It covers 589,901 healthcare workers and 166,087 registered nurses from 272 facilities and 32 states. Participants were asked to report data on turnover, retention, vacancy rates, recruitment metrics and staffing strategies from January to December 2021.
The survey found a wide range of helpful figures for understanding the financial fallout of one of healthcare’s hardest labor disruptions:
The average hospital lost $7.1 million in 2021 to higher turnover rates.
The average hospital loses $5.2 to $9 million on RN turnover yearly.
The average turnover cost for a staff RN is $46,100, up more than 15 percent from the 2020 average.
The average hospital can save $262,300 per year for each percentage point it drops from its RN turnover rate.
To improve margins, hospitals need to control labor costs by decreasing dependence on travel and agency staff, but only 22.7 percent anticipate being able to do so.
For every 20 travel RNs eliminated, a hospital can save $4.2 million on average.
In the past 5 years, the average hospital turned over 100.5 percent of its workforce:
In 2021, hospitals set a goal of reducing turnover by 4.8 percent. Instead, it increased 6.4 percent and ranged from 5.1 percent to 40.8 percent. The current average hospital turnover rate nationally is 25.9 percent, according to the report.
While 72.6 percent of hospitals have a formal nurse retention strategy, less than half of those (44.5 percent) have a measurable goal.
Overall, 55.5 percent of hospitals do not have a measurable nurse retention goal.
Retirement is the number four reason staff RNs leave, and it is expected to remain a primary driver through 2030. More than half (52.8 percent) of hospitals today have a strategy to retain senior nurses. In 2018, only 21.6 percent had one.
Historically, RN turnover has trended below the hospital average across all staff. For the first time since conducting the survey, this is no longer true:
In the past five years, the average hospital turned over 95.7 percent of its RN workforce.
Close to a third (31.0 percent) of all newly hired RNs left within a year, with first year turnover accounting for 27.7 percent of all RN separations. Given the projected surge in retirements, expect to see the more tenured groups edge up creating an inverted bell curve.
Operating room RNs continue to be the toughest to recruit, while labor and delivery RNs are trending easier to recruit than in the year prior.
Hospitals are experiencing a dramatically higher RN vacancy rate (17 percent) compared to last year’s rate of 9.9 percent.
The vast majority (81.3 percent) reported a vacancy rate higher than 10 percent.
The majority of hospitals are predicted to have negative margins in 2022, marking the worst year financially for hospitals since the beginning of the Covid-19 pandemic.
In Part 1 of Radio Advisory’s Hospital of the Future series, host Rachel (Rae) Woods invites Advisory Board experts Monica Westhead, Colin Gelbaugh, and Aaron Mauck to discuss why factors like workforce shortages, post-acute financial instability, and growing competition are contributing to this troubling financial landscape and how hospitals are tackling these problems.
As we emerge from the global pandemic, health care is restructuring. What decisions should you be making, and what do you need to know to make them? Explore the state of the health care industry and its outlook for next year by visiting advisory.com/HealthCare2023.
Interest rates are rising, inflation is lingering at four-decade highs, the economy appears to be slowing and experts fear a recession is on the way. But Americans are still quitting their jobs at near-record rates in the face of growing economic uncertainty.
The percentage of American workers who quit their jobs set a record earlier this year and has only dropped slightly as the economy slows from two years of torrid growth. After reaching 2.9 percent this spring, the quits rate dropped to 2.7 percent in July, according to data released Tuesday by the Labor Department.
The idea of quitting a job amid a period of increased cost of living and a dubious economic future may seem counterintuitive. But the labor market has remained stacked in favor of workers, who see ample opportunities to boost their earnings to supplant increased costs from inflation.
“Despite recent declines, job openings still outnumber unemployed workers by a sizable margin, illustrating just how tight the labor market remains,” wrote AnnElizabeth Konkel, an economist at Indeed Hiring Lab, in a Monday analysis.
There were roughly two open jobs for every unemployed American, according to Labor Department data, giving job seekers ample opportunities to find new jobs with better pay or working conditions. Businesses are still scrambling to find enough workers to keep up with consumer spending — which is well above pre-pandemic levels — from a workforce that remains smaller than it was before COVID-19.
“It seems possible that employer demand would need to cool significantly more before recruiters start to notice an easing in recruiting conditions,” Konkel wrote.
In other words, employers still have too many open jobs and not enough candidates to avoid boosting wages and other perks to find talent. And that means workers still have ample incentive to quit for a better-paying job, particularly with inflation still high.
Job seekers on Indeed.com are looking for ever-higher wages, Konkel explained. The number of Indeed users seeking jobs with a $20 per hour wage rose above those seeking $15 per hour in June 2022, and the number of jobseekers looking for $25 per hour is up 122 percent over the past 12 months.
Konkel attributed the spike in job seekers looking for more money to the steady increase in advertised wages and the inflation they’ve helped to feed.
“Once job seekers know it’s possible to attain a higher wage, their expectations may shift and act as a pull factor in searching for a higher dollar amount. In this case, the shift in job seeker expectations from searching for $15 to instead $20 is clear,” Konkel explained.
“On the flip side, inflation continues to take a bite out of workers’ paychecks,” she continued, noting that only 46 percent of workers saw wage gains that outpaced inflation.
The pressure to quit for a higher paying job has been highest in the private sector, where 3.5 percent of the workforce left their current employer in July. Workers in industries with historically low wages, tough working conditions and limited teleworking options have led the charge.
The leisure and hospitality sector posted a whopping 6.1 percent quit rate in July, down sharply from 6.9 percent a year ago but still nearly twice the national quit rate.
