There are an estimated 19,000 full-time job vacancies across Massachusetts acute care hospitals, according to a survey published Oct. 31 by the Massachusetts Health & Hospital Association.
Hospitals are working to address backlogs and transfer patients to post-acute care settings while skyrocketing labor costs — including a projected $1 billion in travel labor costs this year — are compounding healthcare facilities’ financial woes, according to the report. These challenges are hampering hospital operations as well as leading to care delays and reduced access to care.
Fewer workers mean that fewer beds are available for patients, while the demand for care increases due to deferred care throughout the COVID-19 pandemic, the behavioral health crisis and reduced access to community-based services continue to challenge hospitals throughout the state. At any given time, more than 1,500 patients are in acute hospital beds awaiting placement to a specialized behavioral health bed or post-acute care, according to the MHA.
“Our healthcare system has never been more fragile, and its leaders have never been more concerned about what’s to come in months ahead,” Steve Walsh, president and CEO of the MHA, said in an Oct. 31 news release shared with Becker’s Hospital Review. “They are exhausting every option within their control to confront these challenges, but this is an unsustainable reality and providers are in dire need of support.”
In response to the survey, 37 hospitals — representing 70 percent of the state’s total hospital employment — reported 6,650 vacancies among 47 positions critical to hospital operations and clinical care. The positions range from direct care nurses to lab personnel and clinical support staff. Eighteen of the 47 positions have a vacancy rate greater than 20 percent.
At a 56 percent vacancy rate, licensed practical nurses is the most in-demand position, while home health aides (34 percent), mental health workers (32 percent), infection control nurses (26 percent) and CRNAs (24 percent) are also highly sought after.
Survey respondents identified 6,650 vacancies. The 47 positions included in the survey, which was conducted this summer, account for less than half of all hospital roles. The MHA said it extrapolated that across all positions and hospitals to arrive at an estimated 19,000 vacancies across the state.
Staffing shortages are driving labor costs to an unsustainable level for many hospitals already grappling with margins close to zero or in the red. Hospitals have relied on high-cost temporary staffing to fill critical positions during the pandemic, resulting in average hourly wage rates for travel nurses increasing 90 percent since 2019, according to the report. Massachusetts hospitals reported spending $445 million on temporary registered nurse staffing halfway through the fiscal year, with temporary RN staffing costs increasing 234 percent from fiscal year 2019 to March 2022.
If urgent steps are not taken to address healthcare’s staffing shortage, hospitals will continue to face capacity challenges and overpay for labor, which will lead to fiscal instability, according to Mr. Walsh.
The MHA urged providers, payers, public officials and government agencies to address the workforce crisis by investing in training and education, expanding the workforce pipeline, providing financial support to hospitals and advancing new models of care such as telehealth and at-home care.
Hospitals in the United States are on track for their worst financial year in decades. According to a recent report, median hospital operating margins were cumulatively negative through the first eight months of 2022. For context, in 2020, despite unprecedented losses during the initial months of COVID-19, hospitals still reported median eight-month operating margins of 2 percent—although these were in large part buoyed by federal aid from the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
The recent, historically poor financial performance is the result of significant pressures on multiple fronts. Labor shortages and supply-chain disruptions have fueled a dramatic rise in expenses, which, due to the annually fixed nature of payment rates, hospitals have thus far been unable to pass through to payers. At the same time, diminished patient volumes—especially in more profitable service lines—have constrained revenues, and declining markets have generated substantial investment losses.
While it’s tempting to view these challenges as transient shocks, a rapid recovery seems unlikely for a number of reasons. Thus, hospitals will be forced to take aggressive cost-cutting measures to stabilize balance sheets. For some, this will include department or service line closures; for others, closing altogether. As these scenarios unfold, ultimately, the costs will be borne by patients, in one form or another.
Hospitals Face A Difficult Road To Financial Recovery
There are several factors that suggest hospital margins will face continued headwinds in the coming years. First, the primary driver of rising hospital expenses is a shortage of labor—in particular, nursing labor—which will likely worsen in the future. Since the start of the pandemic, hospitals have lost a total of 105,000 employees, and nursing vacancieshave more than doubled. In response, hospitals have relied on expensive contract nurses and extended overtime hours, resulting in surging wage costs. While this issue was exacerbated by the pandemic, the national nursing shortage is a decades-old problem that—with a substantial portion of the labor force approaching retirement and an insufficient supply of new nurses to replace them—is projected to reach 450,000 by 2025.
