Addressing the education pipeline is one thing that legislators could focus on to improve nurse and physician shortages, medical school and health system leaders said.
As the healthcare industry continues to face pandemic-driven workforce challenges, lawmakers are exploring ways to boost the number of clinicians practicing in the U.S.
“A shortage of healthcare personnel was a problem before the pandemic and now it has gotten worse,” Chairman Sen. Bernie Sanders I-Vt., said during a Thursday Senate HELP committee hearing. “Health care jobs have gotten more challenging and, in some cases, more dangerous,” he said.
Hospitals are currently facing shortages of registered nurses as burnout and other factors drive them to other roles.
For example, 47-hospital system Ochsner Health in New Orleans has about 1,200 open nursing positions, Chief Academic Officer Leonardo Seoane said at Thursday’s hearing.
The workforce shortaged led Ochsner to close about 100 beds across its system during the past six months, leading to it use already-constrained emergency departments as holding bays for patients, he said.
Like other systems, labor costs have also been a concern due to a continued reliance on temporary staff to fill gaps. Ochsner’s non-agency labor costs grew just under 60% since 2019, while its costs for contract staff grew nearly 900%, he said.
“Our country is perilously short of nurses, and those we do have are often not working in the settings that could provide the most value,” Sarah Szanton, dean of Johns Hopkins School of Nursing said.
“This was true before the pandemic and has become more acute,” she said.
While many nurses left permanent roles for higher-paying contract positions during the pandemic, others have turned to jobs at outpatient clinics, coinciding with a shift toward non-hospital based care.
Registered nurse employment is nearly 5% above where it was in 2019, with nearly all that growth occurring outside of hospitals, Douglas Staiger, a professor of economics at Dartmouth College, found in his research and said at the hearing.
One major concern: Driving current and projected shortages in hospitals that lawmakers can address is the educational pipeline, medical school and health system leaders said.
Educational programs for nurses and physicians face site shortages and educators who are often allured by other higher-paying jobs in the industry.
Supporting partnerships between universities and hospitals to create more training opportunities is another way Congress can help, along with addressing high costs of tuition, James Herbert, president of University of New England, said during the hearing.
“Scholarship and loan repayment programs are critical to make healthcare education more accessible for those who would otherwise find it out of reach,” Herbert said.
That includes expanding and improving Medicare-funded physician residencies, he said.
Creating a more diverse workforce that looks more like the population it serves is another important task, and one lawmakers can address by supporting historically black colleges and universities.
Federal funding could help improve classrooms and other infrastructure at HBCUs “that have been egregiously are underfunded for decades,” in addition to expanding Medicare-funded residencies for hospitals that train a large number of graduates for HBCU medical schools, said James Hildreth Sr., president and CEO at Meharry Medical College in Nashville.
The American Hospital Association submitted a statement to the HELP subcommittee and said it also supports increasing the number of residency slots eligible for Medicare funds and rejecting cuts to curb long-term physician shortages.
Other AHA supported policies to address current and long-term workforce shortages include better funding for nursing schools and supporting expedited visas for foreign-trained nurses.
AHA also asked lawmakers to look into travel nurse staffing agencies, reviving requests it made last year alleging that staffing companies engaged in price gouging during the pandemic.
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.
It’s been a difficult year for the hospital workforce, both here and around the world, as the effects of the pandemic, the economy, and the legacy of lean staffing models have combined to drive up vacancy rates and threaten the sustainability of hospital operations.
Everywhere we’ve gone in the past six months, workforce issues have overshadowed every other topic: how can hospitals attract and retain staff given the environment, how can they stabilize finances in the face of 15-20 percent increases in labor costs, how can they safeguard patient care with intense turbulence in the clinical workforce?
This week we heard yet another wrinkle to this problem, one that had not occurred to us but in retrospect is obvious. A system CFO was lamenting the fact that even with big salary increases, the hospital workforce remains unstable. “It’s like we’re not even getting credit for raising base salary 15 percent across the board and giving big retention bonuses.”
As to why—it’s a timing issue. Her system, like many, delivered pay raises back in the late winter and early spring, when staff were still recovering from the Omicron surge and the urgency of reducing reliance on expensive agency labor became clear. But economy-wide inflation had only then begun to spike, and has since continued to be stuck at high levels.