Restaurants and bars in particular have struggled to return to pre-pandemic employment levels despite rapidly raising wages. The pressure has also made it nearly impossible for those businesses to fire or lay off employees, even amid usual season turnover.
“Hospitality companies tell us that what was once a ‘one strike, you’re out’ rule for employees who failed to show up at work without notice is now more like a ‘ten strikes, you’re out’ rule. They cannot afford to fire workers because they cannot afford to replace them,” said Julia Pollak, chief economist at ZipRecruiter.
“The decline in terminations in industries like hospitality have been so large, they have more than offset the increase in layoffs in the tech sector,” she explained.
Quits have also remained high in retail (4 percent) and the transportation and warehousing sectors (3.5 percent), with both industries facing threats from a decline in goods spending and rising interest rates.
Even so, there are some signs of waning worker confidence, which may lead to a decline in quits.
ZipRecruiter’s job seeker confidence index dropped 4.5 points in August to an all-time low of 97.8, Pollak said, with a greater number of applicants looking for job security over higher wages.
“Since the pandemic, job seekers have been looking for higher pay, less stress, and greater flexibility. In August however, job security rose to the second-place spot in their priority ranking,” Pollak explained.
“One in four employed job seekers say they feel less secure about their current job than they did six months ago. Rising risk of a recession, paired with a wave of recent tech layoffs, has made employees more concerned about the precarity of their jobs.”
Hospitals’ labor costs rose by more than a third from pre-pandemic levels by March 2022, according to a report out Wednesday from Kaufman Hall.
Heightened temporary and traveling labor costs were a main contributor, with contract labor accounting for 11% of hospitals’ total labor expenses in 2022 compared to 2% in 2019, the report found.
Contract nurses’ median hourly wages rose 106% over the period, from $64 an hour to $132 an hour, while employed nurse wages increased 11%, from $35 an hour to $39 an hour, the report found.
Dive Insight:
The new data from Kaufman Hall supports concerns hospital executives expressed while releasing first quarter earnings results, as higher-than expected labor costs spurred some operators, like HCA, to lower their financial full-year guidance.
The ongoing use of contract labor amid shortages driven by heightened turnover was a key factor executives cited for higher costs, and follows the findings from Kaufman Hall’s latest report.
More than a third of nurses surveyed by staffing firm Incredible Health said they plan to leave their current jobs by the end of this year, according to a March report. While burnout is driving them to leave, higher salaries are the top motivating factor for taking other positions, that report found.
Kaufman Hall’s report, which analyzes data from more than 900 hospitals across the country, found hospitals spent $5,494 in labor expenses per adjusted discharge in March compared to $4,009 roughly three years ago.
Costs rose for hospitals in every region, though the South and West experienced the largest increases from pre-pandemic levels as those expenses rose 43% and 42%, respectively.
The West and Northeast/Mid-Atlantic regions saw the highest expenses consistently from 2019 to 2022, according to the report.
“The pandemic made longstanding labor challenges in the healthcare sector much worse, making it far more expensive to care for hospitalized patients over the past two years,” said Erik Swanson, senior vice president of data and analytics at Kaufman Hall.
“Hospitals now face a number of pressures to attract and retain affordable clinical staff, maintain patient safety, deliver quality services and increase their efficiency,” Swanson said.
The report also notes that hospitals are competing with non-hospital employers also pursuing hourly staff, though those companies can pass along wage increases to consumers through higher prices “in a way healthcare organizations cannot,” the report said.
Some hospitals, like HCA Healthcare and Universal Health Services, are looking to raise prices for health plans amid rising nurse salaries, according to reporting from The Wall Street Journal.
Another recent report from group purchasing organization Premier found the CMS underestimated hospital labor spending when making payment adjustments for the 2022 fiscal year, resulting in hospitals receiving only a 2.4% rate increase compared to a 6.5% increase in hospital labor rates.
To match the rates hospitals are now paying staff, an adequate inpatient payment update for fiscal 2023 is needed, that report said.
The CMS proposed its IPPS rule for FY 2023 on April 18 that includes a 3.2% hike to inpatient hospital payments, which provider groups like the American Hospital Association rebuked as “simply unacceptable” considering inflation and rising hospital labor costs.
Across industries, 4.54 million Americans quit or changed jobs in March, the highest level since December 2000, according to seasonally adjusted data released May 3 by the Bureau of Labor Statistics.
The count is up from 4.38 million in February. In the healthcare and social assistance sector, 542,000 Americans left their jobs in March, compared to 561,000 the previous month, according to the bureau.
The number of job openings in the U.S. also hit a record high of 11.55 million in March, up from 11.34 million in February, according to the bureau. Job openings in the healthcare and social assistance sector remained similar in February and March, at around 2 million.
During the pandemic, hospital CEOs are among those who have joined the list of workers quitting. Additionally, older, tenured employees in America are part of the trend.
Although there continues to be churn in the labor market, Fitch Ratings projects the U.S. labor market will recover jobs lost during the pandemic by the end of August.
Hospitals are experiencing significant increases in expenses for workforce, drugs and medical supplies
Introduction
For over two years since the outset of the COVID-19 pandemic, America’s hospitals and health systems have been on the front lines caring for patients, comforting families and protecting communities.
With over 80 million cases1, nearly 1 million deaths2, and over 4.6 million hospitalizations3, the pandemic has taken a significant toll on hospitals and health systems and placed enormous strain on the nation’s health care workforce. During this unprecedented public health crisis, hospitals and health systems have confronted many challenges, including historic volume and revenue losses, as well as skyrocketing expenses (See Figure #1).