Second, while payment rates will eventually adjust to rising costs, this is likely to occur slowly and unevenly. Medicare rates, which are adjusted annually based on an inflation projection, are already set to undershoot hospital costs. Given that Medicare doesn’t issue retrospective corrections, this underadjustment will become baked into Medicare prices for the foreseeable future, widening the gap between costs and payments.
This leaves commercial payers to make up the difference. Commercial rates are typically negotiated in three- to five-year contract cycles, so hospitals on the early side of a new contract may be forced to wait until renegotiation for more substantial pricing adjustments. “Negotiation” is also the operative term here, as payers are under no obligation to offset rising costs. Instead, it is likely that the speed and degree of price adjustments will be dictated by provider market share, leaving smaller hospitals at a further disadvantage. This trend was exemplified during the 2008 financial crisis, in which only the most prestigious hospitals were able to significantly adjust pricing in response to historic investment losses.
Finally, economic uncertainty and the threat of recession will create continued disruptions in patient volumes, particularly with elective procedures. Although health care has historically been referred to as “recession-proof,” the growing prevalence of high-deductible health plans (HDHPs) and more aggressive cost-sharing mechanisms have left patients more exposed to health care costs and more likely to weigh these costs against other household expenditures when budgets get tight. While this consumerist response is not new—research on previous recessions has identified direct correlations between economic strength and surgical volumes—the degree of cost exposure for patients is historically high. Since 2008, enrollment in HDHPs has increased nearly four-fold, now representing 28 percent of all employer-sponsored enrollments. There’s evidence that this exposure is already impacting patient decisions. Recently, one in five adults reported delaying or forgoing treatment in response to general inflation.
Taken together, these factors suggest that the current financial pressures are unlikely to resolve in the short term. As losses mount and cash reserves dwindle, hospitals will ultimately need to cut costs to stem the bleeding—which presents both challenges and opportunities.
Direct And Indirect Consequences For Cost, Quality, And Access To Care
Inevitably, as rising costs become baked into commercial pricing, patients will face dramatic premium hikes. As discussed above, this process is likely to occur slowly over the next few years. In the meantime, the current challenges and the manner in which hospitals respond will have lasting implications on quality and access to care, particularly among the most vulnerable populations.
Likely Effects On Patient Experience And Quality Of Care
Insufficient staffing has already created substantial bottlenecks in outpatient and acute-care facilities, resulting in increased wait times, delayed procedures, and, in extreme cases, hospitals diverting patients altogether. During the Omicron surge, 52 of 62 hospitals in Los Angeles, California, were reportedly diverting patients due to insufficient beds and staffing.
The challenges with nursing labor will have direct consequences for clinical quality. Persistent nursing shortages will force hospitals to increase patient loads and expand overtime hours, measures that have been repeatedly linked to longer hospital stays, more clinical errors, and worse patient outcomes. Additionally, the wave of experienced nurses exiting the workforce will accelerate an already growing divide between average nursing experience and the complexity of care they are asked to provide. This trend, referred to as the “Experience-Complexity Gap,” will only worsen in the coming years as a significant portion of the nursing workforce reaches retirement age. In addition to the clinical quality implications, the exodus of experienced nurses—many of whom serve in crucial nurse educator and mentorship roles—also has feedback effects on the training and supply of new nurses.
Staffing impacts on quality of care are not limited to clinical staff. During the initial months of the pandemic, hospitals laid off or furloughed hundreds of thousands of nonclinical staff, a common target for short-term payroll reductions. While these staff do not directly impact patient care (or billed charges), they can have a significant impact on patient experience and satisfaction. Additionally, downsizing support staff can negatively impact physician productivity and time spent with patients, which can have downstream effects on cost and quality of care.
Disproportionate Impacts On Underserved Communities
Reduced access to care will be felt most acutely in rural regions. A recent report found that more than 30 percent of rural hospitals were at risk of closure within the next six years, placing the affected communities—statistically older, sicker, and poorer than average—at higher risk for adverse health outcomes. When rural hospitals close, local residents are forced to travel more than 20 miles further to access inpatient or emergency care. For patients with life-threatening conditions, this increased travel has been linked to a 5–10 percent increase in risk of mortality.