Staff don’t view the earlier salary increases as a response to inflation, but as predating it—and they’re asking for still more, to offset rising prices for food, transportation and housing. “I wish we’d waited to give the pay bump,” the CFO told us. “Even though our wage increases have outpaced inflation this year, the timing of events didn’t help us at all.”
With the hospitals operating near capacity, and a severe flu season impacting both patient volumes and staff availability, her sense is that the system is back to square one on staffing—and more difficult financial decisions lie ahead.
Members of the California Nurses Association have reached a tentative agreement with Kaiser Permanente, averting a planned two-day strike by more than 21,000 registered nurses and nurse practitioners in Northern California.
Both sides announced the tentative agreement Nov. 17.
Union members at Kaiser Northern California facilities have been in negotiations since June, according to a CNA news release. Registered nurses and nurse practitioners in Northern California were set to strike Nov. 21 and Nov. 22.
The four-year tentative deal boosts wages for Northern California nurses by 22.5 percent over the life of the contract, according to a statement Oakland, Calif.-based Kaiser shared with Becker’s. Kaiser had previously proposed 21.25 percent in wage increases over four years.
“The tentative agreement is driven by the changing economy, including inflation, significant changes in the marketplace and our commitment to providing our employees with excellent pay and benefits to attract and retain the best nurses,” Kaiser’s statement says.
According to both sides, the tentative agreement also includes:
An agreement to add more than 2,000 new registered nurse and nurse practitioner positions.
Increased tuition reimbursement for nurses’ education.
The creation of a new regional equity, diversity and inclusion committee.
Language including agreement that healthcare is a human right.
“We are very pleased with this new contract, which will help us recruit new nurses and retain experienced RNs and nurse practitioners,” CNA President Cathy Kennedy, RN, said in a news release. “We not only won the biggest annual raises in 20 years, but we have also added more than 2,000 positions across our Northern California facilities. This will ensure safe staffing and better patient care.”
Ms. Kennedy also praised Kaiser’s commitment “to a workplace that is free from racism and discrimination” and the health system’s agreement “that we must fight racial and ethnic disparities in healthcare outcomes.”
“The tentative agreement honors our Northern California nurses with a market-based economic package that accounts for inflation, accelerates our investments in staffing, and addresses workplace safety, diversity and equity, remote work, and other key matters in a way that is sustainable and benefits our members and patients as well,” Kaiser’s statement reads.
Union members in Northern California will vote on approving the new four-year contract over the next few weeks. Registered nurses at Kaiser Permanente Los Angeles Medical Center also reached a tentative agreement and will vote on the deal Nov. 22.
“A few months ago, I was confident we would be able to wean our system off travel nurses. But now I’m not so sure,” a chief nursing officer recently shared with us. Like most health systems, they had seen their use of agency nurses decline from peaks during the Delta and Omicron waves of the pandemic, and were encouraged by anecdotes of nurses returning to staff after stints as travelers. But today they remain “persistently stuck with a quarter of the agency nurses we needed at the peak”.
Seeing nurses returning from travel roles makes sense. It’s naturally a time-limited job—eventually the desire to be home wins out over the earning potential on the road. But another nursing leader shared his fear that a stint as a traveler could become an expected part of the arc of a nurse’s career. And from a hospital operations perspective, agency nursing needs are no longer connected to COVID, but are instead driven by general capacity needs in a tight labor market, keeping the operating rooms, emergency department, and ICUs open.
Health systems and physician groups continue to face labor costs that are up to 40 percent higher than 2019. A permanent need for agency nurses will frustrate efforts to rein in labor costs, through both the dollars spent on premium labor, and the resulting need to boost staff nurse salaries when a portion of their colleagues’ pay is anchored at the “traveling rate”.
About 15,000 nurses in Minnesota walked off the job Monday to protest understaffing and overwork — marking the largest strike of private-sector nurses in U.S. history.
Slated to last three days, the strike spotlights nationwide nursing shortages exacerbated by the coronavirus pandemic that often result in patients not receiving adequate care. Tensions remain high between nurses and health-care administrators across the country, and there are signs that work stoppages could spread to other states.