Hospitals and health systems have been nimble in responding to surges in COVID-19 cases throughout the pandemic by expanding treatment capacity, hiring staff to meet demand, acquiring and maintaining adequate supplies and personal protective equipment (PPE) to protect patients and staff and ensuring that critical services and programs remain available to the patients and communities they serve. However, these and other factors have led to billions of dollars in losses over the last two years for hospitals, and over 33% of hospitals are operating on negative margins.
The most recent surges triggered by the delta and omicron variants have added even more pressure to hospitals. During these surges, hospitals saw the number of COVID-19 infected patients rise while other patient volumes fell, and patient acuity increased. This drove up expenses and added significant financial pressure for hospitals. Moreover, hospitals did not receive any government assistance through the COVID-19 Provider Relief Fund (PRF) to help mitigate rising expenses and lost revenues during the delta and omicron surges. This is despite the fact that more than half of COVID-19 hospitalizations have occurred since July 1, 2021, during these two most recent COVID-19 surges.
At the same time, patient acuity has increased, as measured by how long patients need to stay in the hospital. The increase in acuity is a result of the complexity of COVID-19 care, as well as treatment for patients who may have put off care during the pandemic. The average length of a patient stay increased 9.9% by the end of 2021 compared to pre-pandemic levels in 2019.4
As hospitals treat sicker patients requiring more intensive treatment, they also must ensure that sufficient staffing levels are available to care for these patients, and must acquire the necessary expensive drugs and medical supplies to provide high-quality care. As a result, overall hospital expenses have experienced considerable growth.
Data from Kaufman Hall, a consulting firm that tracks hospital financial metrics, shows that by the end of 2021, total hospital expenses were up 11% compared to pre-pandemic levels in 2019. Even after accounting for changes in volume that occurred during the pandemic, hospital expenses per patient increased significantly from pre-pandemic levels across every category. (See Figure #1)
The pandemic has strained hospitals’ and health systems’ finances. Many hospitals operate on razorthin margins, so even slight increases in expenses can have dramatic negative effects on operating margins, which can jeopardize their ability to care for patients. These expense increases have been more challenging to withstand in light of rising inflation and growth in input prices. In fact, despite modest growth in revenues compared to pre-pandemic levels, median hospital operating margins were down 3.8% by the end of 2021 compared to pre-pandemic levels, according to Kaufman Hall. Further exacerbating the problem for hospitals are Medicare sequestration cuts and payment increases that are well below increases in costs. For example, an analysis by PINC found that for fiscal year 2022, hospitals received a 2.4% increase in their Medicare inpatient payment rate, while hospital labor rates increased 6.5%.5
These levels of increased expenses and declines in operating margins are not sustainable. This report highlights key pressures currently facing hospitals and health systems, including:
Each of these issues separately presents significant challenges to the hospital field. Taken together, they represent conditions that would be potentially catastrophic for most organizations, institutions and industries. However, the fact that the nation’s hospitals and health systems continue to serve on the front lines of the ongoing pandemic is a testament to their resiliency and steadfast commitment to their mission to serve patients and communities around the country.
Hospitals and health systems are the cornerstones of their communities. Their patients depend on them for access to care 24 hours a day, seven days a week. Hospitals are often the largest employers in their community, and large purchasers of local services and goods. Additional support is needed to help ensure hospitals have the adequate resources to care for their communities.
I. Workforce and Contract Labor Expenses
The hospital workforce is central to the care process and often the largest expense for hospitals. It is no surprise then that even before the pandemic, labor costs — which include costs associated with recruiting and retaining employed staff, benefits and incentives — accounted for more than 50% of hospitals’ total expenses. Therefore, even a slight increase in these costs can have significant impacts on a hospital’s total expenses and operating margins.
As the pandemic has persisted for over two years, the toll on the health care workforce has been immense. A recent survey of health care workers found that approximately half of respondents felt “burned out” and nearly a quarter of respondents said they anticipated leaving the health care field.6
This has been mirrored by a significant and sustained decline in hospital employment, down approximately 100,000 employees from pre-pandemic levels.7 At the height of the omicron surge, approximately 1,400 hospitals or 30% of all U.S. hospitals reporting data to the government, indicated that they anticipated a critical staffing shortage within the week.8This high percentage of hospitals reporting a critical staffing shortage stayed relatively consistent throughout the delta and omicron surges.
The combination of employee burnout, fewer available staff, increased patient acuity and higher demand for care especially during the delta and omicron surges, has forced hospitals to turn to contract staffing firms to help address staffing shortages.
Though hospitals have long worked with contract staffing firms to bridge temporary gaps in staffing, the pandemic-driven-staffing-shortage has created an expanded reliance on contract staff, especially contract or travel registered nurses. Travel nurses are in particularly high demand because they serve a critical role in delivering care for both COVID-19 and non-COVID-19 patients and allow the hospital to meet the demand for care, especially during pandemic surges.
According to a survey by AMN Healthcare, one of the nation’s largest health care staffing agencies, 95% of health care facilities reported hiring nurse staff from contract labor firms during the pandemic.9Staffing firms have increased their recruitment of contract or travel nurses, illustrating the significant growth in their demand. According to data from EMSI/Burning Glass, there has been a nearly 120% increase in job postings for contract or travel nurses from pre-pandemic levels in January 2019 to January 2022. (See Figure #2)
Similarly, the hours worked by contract or travel nurses as a percentage of total hours worked by nurses in hospitals has grown from 3.9% in January 2019 to 23.4% in January 2022, according to data from Syntellis Performance Solutions. (See Figure #3) In fact, a quarter of hospitals have experienced nearly a third of their total nurse hours accounted for by contract or travel nurses.
