty cash basis.
An occupational health service, whether a department within an organization, a clinic, or a private consultant retained on a full or part-time basis, should be able to provide a realistic cost/benefit analysis for the organization it serves.
Occupational health services are engaged by employers for various reasons. The organization may believe that it has a moral obligation to provide health services to support employee well being and that there is an economic justification for such services. In any case, the employer must comply with pertinent laws and regulations. Whatever the motivation, it is a fact that the costs of occupational health services are more readily apparent than the benefits to most managers. The costs to support an occupational health service are easy to calculate. Benefit calculations, on the other hand, are harder to determine. In business organizations the cost/benefit analysis should as closely as possible be related to the bottom line, as this will make the greatest impression on the senior managers in the company. Other organizations such as government or the military may require a different emphasis or impact point for the final economic analysis.
The components of the cost/benefit analysis will vary according to the size, type and nature of the organization and its accuracy will only be as good as the data being. The newer the occupational health service, the harder it is to measure its financial impact, as it will not be fully or properly staffed, and its policies and programs will not be fully developed or implemented for the near term. Nevertheless, the evidence that will be used to measure the impact of the occupational health service (such as WCB assessment costs, disability health insurance premiums and days lost due to accidents or sickness, etc.) should be chosen early and recorded as soon as possible.
The budget for the occupational health service should be prepared and administered under the direction of the senior person in the occupational health service with the help of the organization's financial advisors.
The capital budget will be most significant when the occupational health service is first constructed and at times of major renovations. Since these costs will vary greatly according to the size and location of the occupational health facility, they will not be discussed here. The size of the facility and the equipment obtained should be consistent with the organization's needs and financial resources. The best prices are usually obtained by using a competitive bidding process, and it is always prudent to obtain advice from architects and occupational health consultants before starting.
The operating budget lists the amounts needed to run the occupational health service on a day-to-day basis. The budget contains many expense elements but the two largest will always be staff compensation and rent. If the occupational health service is a department within an organization, its operating expenses will be consolidated into a total operating budget and overhead items such as rent and utilities may not be specifically identified. If the occupational health service is being supplied under contract by a private consultant, the employer might only budget for a single amount that represents the aggregate occupational health cost. In this latter situation, the contractee, whether an occupational health facility or individual consultant will need a detailed operating budget for its own purposes. The following discussion will not cover all circumstances but will emphasize expense elements commonly encountered in the preparation of a typical budget for an occupational health service.
The OHS staff will usually include a variety of professional and administrative personnel. Any or all of them may be employed on a full or part-time, salaried or contract basis. The level of compensation will reflect their responsibilities, experience and qualifications.
This element usually accounts for up to 25-60% of the budget. An occupational health physician's basic salary range is $70-130,000 per year or $60-150 per hour. An occupational health nurse's basic salary range is $30-60,000 per year or $15-25/hr. Full-time employed personnel will also receive a benefits package covering such items as disability insurance, life insurance etc. that can be valued at 20-30% of their salary. Contract employees generally do not get that benefit package. If there is a problem determining the physician or nurse's salary or fees, consulting the local medical or nurses' association is always helpful. The salary and contract fees of other administrative and technical personnel vary so much that it is impossible to list them all here. Usually, however, an organization can obtain salary and contract fee surveys paid to these positions in the local community.
Some amount should always be set aside to support professional development, attend conferences and to cover transportation and living expenses while on trips. As well, organizations should pay for certain professional license fees and memberships in associations. This cost element will account for 2-5% of the budget.
This element doesn't always appear in a budget. But if it does, allow up to 20-30% of the budget to cover the rent, light, heat, water, gas and cleaning. As well, allow for minor repairs and upkeep.
Administrative and clinical supplies and small pieces of equipment (not expensive enough to be a capital item, i.e. less than $1,000) should be accounted for here. Depending upon the nature and activities of the occupational health, this expense element may account for 6-10% of the budget.
The presence of this item of course depends upon whether computer hardware, software and time (if sharing a mainframe) is used. It may account for 3-10% of the budget.
Allow for around 1% of the budget to cover sundre items often too small to have their own expense element.
It is not possible to put a dollar value on the reduction or elimination of human suffering or realistic to put a value on the absence of fines or court action. Clearly, however, these have presumptive value and should be mentioned in any cost/benefit analysis. On the other hand, there are certain identifiable direct and indirect costs that can be calculated or estimated. Most organizations must carry disability health insurance for their employees for non-occupational conditions; and workers' compensation. Table 11.2 shows several years of direct savings for workers' compensation (WC) and health disability insurance (HDI) costs. All the amounts shown are examples.
