Hospital labor expenses up 37% from pre-pandemic levels in March

Dive Brief:

  • 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.

Strike set to begin at Cedars-Sinai

Members of the Service Employees International Union-United Healthcare Workers West are set to begin a weeklong strike May 9 at Cedars-Sinai Medical Center in Los Angeles.

The union represents about 2,000 certified nursing assistants, surgical technicians, sterile processing technicians, transporters, environmental service workers, plant operation workers and food service technicians, according to NBC Los Angeles. Cedars-Sinai Medical Center has about 14,000 employees total.

Union members voted to authorize a strike in April. The union and hospital began negotiating a new labor contract March 21, according to NBC Los Angeles. A hospital spokesperson told the local news outlet that upon the start of negotiations, “Cedars-Sinai presented a strong economic proposal that would have continued our market leading pay by providing substantial pay increases to bargaining unit employees as early as March 27.”

The union contends that in its latest round of bargaining, Cedars-Sinai rejected proposals on PPE stockpiles, COVID-19 exposure notifications, keeping pregnant and immunocompromised workers away from COVID-19 patients and other safety measures. “We’re asking for basic workplace protections and respect for the lives and health of caregivers and patients,” an SEIU-UHW statement reads. 

“We respect the rights of SEIU-UHW members to take this step,” the hospital said in a statement. “The most effective way to reach a fair agreement, however, is for both parties to stay at the bargaining table and finish negotiations.”

Stanford, nurses reach tentative labor deal

Stanford and Lucile Packard Children’s hospitals in Palo Alto, Calif., and the Committee for Recognition of Nursing Achievement reached a tentative agreement on a three-year contract for about 5,000 nurses represented by the union, according to hospital and union statements.

The sides reached the agreement April 29, the fifth day of a strike, and union members approved it May 1. 

“After extensive discussions, we were able to reach consensus on a contract that reflects our shared priorities and enhances existing benefits supporting our nurses’ health, well-being and ongoing professional development,” Stanford said in its latest negotiations update.

With the new agreement, striking nurses will return to work May 3. 

Meanwhile, in a news release shared with Becker’s, the union highlighted parts of the agreement, including improvements it said “ensure high patient acuity is reflected in staffing.”  

The agreement also includes a combined 7 percent base wage increase in 2022 (a 5 percent increase followed by a 2 percent increase) for nurses, 5 percent in 2023 and 5 percent in 2024, as well as funds specifically for mental healthcare of workers, according to the union.

As part of the labor deal, the hospitals also agreed to continue medical benefits for striking nurses without disruption, the union said.

“From day one of our contract negotiations, CRONA nurses have been unified in our goals of improving staffing and making our profession more sustainable,” Colleen Borges, president of CRONA and pediatric oncology nurse at Packard hospital, said in the release. “We stood strong behind our demands for fair contracts that give us the resources and support we need to take care of ourselves, our families and our patients. We are proud to provide world-class patient care — and are glad the hospitals have finally listened to us.”

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, acknowledged on the Stanford negotiations page that reaching an agreement has been challenging.

Now “we can all take pride in this agreement. And we are proud of our team for maintaining continuity of care for our patients,” they said.

More information on negotiations is available here and here.   

More Americans are quitting — and job openings hit record high

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.

7 hospitals laying off workers

Several hospitals are trimming their workforces due to financial and operational challenges, and some are offering affected workers new positions.

1. MetroWest Medical Center in Framingham, Mass., eliminated live interpretation services in April and laid off an undisclosed number of employees, the MetroWest Daily News reported. Hospital leaders said a “minimal number of positions” were eliminated when the hospital ended the services. Workers affected by the layoffs can apply for open positions at the hospital, according to the Daily News

2. Watsonville (Calif.) Community Hospital is preparing to lay off 658 workers, according to a notice filed with the state and shared with Becker’s Hospital Review. The hospital, which filed for Chapter 11 bankruptcy in December, expects the layoffs to occur between May 16 and May 23. Healthcare group Pajaro Valley Health Care District was approved by a bankruptcy judge to purchase the hospital in February after no other qualified bids were submitted. The group needs to gather at least $20 million by July to purchase the hospital, Santa Cruz Sentinel reported April 4. 

3. Memorial Hospital at Gulfport (Miss.) laid off its chief medical officer and vice president of system development in April. Regarding the layoffs, Memorial Hospital at Gulfport CEO Kent Nicaud said the hospital is facing financial challenges, such as increased labor costs, and is aiming to return to an organizational structure it had three or four years ago.

4. Toledo, Ohio-based ProMedica’s health plan, Paramount, is laying off about 200 employees in July after losing a Medicaid contract. Anthem acquired Paramount’s Medicaid contract, and ProMedica and Anthem have been working to identify open roles for employees affected by the layoffs.

5. MarinHealth Medical Center laid off 104 revenue cycle and supply chain employees in April after entering into a contract with Optum to provide those services, according to a notice filed with state regulators in February. Greenbrae, Calif.-based MarinHealth said that as a result of the contract with Optum, all non-contractual revenue cycle and supply chain employees were terminated from employment with the hospital on April 9. Optum offered jobs to most workers affected by the layoffs. Employees who accepted an offer began employment with Optum on the first work day following separation from MarinHealth, a spokesperson for the hospital told Becker’s Hospital Review. 

6. St. Mary’s Medical Center in West Palm Beach, Fla., laid off 49 employees, including 21 registered nurses, when it stopped providing mental health services in April, according to a notice filed with state regulators.