As the share of contract travel nurse hours has grown significantly compared to before the pandemic, so too have the costs of employing travel nurses compared to pre-pandemic levels. In 2019, hospitals spent a median of 4.7% of their total nurse labor expenses for contract travel nurses, which skyrocketed to a median of 38.6% in January 2022. (See Figure #3) A quarter of hospitals — those who have had to rely disproportionately on contract travel nurses — saw their costs for contract travel nurses account for over 50% of their total nurse labor expenses. In fact, while contract travel nurses accounted for 23.4% of total nurse hours in January 2022, they accounted for nearly 40% of the labor expenses for nurses. (See Figure #3) This difference has grown considerably compared to pre-pandemic levels in 2019, suggesting that the exorbitant prices charged by staffing companies are a primary driver of higher labor expenses for hospitals.
Data from Syntellis Performance Solutions show a 213% increase in hourly rates charged to hospitals by staffing companies for travel nurses in January 2022 compared to pre-pandemic levels in January 2019. This is because staffing agencies have exploited the situation by increasing the hourly rates billed to hospitals for contract travel nurses more than the hourly rates they pay to travel nurses. This is effectively the “margin” retained by the staffing agencies. During pre-pandemic levels in 2019, the average “margin” retained by staffing agencies for travel nurses was about 15%. As of January 2022, the average “margin” has grown to an astounding 62%. (See Figure #4)
These high “margins” have fueled massive growth in the revenues and profits of health care staffing companies. Several staffing firms have reported significant growth in their revenues to as high as $1.1 billion in just the fourth quarter of 202110, tripling their revenues and net income compared to 2020 levels.11
The data indicate that the growth in labor expenses for hospitals and health systems was in large part due to the exorbitant rates charged by contract staffing firms. By the end of 2021, hospital labor expenses per patient were 36.9% higher than pre-pandemic levels, and increased to 57% at the height of the omicron surge in January 2022.12 A study looking at hospitals in New Jersey found that the increased labor expenses for contract staff amounted to $670 million in 2021 alone, which was more than triple what their hospitals spent in 2020.13High reliance on contract or travel staff prevents hospitals and health systems from investing those costs into their existing employees, leading to low morale and high turnover, which further exacerbates the challenges hospitals and health systems have been facing.
II. Drug Expenses
Prescription drug spending in the U.S. has grown significantly since the pandemic. In 2021, drug spending (including spending in both retail and non-retail settings) increased 7.7%14, which was on top of an increase of 4.9%15 in 2020. While some of this growth can be attributed to increased utilization as patient acuity increased during the pandemic, a significant driver has been the continued increase in prices of existing drugs as well as the introduction of new products at very high prices. A study by GoodRx found that in January 2022 alone, drug companies increased the price of about 810 brand and generic drugs that they reviewed by an average of 5.1%.16 These price increases followed massive price hikes for certain drugs often used in the hospital such as Hydromorphone (107%), Mitomycin (99%), and Vasopressin (97%).17 For another example, the drug manufacturer of Humira, one of the most popular brand drugs used to treat rheumatoid arthritis, increased the price of the drug by 21% between 2019 and 2021.18 A study by the Kaiser Family Foundation found that in Medicare Part B and D markets, half of all drugs in each market experienced price increases above the rate of inflation between 2019 and 2020 – in fact, a third of these drugs experienced price increases of greater than 7.5%.19 At the same time, according to a report by the Institute for Clinical and Economic Review (ICER), eight drugs with unsupported U.S. drug price increases between 2019 and 2020 alone accounted for an additional $1.67 billion in drug spending, further illustrating that drug companies’ decisions to raise the prices of their drugs are simply an unsustainable practice.20
As hospitals have worked to treat sicker patients during the pandemic, they have been forced to contend with sky-high prices for drugs, many of which are critical and lifesaving for their patients. For example, in 2020, 16 of the top 25 drugs by spending in Medicare Part B (hospital outpatient settings) had price increases greater than inflation — two of the top three drugs, Keytruda and Prolia — experienced price increases of 3.3% and 4.1%, respectively.21
As a result of these price increases, hospital drug expenses have skyrocketed. By the end of 2021, total drug expenses were 28.2% higher than pre-pandemic levels.22 When taken as a share of all non-labor expenses, drug expenses have grown from approximately 8.2% in January 2019, to 9.3% in January 2021, and to 10.6% in January 2022. (See Figure #5) Even when considering changes in volume during the pandemic, drug expenses per patient compared to pre-pandemic levels in 2019 saw significant increases, with a 36.9% increase through 2021.
While continued drug price increases by drug companies have been a major driver of the growth in overall hospital drug expenses, there also are other important driving factors to consider:
Drug Treatments for COVID-19 Patients:Remdesivir, one of the primary drugs used to treat COVID-19 patients in the hospital, has become the top spend drug for most hospitals since the pandemic. This drug alone accounted for over $1 billion in sales in the fourth quarter of 2021.23 Priced at an average of $3,12024, Remdesivir’s cost was initially covered by the federal government. However, hospitals must now purchase the drug directly.