Table 11.2. Direct Savings Projected from Occupational Health Services (Example). Assume base year costs: Workers' compensation (WC) = $1,000 Health disability insurance (HDI) = $1,000 Year WC Saving HDI Saving Total Costs Related to Costs Related to Cost Base Year Base Year Savings 1 800,000 200,000 900,000 100,000 300,000 2 750,000 250,000 700,000 300,000 550,000 3 700,000 300,000 650,000 350,000 650,000 4 600,000 400,000 600,000 400,000 800,000 etc. etc. etc. etc. etc. etc.
Another element of the analysis estimates the cost savings that result from the reduction in health-related absences. The total cost of an absence includes wages or benefits for the absent employee, wages paid to a replacement, overtime costs, costs for extra supervision and co-workers time, cost of training a replacement and administrative costs. Some studies have shown these costs can total ten times the wage of the absent employee.
Compensation insurance for conditions occuring on the job is an important expense of doing business. In some companies these premiums and associated costs represent a significant and even crippling expense. A well-run occupational health service can have a profound effect by reducing these costs. Measures such as timely intervention for work related accidents health surveillance programs, fitness-to-work programs, health promotion can have an effect on reducing health related absenteeism, employee turnover and increased human productivity.
To calculate the reduction in health insurance costs, a base year should be chosen for comparison purposes. This year should be from a time prior to when the employee's occupational health policies and programs were fully operative. Clearly then, if these costs go down over time compared to the base year, the occupational health service can justifiably take some or all of the credit for the reduction. When doing this analysis, one must keep comparing back to the base year, year after year, because the cost reductions may occur slowly, from time to time, or may be large at the beginning and then taper off as a minimum cost level is reached. In effect what is being shown is not only what has happened because of the actions of the occupational health service, but also what might happen again if the service or program stops doing its good work and the costs go back up to their former levels. Sometimes this analysis can only show how costs have been kept at a certain level. In this situation additional information from the insurance company will be necessary to learn what the costs might have become if the employer's performance had not improved.
The following example shows how to estimate these costs:
Assume that the average hourly rate, including benefits, is $18/hr for general employees. An 8 hour day's compensation cost is $144, and if one assumes a conservative factor of fourfold for the related costs, the cost of a one day absence is 4 X $144 or $576.
Now let's assume that the occupational health service records show that acute care and return to work interventions by the service have resulted in 100 employees returning to work on average 5 days earlier than they would have otherwise estimated cost savings is as follows:
100 employees X 5 days X $576 = $288,000
In other words, the employer avoided 500 days of absence costing $576/day because of effective health interventions. If the company also has a health promotion program that includes fitness and smoking cessation programs, further cost savings can be estimated in the same way. Many studies have shown that regular exercisers lose less time than less active workers If, say, 100 employees now exercise regularly because of a fitness program, saving an average 3 days per year, the following productivity savings can be estimated:
100 X 3 days X $576 = $172,800
Smokers are said to be about an average of 3 days per year more than non-smokers, so if 20 workers stopped smoking, additional productivity savings can be estimated:
20 X 3 days X $576 = $34,560
Further, if occupational health service has looked after a few executives whose salaries are twice that of the general worker (or $1152 per day in absence costs) and assuming that there are 10 executives who lost 5 days fewer and who now exercise regularly (3 days) and who have stopped smoking (3 days), one can make the following estimate of productivity savings:
10 X 11 X $1152 = $126,720
Using rather straightforward assumptions, this example of an occupational health services helping only 110 participants prevented the company from losing $622,080 in health-related absences. If we had done this calculation in year 4 of the OHS operations and had used the numbers from the health insurance savings table ($800,000) the total estimated savings directly due to the health interventions would be $1,422,080.
This example is very conservative in its assumptions. In a real situation these numbers are likely to be much higher. The estimated cost savings would be even more impressive.
To complete the cost/benefit analysis, one may assume that in the example the occupational health services costs $350,000 to operate. Such a service would probably have a full-time occupational health physician, three to four occupational health nurses, and several clerical support staff. It certainly could serve an employee population of three to four thousand. Our conservative cost savings estimate was $1,422,080. If one divides this by the cost of the service, the calculation results in a 300% return.
In publicly-traded companies one can bring the cost/benefit analysis directly to the bottom line by showing the impact on earnings per share. To do this, one first subtracts the costs from the estimated cost savings to get the net benefit, (i.e. $1,422,080 less 350,000 = $1,072,080.)
If one assumes that the company has 20,000,000 common shares outstanding, the earnings per share contribution is:
$1,072,080 X 100 = 5.4 cents/share
This kind of number makes a real impression on senior management.
There are probably other ways an OHS can show its economic impact on an organization and these should be aggressively sought out. This analysis has already shown an amazing return by focusing only on two areas, reduced health insurance costs and reduced health related absenteeism costs.