Rural closures also have downstream effects that further deteriorate patient use and access to care. Rural hospitals often employ the majority of local physicians, many of whom leave the community when these facilities close. Access to complex specialty care and diagnostic testing is also diminished, as many of these services are provided by vendors or provider groups within hospital facilities. Thus, when rural hospitals close, the surrounding communities lose access to the entire care continuum. As a result, individuals within these communities are more likely to forgo treatment, testing, or routine preventive services, further exacerbating existing health disparities.
In areas not affected by hospital closures, access will be more selectively impacted. After the 2008 financial crisis, the most common cost-shifting response from hospitals was to reduce unprofitable service offerings. Historically, these measures have disproportionately impacted minority and low-income patients, as they tend to include services with high Medicaid populations (for example, psychiatric and addiction care) and crucial services such as obstetrics and trauma care, which are already underprovided in these communities. Since 2020, dozens of hospitals, both urban and rural, have closed or suspended maternity care. Similar to closure of rural hospitals, these closures have downstream effects on local access to physicians or other health services.
Potential For Productive Cost Reduction And The Need For A Measured Policy Response
Despite the doom-and-gloom scenario presented above, the focus on hospital costs is not entirely negative. Cost-cutting measures will inevitably yield efficiencies in a notoriously inefficient industry. Additionally, not all facility closures negatively impact care. While rural facility closures can have dire consequences in health emergencies, studies have found that outcomes for non-urgent conditions remained similar or actually improved.
Historically, attempts to rein in health care spending have focused on the demand side (that is, use) or on negotiated prices. These measures ignore the impact of hospital costs, which have historically outpaced inflation and contributed directly to rising prices. Thus, the current situation presents a brief window of opportunity in which hospital incentives are aligned with the broader policy goals of lowering costs. Capitalizing on this opportunity will require a careful balancing act from policy makers.
In response to the current challenges, the American Hospital Association has already appealed to Congress to extend federal aid programs created in the CARES Act. While this would help to mitigate losses in the short term, it would also undermine any positive gains in cost efficiency. Instead of a broad-spectrum bailout, policy makers should consider a more targeted approach that supports crucial community and rural services without continuing to fund broader health system inefficiencies.
The establishment of Rural Emergency Hospitals beginning in 2023 represents one such approach to eliminating excess costs while preventing negative patient consequences. This rule provides financial incentives for struggling critical access and rural hospitals to convert to standalone emergency departments instead of outright closing. If effective, this policy would ensure that affected communities maintain crucial access to emergency care while reducing overall costs attributed to low-volume, financially unviable services.
Policies can also help promote efficiencies by improving coverage for digital and telehealth services—long touted as potential solutions to rural health care deserts—or easing regulations to encourage more effective use of mid-level providers.
Conclusion
The financial challenges facing hospitals are substantial and likely to persist in the coming years. As a result, health systems will be forced to take drastic measures to reduce costs and stabilize profit margins. The existing challenges and the manner in which hospitals respond will have long-term implications for cost, quality, and access to care, especially within historically underserved communities. As with any crisis, though, they also present an opportunity to address industrywide inefficiencies. By relying on targeted, evidence-based policies, policy makers can mitigate the negative consequences and allow for a more efficient and effective system to emerge.
The U.S. economy expanded at a 2.6% annual rate in the third quarter, ending the streak of back-to-back contractions that raised fears the country had entered a recession.
Why it matters: Gross domestic product got a boost from trade dynamics, but the underlying details — including weaker housing and decelerating consumer spending — point to an economy that’s slowing.
The first estimate of GDP, released by the Commerce Department on Thursday, will be revised in the coming months as the government gets more complete data.
The report comes on the heels of negative GDP growth during the first half of the year. In the January through March period, the economy contracted at a 1.6% annual rate. In the second quarter, the economy shrank at a 0.6% annualized pace.
Between the lines: The latest GDP report is among the final major economic data releases before the midterm elections, where voters have ranked the economy as a critical issue.