Limitation of 340B Contract Pharmacies: The 340B program allows eligible providers, including hospitals that treat many low-income patients or treat certain patient populations like children and cancer patients, to buy certain outpatient drugs at discounted prices and use those savings to provide more comprehensive services to the patients and communities they serve. Since July 2020, several of the largest drug manufacturers have denied 340B pricing to eligible hospitals through pharmacies with whom they contract, despite calls from the Department of Health and Human Services that such actions are illegal. Because of these actions, many 340B hospitals, especially rural hospitals who disproportionately rely on contract pharmacies to ensure access to drugs for their patients, have lost millions in 340B drug savings.25 In addition, these manufacturers have required claim-level data submissions as a condition of receiving 340B discounts, which has increased costs to deliver the data as well as staff time and expense to manage that process. The loss of 340B savings coupled with increased burden of providing detailed data to drug companies have contributed to increasing drug expenses.
Health Plans’/Pharmacy Benefit Managers’ (PBMs’) “White Bagging” Policies: Health plans and PBMs have engaged in a tactic that steers hospital patients to third-party specialty pharmacies to acquire medication necessary for clinician-administered treatments, known as “white-bagging.” This practice disallows the hospital from procuring and managing the handling of a drug — typically drugs that are infused or injected requiring a clinician to administer in a hospital or clinic setting — used in patient care. These policies not only create serious patient safety concerns, but create delays and risks in patient care; add to administration, storage and handling costs; and create important liability issues for hospitals.
Taken together, these factors increase both drug expenses and overall hospital expenses.
III. Medical Supply and PPE Expenses
The U.S., like most countries in the world, relies on global supply chains for goods and services. This is especially true for medical supplies used at hospitals and other health care settings. Everything from the masks and gloves worn by staff to medical devices used in patient care come from a large network of global suppliers. Prior to the global pandemic, hospitals had established relationships with distributors and other vendors in the global health care supply chain to deliver goods as necessitated by demand. After the pandemic hit, many factories, distributors and other vendors shut down their operations, leaving hospitals, which were on the front lines facing surging demand, to fend for themselves. In fact, supply chain disruptions across industries, including health care, increased by 67% in 2020 alone.26
As a result, hospitals turned to local suppliers and non-traditional suppliers, often paying significantly higher rates than they did prior to the pandemic. Between fall 2020 and early 2022 costs for energy, resins, cotton and most metals surged in excess of 30%; these all are critical elements in the manufacturing of medical supplies and devices used every day in hospitals.27 As COVID-19 cases surged, demand for hospital PPE, such as N95 masks, gloves, eye protection and surgical gowns, increased dramatically causing hospitals to invest in acquiring and maintaining reserves of these supplies. Further, downstream effects from other global events such as the war in Ukraine and the energy crisis in China, as well as domestic issues, such as labor shortages and rising fuel and transportation costs, have all contributed to drive up even higher overall medical supply expenses for hospitals in the U.S.28 For instance, according to the Health Industry Distributors Association, transportation times for medical supplies are 440% longer than pre-pandemic times resulting in massive delays.29
Compared to 2019 levels, supply expenses for hospitals were up 15.9%30 through the end of 2021. When focusing on hospital departments involved most directly in care for COVID-19 patients − primarily hospital intensive care units (ICUs) and respiratory care departments − the increase in expenses is significantly higher. Medical supply expenses in ICUs and respiratory care departments increased 31.5% and 22.3%, respectively. Further, accounting for changes in volume during surge and non-surge periods of the pandemic, medical supply expenses per patient in ICUs and respiratory care departments were 31.8% and 25.9% higher, respectively. (See Figure #6) These numbers help illustrate the magnitude of the impact that increases in supply costs have had on hospital finances during the pandemic.
IV. Impact of Rising Inflation
Higher economy-wide costs have serious implications for hospitals and health systems, increasing the pressures of higher labor, supply, and acquisition costs; and potentially lower consumer demand. Inflation is defined as the general increase in prices and the decrease in purchasing power. It is measured by the Consumer Price Index (CPI-U). In April 2021, the Bureau of Labor Statistics (BLS) reported that the CPI-U had the largest 12-month increase since September 2008. The CPI-U hit 40-year highs in February 2022.31 Overall, consumer prices rose by a historic 8.5% on an annualized basis in March 2022 alone.32
As inflation measured by consumer prices is at record highs, below are key considerations on the potential impact of higher general inflation on hospital prices:
Labor Costs and Retention: Labor costs represent a significant portion of hospital costs (typically more than 50% of hospital expenses are related to labor costs). As the cost-of-living increases, employees generally demand higher wages/total compensation packages to offset those costs. This is especially true in the health care sector, where labor demands are already high, and labor supply is low.
Supply Chain Costs: Medical supplies account for approximately 20% of hospital expenses, on average. As input/raw good costs increase due to general inflation, hospital supplies and medical device costs increase as well. Furthermore, shortages of raw materials, including those used to manufacture drugs, could stress supply chains (i.e., medical supply shortages), which may result in changes in care patterns and add further burden on staff to implement work arounds.
Capital Investment Costs: Capital investments also may be strained, especially as hospitals have already invested heavily in expanding capacity to treat patients during the pandemic (e.g., constructing spaces for testing and isolation of COVID-19 patients). One of the areas that has seen the largest increase in prices/shortages is building materials (e.g., lumber). Additionally, a historically large increase in inflation has resulted in increases in interest rates, which may hamper borrowing options and add to overall costs.
Consumer Demand: Higher inflation also may result in decreases in demand for health care services, specifically if inflation exceeds wage growth. Specifically, higher costs for necessities (food, transportation, etc.) could push down demand for health care services and, in turn, dampen hospital volumes and revenues in the long run.