Minnesota nurses charge that some units go without a lead nurse on duty and that nurses fresh out of school are delegated assignments typically held by more experienced nurses, across some 16 hospitals where strikes are expected.
The nurses are demanding a role in staffing plans, changes to shift scheduling practices and higher wages.
“I can’t give my patients the care they deserve,” said Chris Rubesch, the vice president of the Minnesota Nurses Association and a nurse at Essentia Health in Duluth. “Call lights go unanswered. Patients should only be waiting for a few seconds or minutes if they’ve soiled themselves or their oxygen came unplugged or they need to go to the bathroom, but that can take 10 minutes or more. Those are things that can’t wait.”
Paul Omodt, a spokesman for the Twin Cities Hospital Group, which represents four hospital systems where nurses are striking in the Minneapolis-St. Paul area, said that the nurses union did not do everything it could to avoid a strike.
“Nurses have steadfastly refused to go to mediation,” Omodt said. “Their choice is to strike. This strike is on the nurses.”
Conny Bergerson, a spokeswoman for Allina Health, another hospital system in the Twin Cities where nurses are on strike, said “rushing to a strike before exhausting all options such as engaging a neutral federal mediator does not benefit our employees, patients or the communities we serve.”
The Minnesota Nurses Association, the nurses union, said hospital administrators have continued to “refuse solutions” on understaffing and safety in contract negotiations. It said nurses have increasingly been asked to take on more patients for bedside care to make up for labor shortages, exacerbating burnout and high turnover.
Some hospitals have offered increased safety protocols for reporting security incidents in negotiations, but have not budged on other safety- and staffing-related demands.
The union has proposed new mechanisms for nurses to have a stronger say in how wards are staffed, including a committee made up of nurses and management at each hospital that would determine appropriate staffing levels. It has also proposed protections against retaliation for nurses who report understaffing. Striking nurses at some hospitals said their shifts are often short five to 10 nurses, forcing nurses to take on more patients than they can handle.
Omodt said that while there was a rise in understaffing reports during the height of covid, conditions have improved, and nurses have made contradictory claims when it comes to staffing at their hospitals since then.
In the lead-up to the strike, Minnesota hospital groups filed unfair labor practices charges against the union for refusing to go to mediation, and asked the National Labor Relations Board to block the strike for a failure to provide enough notice. The NLRB has thrown out at least some of those charges.
Hospitals facing strikes have been recruiting traveling nurses from across the region and plan to maintain staffing levels during the strike, though they are preparing for reduced operations, according to some of the hospital groups facing strike activity.
For years, hospitals in the United States have faced understaffing problems. A surge in demand and increased safety risks for nurses during the pandemic accelerated those trends. The number of health-care workers in the United States has still not recovered to its pre-pandemic levels, down 37,000 workers compared with February 2020.
At the same time, demand for health-care services has steadily increased during the pandemic, with a backlog of people who delayed care now seeking medical attention. During the covid wave that swept across the United States this summer, states such as New York and Florida reported the worst nursing shortages in decades. Research shows that patients are more likely to die because of preventable reasons when health-care providers are overworked.
Nurses, who risked their lives during the pandemic, are quitting and retiring early in droves, because of increased workloads caused by short staffing and demanding schedules that make finding child care and having a life outside of work exceedingly difficult. The understaffing crisis is pronounced in Minnesota in part because of its aging population and its record low unemployment rate.
There are some signs that nurse- and other health-care-worker strikes could spill over to other states in the coming weeks. Four thousand nurses with the Michigan Nurses Association voted earlier this month to authorize a strike related to understaffing concerns, and 7,000 health-care workers in Oregon have also authorized a work stoppage. University of Wisconsin nurses narrowly averted a strike this week. Therapists and clinicians in Hawaii and California are currently in the fourth week of what has become the longest-running mental health care strike, over inadequate staffing levels.
In Minnesota, the Minnesota Nurses Association recorded a 300 percent increase in nurses’ reports of unsafe staffing levels on their shifts since 2014, up to 7,857 reports in 2021.
Kelley Anaas, 37, a nurse who works in the ICU at Abbott Northwestern in Minneapolis said nurses in her unit have been forced to double up on patient assignments and work with lead nurses who have less than a year of experience.