7. NYC Test & Trace Corps, the city’s initiative for COVID-19 testing and contact tracing, ended universal contact tracing in April. NYC Health + Hospitals, which led the program in collaboration with the city’s department of health and other agencies, is planning to lay off 874 workers as a result of the program scaling back, according to a notice filed with state regulators March 4. The health system said affected temporary employees would be laid off at the end of April. Managerial employees affected by the layoffs will have their employment terminated between May 13 and May 27, according to the notice. 

Massive Growth in Expenses and Rising Inflation Fuel Continued Financial Challenges for America’s Hospitals and Health Systems

https://www.aha.org/costsofcaring

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:

  1. Workforce and contract labor expenses
  2. Drug expenses
  3. Medical supply and PPE expenses
  4. Rising economy-wide inflation

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.8 This 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.9 Staffing 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 2020.13 High 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 $3,12024Remdesivir’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.36 As 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.

One-third of hospitals operating with negative margins & 6 other things to know

Hospitals and health systems have lost billions over the last two years, leaving more than 33 percent of them with negative margins, according to an April 25 report by the American Hospital Association.

Six findings:

1. Employment is down by 100,000 jobs compared to pre-pandemic levels, the U.S. Bureau of Labor Statistics found. But at a time when hospitals are desperately trying to fill positions, labor expenses per patient were 19.1 percent higher in 2021 than in 2019. Labor expenses are more than 50 percent of hospitals’ total expenses, meaning a small increase in labor costs can have a major effect on hospital’s total expenses and operating margins. 

2. The report attributed the increase in labor expenses to hospitals’ dependence on contract staff, specifically nurses. In 2019, travel nurses accounted for a median of 4.7 percent of hospitals’ total nurse labor expenses, compared to a median of 38.6 percent in January.

3. Hourly billing rates for contract employees rose 213 percent compared to pre-pandemic levels. This created a 62 percent profit margin for staff agencies.

4. Drug expenses soared by 36.9 percent per patient compared to pre-pandemic levels. 

5. Medical supply expenses also rose through 2021, by 20.6 percent, compared to pre-pandemic levels. For intensive care units and respiratory care departments — which were most involved in COVID-19 care — medical supply expenses grew 31.5 percent and 22.3 percent, respectively.

6. Economywide, the consumer price index saw major increases, the Bureau of Labor Statistics found. Meanwhile, hospital prices rose modestly, by an average of 2.1 percent per year in the last decade, about half the average annual increase in health insurance premiums. 

Stanford Health Care to nurses: No pay for those who strike

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.

Sutter Health: Nurses who staged 1-day strike must wait 5 days to return to work

Sacramento-based Sutter Health said nurses who went on strike April 18 will not be allowed to return to work until the morning of April 23, the San Francisco Chronicle reported.

The strike affected nurses and healthcare workers at Sutter Health facilities in Northern California. The nurses are members of the California Nurses Association, and the other workers are members of the Caregivers and Healthcare Employees Union, an affiliate of the California Nurses Association.

More than 8,000 registered nurses and healthcare workers were expected to participate in the strike, according to an April 18 news release from the unions.

In a statement shared with Becker’s, Sutter Health said the organization conducted strike contingency planning, which included “securing staff to replace nurses who have chosen to strike, and those replacement contracts provide the assurance of five days of guaranteed staffing amid the uncertainty of a widespread work stoppage.” 

“As always, our top priority remains safe, high-quality patient care and nurses may be reinstated sooner based on operational and patient care needs,” the statement said.

The California Nurses Association described Sutter Health’s decision as retaliatory, as well as “completely unnecessary and vindictive.”

“Nurses who are regularly scheduled to work during this lockout period will lose those days of pay,” the union said in a statement shared with Becker’s. “We urge Sutter to respect the nurses’ strike and let all nurses return to work.”

Sutter Health workers authorized a strike in March, and union officials announced an official strike notice April 8. Union members cited lack of transparency about the stockpile of personal protective equipment supplies and contact tracing as a reason for the strike. They also said they seek a contract that will help retain experienced nurses and provide sufficient staffing and training.

Nurses have been in contract negotiations since June. 

Don’t pin your hopes on the “Great Regret”

Businesses who suffered from the Great Resignation, in which large numbers of workers voluntarily resigned during the pandemic looking for more fulfilling work or higher wages, are now hoping the “Great Regret” might bring workers back. According to recent surveys, over 70 percent of workers who switched employment during the pandemic found that their new jobs didn’t live up to their expectations, and nearly half wish they had their old job back.

After scores of nurses left hospital positions for travel roles, health system leaders are seeing some nurses return. One physician told us about a favorite nurse on his oncology unit who returned from over a year as a traveler, ready to settle down and be closer to family.

A chief nursing officer relayed that her system was seeing nurses who took agency positions to work toward personal financial goals, like earning a down payment for a house, wanting to come back now that they’ve reached it: “Travel roles are intense, and most nurses can’t do them forever”.

But other nursing leaders caution that they’re preparing for agency nurses to become a permanent fixture in the workforce: “More nurses will see travel as an option for different points in their career, when they have personal flexibility or need the extra money”.

The “Great Regret” might help some hospitals lessen their reliance on agency nursing in the short-term. But building a stable clinical workforce will require addressing underlying structural challenges, through changes in education, rethinking job roles and care models, and finding ways to build individualized job flexibility and customization.