Health care and hospital prices are not driving recent overall inflation increases. The BLS has cited increases in the indices for gasoline, shelter and food as the largest contributors to the seasonally adjusted all items increase. The CPI-U increased 0.8% in February on a seasonally adjusted basis, whereas the medical care index rose 0.2% in February. The index for prescription drugs rose 0.3%, but the hospital index for hospital services declined 0.1%.33
This is consistent with pre-pandemic trends. Despite persistent cost pressures, hospital prices have seen consistently modest growth in recent years. According to BLS data, hospital prices have grown an average 2.1% per year over the last decade, about half the average annual increase in health insurance premiums. (See Figure #7) More recently, hospital prices have grown much more slowly than the overall rate of inflation. In the 12 months ending in February 2022, hospital prices increased 2.1%. In fact, even when excluding the artificially low rates paid to hospitals by Medicare and Medicaid, average annual price growth has still been below 3% in recent years.34
Conclusion
While we hope that our nation is rounding the corner in the battle against COVID-19, it is clear that the pandemic is not over. During the week of April 11, there have been an average of over 33,000 cases per day35 and reports suggest that a new subvariant of the virus (Omicron BA.2) is now the dominant strain in the U.S.36As a result, the challenges hospitals and health systems are currently facing are bound to last much longer.
As COVID-19 infections and hospitalizations are decreasing in some parts of the U.S. and increasing in others, hospitals and health systems continue to care for COVID-19 and non-COVID-19 patients. With additional surges potentially on the horizon, the massive growth in expenses is unsustainable. Most of the nation’s hospitals were operating on razor thin margins prior to the pandemic; and now, many of these hospitals are in an even more precarious financial situation. Regardless of potential new surges of COVID-19, hospitals and health systems continue to face workforce retention and recruitment challenges, supply chain disruptions and exorbitant expenses as outlined in this report.
Hospitals appreciate the support and resources that Congress has provided throughout the pandemic; however, additional support is needed now to keep hospitals strong so they can continue to provide care to patients and communities.
Stanford Health Care and Lucile Packard Children’s Hospital administrators have notified union leaders that its nurse members who strike later in April risk losing pay and health benefits, according to Palo Alto Weekly.
The Committee for Recognition of Nursing Achievement, a union at Stanford Health Care and Stanford Children’s Health that represents about 5,000 nurses, has scheduled a strike to begin April 25. The nurses’ contract expired March 31.
If the strike moves forward, Stanford Health Care and the Lucile Packard Children’s Hospital, both based in Palo Alto, Calif., are prepared to continue to provide safe, quality healthcare, according to a statement from Dale Beatty, DNP, RN, chief nurse executive and vice president of patient care services for Stanford Health Care, and Jesus Cepero, PhD, RN, senior vice president of patient care and chief nursing officer for Stanford Children’s Health.
But the statement, which was shared with Becker’s, said nurses who choose to strike will not be paid for shifts they miss.
“In addition, employer-paid health benefits will cease on May 1 for nurses who go out on strike and remain out through the end of the month in which the strike begins,” Drs. Beatty and Cepero said.
The leaders quoted from Committee for Recognition of Nursing Achievement’s “contingency manual” that the union provided to nurses: “If a strike lasts beyond the end of the month in which it begins and the hospitals discontinue medical coverage, you will have the option to pay for continued coverage.”
Drs. Beatty and Cepero said nurses who strike may pay to continue their health coverage through the Consolidated Omnibus Budget Reconciliation Act.
In a separate statement shared with Becker’s, Committee for Recognition of Nursing Achievement President Colleen Borges called Stanford and Packard management’s move regarding nurses’ health benefits “cruel” and “immoral.”
“Health benefits should not be used against workers, especially against the very healthcare professionals who have made Stanford a world-class health system,” said Ms. Borges, who is also a pediatric oncology nurse at Lucile Packard Children’s Hospital. “We have spent our careers caring for others and putting others first — now more than ever we need solutions that will ensure sustainability, safe staffing and strong benefits to retain nurses. But instead of taking our proposals seriously, hospitals are spending their time and energy weaponizing our medical benefits. We refuse to be intimidated from standing up for the fair contracts that we need in order to continue delivering world-class patient care.”
The union has organized a petition to tell Stanford not to cut off medical benefits for nurses and their families during the strike. As of April 19, the petition had more than 25,150 signatures.
Hospitals’ reliance on travel workers is nothing new. The pandemic intensified it and highlighted the gap between full-time workers’ pay and lucrative temporary contracts.
While the average salary for a travel nurse can vary based on location, regional demand, hospital type and specialty, the compensation for a travel nurse has increased significantly compared to pre-pandemic, Bill Morgan, president of the Orlando, Fla.-based travel nurse staffing firm Jackson Nurse Professionals, toldBecker’s in September.
Meanwhile, hospitals and health systems have offered bonuses, increased wages and made other investments in employee retention for their staff workers. Still, the compensation gap between hospital employed nurses and travel or agency nurses remains stark.
The gap poses the seemingly simple question: Why aren’t hospitals paying full-time staff more instead of paying higher prices for travel workers?
Travel nursing’s start
Taking a look back at the history of why hospitals started using travel nurses in the first place helps answer that question, said Kathy Sanford, DBA, RN, chief nursing officer at Chicago-based CommonSpirit Health.
Dr. Sanford recalls first using local agencies and travel nurses in the 1980s as a cost-effective staffing strategy for periods when the patient census fluctuates, such as during flu epidemics.