“It eats away at you. If that was my family member in that bed, I wouldn’t want to leave their side,” said Anaas, adding that her workload has increased steadily over her 14 years at Abbott Northwestern.
While the nurses say their main impetus for striking is staffing levels and not pay, they are also at odds with hospitals over wages. The Minnesota Nurses Association has proposed a 30 percent pay increase over the next three years, noting inflation is at a 40-year high, while health-care groups have proposed a pay increase of 10 to 12 percent.
“The union’s wage demands remain at 29 and 30 percent increases over three years, which we’ve told them is unrealistic and unaffordable,” Omodt said, noting that the average Minnesota nurse makes $80,960 a year.
Contracts expired in May and June, and the union has been in negotiations since March.
Nurses said they are frustrated the strike is happening, but the stakes are high for them and their patients.
“We’re really sad and disappointed that it has come to a strike,” said Brianna Hnath, a nurse at North Memorial in Robbinsdale. “But we feel like this is the only thing we can do to show administration how incredibly important a strong nursing core is to a hospital. Hospitals tell us it’s our fault, but we’ve been actively involved and getting nowhere.”
Working as a travel nurse in the early days of the Covid pandemic was emotionally exhausting for Reese Brown — she was forced to leave her young daughter with her family as she moved from one gig to the next, and she watched too many of her intensive care patients die.
“It was a lot of loneliness,” Brown, 30, said. “I’m a single mom, I just wanted to have my daughter, her hugs, and see her face and not just through FaceTime.”
But the money was too good to say no. In July 2020, she had started earning $5,000 or more a week, almost triple her pre-pandemic pay. That was the year the money was so enticing that thousands of hospital staffers quit their jobs and hit the road as travel nurses as the pandemic raged.
Two years later, the gold rush is over. Brown is home in Louisiana with her daughter and turning down work. The highest paid travel gigs she’s offered are $2,200 weekly, a rate that would have thrilled her pre-pandemic. But after two “traumatic” years of tending to Covid patients, she said, it doesn’t feel worth it.
“I think it’s disgusting because we went from being praised to literally, two years later, our rates dropped,” she said. “People are still sick, and people are still dying.”
The drop in pay doesn’t mean, however, that travel nurses are going to head back to staff jobs. The short-lived travel nurse boom was a temporary fix for a long-term decline in the profession that predates the pandemic. According to a report from McKinsey & Co., the United States may see a shortage of up to 450,000 registered nurses within three years barring aggressive action by health care providers and the government to recruit new people. Nurses are quitting, and hospitals are struggling to field enough staff to cover shifts.
Nine nurses around the country, including Brown, told NBC News they are considering alternate career paths, studying for advanced degrees or exiting the profession altogether.
“We’re burned out, tired nurses working for $2,200 a week,” Brown said. People are leaving the field, she said, “because there’s no point in staying in nursing if we’re expendable.”
$124.96 an hour
Travel nursing seems to have started as a profession, industry experts say, in the late 1970s in New Orleans, where hospitals needed to add temporary staff to care for sick tourists during Mardi Gras. In the 1980s and the 1990s, travel nurses were often covering for staff nurses who were on maternity leave, meaning that 13-week contracts become common.
By 2000, over a hundred agencies provided travel contracts, a number that quadrupled by the end of the decade. It had become a lucrative business for the agencies, given the generous commissions that hospitals pay them. A fee of 40 percent on top of the nurse’s contracted salary is not unheard of, according to a spokesperson for the American Health Care Association, which represents long-term care providers.
Just before the pandemic, in January 2020, there were about 50,000 travel nurses in the U.S., or about 1.5 percent of the nation’s registered nurses, according to Timothy Landhuis, vice president of research at Staffing Industry Analysts, an industry research firm. That pool doubled in size to at least 100,000 as Covid spread, and he says the actual number at the peak of the pandemic may have far exceeded that estimate.
By 2021, travel nurses were earning an average of $124.96 an hour, according to the research firm — three times the hourly rate of staff nurses, according to federal statistics.