The labor market is solid, with the unemployment rate at the lowest level in over 50 years. But soaring inflation has eaten away at Americans’ wage gains.
The backdrop: The Federal Reserve is trying to engineer an economic slowdown in a bid to crush high inflation. It has swiftly raised borrowing costs five times this year, with another big increase likely ahead at its upcoming policy meeting next week.
What they’re saying: “For months, doomsayers have been arguing that the US economy is in a recession and Congressional Republicans have been rooting for a downturn,” President Biden said in a statement. “But today we got further evidence that our economic recovery is continuing to power forward.”
Nonprofit hospitals are bracing for a challenging few months as healthcare and social assistance job vacancies remain high against a backdrop of low unemployment, Fitch Ratings said in an Oct. 25 update.
Healthcare and social assistance job openings fell for two consecutive months to 7.7 percent as of August, but the number of openings remains above the highest level recorded before the COVID-19 pandemic.
One encouraging sign is the slowly declining number of quits — 2.3 percent (486,000 quits) in August 2022 compared with a peak of 3.1 percent (626,000 quits) in November 2021. However, current quit rates remain high and are on track to exceed last year, according to Fitch.
“[not-for-profit] hospital quits will need to normalize to well below pre-pandemic levels in order to reduce staffing shortages and a reliance on contract/temporary labor,” Fitch Director Richard Park said in the news release.
The labor shortage saw hospital employees’ average weekly earnings increase 21.1 percent since February, significantly higher than the 13.6 percent earnings growth of overall private sector employees, according to Fitch. But ambulatory healthcare services employees’ earnings increased by only 12.6 percent over the same period.
“Wage increases and employee recruitment challenges may amplify the role of ambulatory care in the overall healthcare sector and continue the acceleration of inpatient care to outpatient settings,” Mr. Park said.
COVID fueled a record year for digital healthcare venture funding in 2021, which included 85 digital health startups achieving “unicorn” status with $1B+ valuations. But 2022 has been marked by cooling expectations amid inflation concerns and recession fears.
In the graphic above, we’ve tracked the stock market performances of six recent healthcare IPOs across their opening, peak, and latest months. While not all of them are pure digital health plays, each of these companies promotes its digital solutions or tech-enabled patient platforms as key parts of their value propositions.
Since going public, each company has lost between 50 and 90 percent of its initial value, more than double the S&P 500’s roughly 20 percent drop from its January 2022 peak to today’s level. The bear market has influenced the venture funding world as well, as H1 2022 fundraising totals for digital health have dropped from last year’s record-setting pace, though they may still surpass 2020 levels by year end.
After the initial fervor, this market correction among “healthtech” companies is not surprising, and acquisitions—like Amazon’s purchase of One Medical—are likely to continue, as long as these market trends hold.
The questions every investor should now be asking: does this start-up have a viable path to profitability in the US healthcare market, and does it deliver meaningful value to consumers?
Healthcare costs are expected to jump 6.0% next year. CFOs must prepare accordingly, advises WTW’s Tim Stawicki.
CFOs need to be prepared for a “higher tail” of medical inflation — even if general inflation eases in the near future, Tim Stawicki, chief actuary, North America health & benefits of Willis Towers Watson (WTW) told CFO Dive.
“CFOS need to be prepared for the case that if general inflation eases, there may be two or three more years where they need to think about how they are managing the costs of health care plans,” he said in an interview.
Inflation, which can more immediately impact consumer prices, works somewhat differently when it comes to costs of medical care. “Employers are paying healthcare costs based on contracts that their insurer has with providers, which are multiple years in length. So if a deal with the hospital or contract does not come up until 2023, then that provider has the opportunity to renegotiate higher prices for three years,” said Stawicki.
The recent Best Practices in Healthcare Survey by WTW consisting of 455 U.S. employers found that employers project their healthcare costs will jump 6.0% next year compared with an average 5.0% increase expected by the end of this year.
Further, employers see little relief in sight — seven in 10 (71%) expect moderate to significant increases in costs over the next three years. Additionally, over half of respondents (54%) expect their costs will be over budget this year.
Balancing talent retention and healthcare costs
Talent retention has also remained an entrenched challenge for CFOs over recent months and continues to be top of mind.