“When you have those fluctuations, you need to have a staffing strategy of what you want to do when the census goes up higher than we are staffed for, but it’s only going to last maybe a month, or a little longer,” she told Becker’s. “Because of the fluctuations, our nursing strategy for staffing was to use these non-employed nurses to fill in when there were gaps.”
The COVID-19 pandemic, however, has created a situation where volumes are consistently higher than normal. And while rates for a travel or agency nurse have traditionally been higher than those of a hospital staff nurse, the current demand has pushed travel rates to record highs.
Rising rates
Pittsburgh-based UPMC, for example, paid an estimated $85 an hour for a traveling nurse or a nurse from an agency before the pandemic. The health system is now experiencing rates between $225 and $250 an hour. Such rates have made nurses who may not have considered traveling before take the leap.
“And the nurses are making more, and we don’t fault the nurses for taking advantage of that opportunity. But … now not only are nurses making more, but the agencies have taken the opportunity to triple their profits … and it shouldn’t be permitted during a pandemic, just like we don’t permit building companies to triple the price of lumber after a hurricane. It just shouldn’t be allowed,” said John Galley, chief human resource officer at UPMC.
“Hospitals are all trying to fill the positions that need to be filled to help us get through this crisis with travel nurses, but because there aren’t enough, it becomes a cycle of bidding of who will pay me the most to travel,” Dr. Sanford said. Because of that, many nurses who may have never considered traveling before are now choosing to do so and leaving hospitals in areas of the country with a lower wage index, she said.
Pay for travel nurses has always been higher for the same reasons hospitals pay float pool nurses more, Dr. Sanford explained.
“Nurses are specialists and they work on a particular type of unit, and sometimes one unit’s census will be down and another unit’s census will be up,” she said. Float pool nurses are willing to shift to different units that need help “and it’s not a favorite thing for nurses to do,” Dr. Sanford said. “You have to pay them a little extra to be willing to learn different types of nursing and be willing to float.”
The same line of thinking applies to agency or travel nurses. Travelers don’t have the perks that come with a full-time job, like job security and benefits. That coupled with the burden of travel itself and short-term assignments was the initial justification for why travel nurses had higher rates.
Simply put, hospitals can’t afford to pay full-time staff wages that were meant for temporary assignments.
“The bottom line is it would not be sustainable for hospitals to pay the kind of dollars that they’re paying right now for travel nurses in the long run. Because nurses are our backbone … they’re our heart, but they’re also our backbone. They’re the majority of our staff.” Dr. Sanford said.
Mr. Galley of UPMC echoed that sentiment, noting that salaries and benefits make up about 50 percent of a health system’s entire expenses. “If you were to double a good portion of that — the nursing salaries — you’d completely wipe out any operating margin. Then you wouldn’t be able to invest in anything to keep the hospitals going,” he said.
And healthcare has a lot of costly demands that would go unaddressed if such rates became the expectation for staff nurses.
“There are a lot of needs that healthcare has in technology, and making sure that we have the equipment to take care of patients, and that we can do programs for the poor and vulnerable that we wouldn’t be able to afford if we pay these non-sustainable prices forever,” Dr. Sanford of CommonSpirit said.
The value of in-house agencies
To combat skyrocketing travel nursing costs, some health systems have introduced their own travel agencies, including CommonSpirit and UPMC, where travel nurses work within the system.
Mr. Galley said UPMC started the agency for its 40-hospital system not only to combat the nursing shortage — and attract back nurses the health system has lost to outside travel agencies — but also to address increased rates from outside travel agencies.
Nurses and surgical techs who qualify for UPMC’s in-house agency will earn $85 an hour and $63 an hour, respectively, in addition to a $2,880 stipend at the beginning of each six-week assignment.
Compensation for travel nurses at UPMC is still higher than full-time employees because the job comes with its own set of challenges. While full-time nurses get to know their facilities and have a more regular schedule, travel nurses are constantly on the move.
“They’re going to have assignments for a few weeks at a time at a particular location, then we’re going to pick them up and move them somewhere else, so they’re going to be constantly traveling, living out of a suitcase, and that’s what external travelers do, so we want to be just like the market, create roles like that and pay like that,” Mr. Galley said. “I think our employees understand the difference between that kind of a lifestyle that goes along with the higher salary.”
CommonSpirit’s internal agency plans to start traveling in the early spring and is in the process of hiring a national director for the program. The system’s goal is to have 500 nurses.
Dr. Sanford said the program will be beneficial because it will bring down competition, and people who want to travel can still be employees within the health system.
“It gives nurses who are our employees a choice if they want to be travelers or if they want to do it part time and then come back to a job within one of our hospitals or in one of our clinics. … They won’t lose their benefits, they won’t lose their seniority. They’ll be our employees,” Dr. Sanford said.
Other systems are exploring similar programs, such as Charlotte, N.C.-based Atrium Health, which recently ran a pilot in-house traveler program. The health system has also used outside agencies, which cost about triple compared to pre-pandemic.
“This program was very successful, less expensive than using an external travel agency and worked really well across our large health system that covers multiple states,” said Patricia Mook, MSN, RN, vice president of nursing operations at Atrium Health.
But internal travel programs may not be easy for other health systems to mimic, especially smaller ones. Hospitals have to be of a certain size for an internal travel program to work, meaning an individual hospital wouldn’t be able to have one, Mr. Galley said.
More than that, it’s a complex undertaking, he said.
“It’s not without its challenges,” Mr. Galley said. “I just think it’s something that takes the resources and thought leadership to be able to do. But you’re not going to find independent hospitals being able to mirror this.”
Dr. Sanford also recommends having a few different strategies in place to combat nurse shortages.
“Don’t make it your only strategy because there are so many issues that we could do better with our nursing staff. … You need to be looking at all of the different things that give nurses voice in your organization,” Dr. Sanford said.
While healthcare workers battle burnout, hospitals have been ramping up wages and other benefits to recruit and retain workers. It has created a culture of competition among health systems as well as travel agencies that offer considerably higher pay.
But other healthcare organizations are not hospitals’ only competitors. Some hospitals, particularly those in rural areas, are struggling to match rising employee pay among nonindustry employers such as Target and Walmart.
“We monitor and we’ve been looking and we ask around in the community and we can ask who’s paying what,” Troy Bruntz, CEO of Community Hospital in McCook, Neb., told Becker’s. “So we know where Walmart is on different things, and we’re OK. But if Walmart tried to match what Target’s doing, that would not be good.”
At Target, the hourly starting wage now ranges from $15-$24. The organization is making a $300 million investment total to boost wages and benefits, including health plans. Starting pay is dependent on the job, the market and local wage data, according to NPR.
Walmart raised the hourly wages for 565,000 workers in 2021 by at least $1 an hour, The New York Times reported. The company’s average hourly wage is $16.40, with the lowest being $12 and the highest being $17.
Meanwhile, Costco raised its minimum wage to $17 an hour, according to NPR. The federal minimum wage is $7.25.
Estimated employment for healthcare practitioners and technical occupations is 8.8 million, according to the latest data released March 31 by the U.S. Bureau of Labor Statistics. This includes nurse practitioners, physicians, registered nurses, physician assistants and respiratory therapists, among others.
In sales and related occupations, estimated employment is 13.3 million, according to the bureau. This includes retail salespersons, cashiers and first-line supervisors of retail salespersons, among others.
While retail companies up their wages, at least one hospital CEO is monitoring the issue. Healthcare leaders weigh their options
Mr. Bruntz said rising wages among retailers is an issue his organization monitors. Although Target does not have a store in McCook, there is a Walmart, where pay is increasing.
“I was quoted a few months ago saying Walmart was approaching $15 an hour, and we can handle that,” Mr. Bruntz said. “But when it gets to $20 or $25, it’s going to be an issue.”
He also said he cannot solely increase the wages of the people making less than $15 or less than $25 because he has to be fair in terms of wages for different types of roles.
Specifically, he said he is concerned about what matching rising wages at retailers would mean for labor expenses, which make up about half of the hospital’s cost structure.
“I double that half, that’s 25 percent more expenses instantly,” Mr. Bruntz said. “And how is that going to ratchet to a bottom line anything less than a massive negative number? So it’s a huge problem.”
Clinical positions are not the only ones hospitals and health systems are struggling to fill; they are encountering similar difficulties with technicians and food service workers. Regarding these roles, competition from industries outside healthcare is particularly challenging.
This is an issue Patrice Weiss, MD, executive vice president and chief medical officer of Roanoke, Va.-based Carilion Clinic, addressed during a Becker’spanel discussion April 4. The organization saw workforce issues not just in its clinical staff, but among environmental services staff.
“When you look at what … even fast food restaurants were offering to pay per hour, well gosh, those hours are a whole lot better,” she said during the panel discussion. “There’s no exposure. You’re not walking into a building where there’s an infectious disease or patients with pandemics are being admitted.”
Amid workforce challenges, Community Hospital is elevating its recruitment and retention efforts.
Mr. Bruntz touted the hospital as a hard place to leave because of the culture while acknowledging the monetary efforts his organization is making to keep staff.
He said the hospital has a retention program where full-time employees get a bonus amount if they are at the employer on Dec. 31 and have been there at least since April 15. Part-time workers are also eligible for a bonus, though a lesser amount.
“It also encourages staff [who work on an as-needed basis] to go part-time or full-time, and [those who are] part-time to go full-time,” Mr. Bruntz said. “That’s another thing we’re doing is higher amounts for higher status to encourage that trend.”
Additionally, Community Hospital, which has 330 employees, offers a referral bonus to staff to encourage people they know to come work with them.
“We want staff to bring people they like. [We are] encouraging staff to be their own ambassadors for filling positions,” Mr. Bruntz said.
He said the hospital also will offer employees a sizable market wage adjustment not because of competition from Walmart but because of inflation.
Graham County Hospital in Hill City, Kan., is also affected by the tight labor market, although it has not experienced much competition with retail companies, CEO Melissa Atkins told Becker’s. However, the hospital is struggling with competition from other healthcare organizations, particularly when it comes to patient care departments and nursing. While many hospitals have struggled to retain employees from travel agencies, Graham County Hospital has mostly been able to avoid it.
“As the demand increases, so does the wage,” Ms. Atkins said. “In addition to other hospitals offering sign-on bonuses and increased wages, nurse agency companies are offering higher wages for traveling nurse aides and nurses. We are extremely fortunate in that we have not had to use agency nurses. Our current staff has stepped up and filled in the shortages [with additional incentive pay].”
To combat this trend, the hospital has increased hourly wages and shift differentials, as many healthcare organizations have done. It has also provided bonuses using COVID-19 relief funds.
Overall, Mr. Bruntz said he prefers “not to get into an arms race with wages” among nonindustry competitors.
“It’s not going to end well for anybody. We prefer not to use that,” he said. “At the same time, we’re trying to do as much as possible without being in a full arms race. But if Walmart started paying $25 for a door greeter and cashier, we would have to reassess.”
HENRY KOTULA 