Given inflationary pressures and a potential looming recession, employers are having trouble finding the workers they need to run their businesses. A rise in healthcare benefit costs will make this all the more challenging, said Stawicki. “Employers are looking around and saying ‘I need to find talent to help me run my business and I can’t do that if I have an ineffective program in healthcare benefits,’” he said.
There is a direct link between business outcomes and in particular employee productivity and employees’ ability to manage their health and financial environment, according to WTW’s Global Benefits Attitude Survey. “Losing the ability to offer programs and benefits that meet employee needs is impacting business,” said Stawicki.
It comes down to finding the balance between cost management in an environment where talent is hard to come by, he said. In order for CFOs to be successful in financing benefit programs they need to look at finding ways to partner with their counterparts in human resources, said Stawicki.
Sixty-seven percent of employers said that managing company costs was a top priority in the company’s August Best Practices in Healthcare Survey, versus the 42% who said that achieving affordability for employees was a top priority. In the near future, CFOs need to establish a relationship with HR counterparts that can facilitate “ways to manage company costs without shifting it to employees,” said Stawicki.
Ultimately, company costs remain paramount for employers but running a successful business will also require keeping employee affordability top of mind.
America had another month of solid job gains: The economy added 315,000 jobs in August, while the unemployment rate ticked up to 3.7% as more workers entered the labor force, the government said on Friday.
Why it matters: Employers continue to hire workers at a robust pace, even as the Federal Reserve raises interest rates swiftly to crush inflation.
Job growth eased from July’s breakneck pace, which were revised a tick higher to 528,000 jobs. Job growth in June was weaker than initially thought, downwardly revised by 100,000 to 293,000.
The August figures are roughly in line with economists’ expectations.
Details: Perhaps the most welcoming piece of news in the report is the influx of workers who entered the labor force last month. The labor force participation rate — the share of people working or looking for work — rose by 0.3 percentage points, after a string of monthly declines.
Average hourly earnings rose by 0.3%, a slowdown from the 0.5% rate in July.
The backdrop: The Fed has been bracing for some heat to come out of the labor market. It has raised interest rates at a historically rapid pace in a bid to squash elevated inflation. This report offers some good news as wage growth slowed — and more workers entered the workforce, helping ease the tightness in the labor market.
Higher rates work to slow demand by making it pricier for consumers and companies to borrow money, causing slower economic growth and, in turn, less price pressure.
“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” chair Jerome Powell said last week.
Consumer prices were unchanged in July, as plunging prices for gasoline dragged the Consumer Price Index down to zero. Core inflation, which excludes energy and food, rose only 0.3%, below what analysts expected.
Driving the news: The Labor Department reported that overall consumer prices rose 0% last month, and are up 8.5% over the past year. That compares to a 9.1% year-over-year reported in June.
Why it matters: Falling gasoline prices are clearly giving American consumers some inflation relief, and the broader inflation picture was more favorable in July than economists had expected.
By the numbers: Gasoline prices fell 7.7% in July, dragging down headline inflation. Other items with falling prices included used cars and trucks (-0.4%) and airfares (down 7.8%).
But rents kept rising, a major factor in stubbornly high underlying inflation. Renters faced a 0.7% rise in costs.
What’s next: The Federal Reserve has indicated it intends to keep raising interest rates until there is clear evidence inflation is waning. After two straight months of extremely hot inflation readings, this report will be welcome news.
Employers added a stunning 528,000 jobs in July, while the unemployment rate ticked down to 3.5%, the lowest level in nearly 50 years, the Labor Department said on Friday.
Why it matters: It’s the fastest pace of jobs growth since February as the labor market continues to defy fears that the economy is heading into a recession.
Economists expected the economy to add roughly 260,000 jobs in July.
Job gains in May and June were a combined 28,000 higher than initially estimated.
The backdrop: The data comes at a delicate time for the U.S. economy. Growth has slowed as the Federal Reserve raises interest rates swiftly in an attempt to contain soaring inflation.
Many economists and Fed officials alike are pointing to the ongoing strength of the labor market as a sign the economy has not entered a recession.
Policymakers want to see some heat come off the labor market. They are hoping to see more moderate job growth as the economy cools, in order to ease inflation pressures.
HENRY KOTULA 