That year, according to the 2022 National Health Care Retention & RN Staffing Report from Nursing Solutions Inc., a nurse recruiting firm, the travel pay available to registered nurses contributed to 2.47% of them leaving hospital staff jobs.
But then, as the rate of deaths and hospitalizations from Covid waned, the demand for travel nurses fell hard, according to industry statistics, as did the pay.
Demand dropped 42 percent from January to July this year, according to Aya Healthcare, one of the largest staffing firms in the country.
That doesn’t mean the travel nurses are going back to staff jobs.
Brown said she’s now thinking about leaving the nursing field altogether and has started her own business. Natalie Smith of Michigan, who became a travel nurse during the pandemic, says she intends to pursue an advanced degree in nursing but possibly outside of bedside nursing.
Pamela Esmond of northern Illinois, who also became a travel nurse during the pandemic, said she’ll keep working as a travel nurse, but only because she needs the money to retire by 65. She’s now 59.
“The reality is they don’t pay staff nurses enough, and if they would pay staff nurses enough, we wouldn’t have this problem,” she said. “I would love to go back to staff nursing, but on my staff job, I would never be able to retire.”
The coronavirus exacerbated issues that were already driving health care workers out of their professions, Landhuis said. “A nursing shortage was on the horizon before the pandemic,” he said.
According to this year’s Nursing Solutions staffing report, nurses are exiting the bedside at “an alarming rate” because of rising patient ratios, and their own fatigue and burnout. The average hospital has turned over 100.5% of its workforce in the past five years, according to the report, and the annual turnover rate has now hit 25.9%, exceeding every previous survey.
There are now more than 203,000 open registered nurse positions nationwide, more than twice the number just before the pandemic in January 2020, according to Aya Healthcare.
An obvious short-term solution would be to keep using travel nurses. Even with salaries falling, however, the cost of hiring them is punishing.
LaNelle Weems, executive director of Mississippi Hospital Association’s Center for Quality and Workforce, said hospitals can’t keep spending like they did during the peak of the pandemic.
“Hospitals cannot sustain paying these exorbitant labor costs,” Weems said. “One nuance that I want to make sure you understand is that what a travel agency charges the hospitals is not what is paid to the nurse.”
Ultimately, it’s the patients who will suffer from the shortage of nurses, whether they are staff or gig workers.
“Each patient added to a hospital nurse’s workload is associated with a 7%-12% increase in hospital mortality,” said Linda Aiken, founding director of the University of Pennsylvania’s Center for Health Outcomes and Policy Research.
Nurses across the country told NBC News that they chose the profession because they cared about patient safety and wanted to be at the bedside in the first line of care.
“People say it’s burnout but it’s not,” Esmond said about why nurses are quitting. “It’s the moral injury of watching patients not being taken care of on a day-to-day basis. You just can’t take it anymore.”
Members of the Michigan Nurses Association are accusing the University of Michigan of unlawfully refusing to negotiate over nurses’ workloads in its bargaining with the University of Michigan Professional Nurse Council.
The union, an affiliate of National Nurses United and AFL-CIO, represents about 13,000 registered nurses and healthcare professionals in Michigan, including workers employed by the University of Michigan. The University of Michigan regents hold the contract with the University of Michigan Professional Nurse Council, the largest bargaining unit of the Michigan Nurses Association.
A total of 6,200 University of Michigan Health nurses have been working without a new contract since July 1, and they are working under the terms of the expired agreement, according to hospital and union statements. The University of Michigan Health, the clinical division of Ann Arbor-based Michigan Medicine, told Becker’s in a statement that during negotiations, it has offered a 21 percent base pay increase for nurses over the life of the contract, as well as a new salary step program for nurse practitioners and the safe elimination of mandatory overtime.
The union contends the University of Michigan has refused to bargain over safe workloads regarding the number of patients assigned per nurse, which it says is tied directly to nurses’ patient safety concerns. As a result, it filed a lawsuit Aug. 15 in the Michigan Court of Claims.
“When nurses are forced to take care of too many people at once, patient care gets compromised and nurses are put in danger of injury or burnout, and that’s happening far too often at our hospital,” said Renee Curtis, RN, president of the University of Michigan Professional Nurse Council, said in a news release.
“University of Michigan Health makes staffing determinations with patient safety at the forefront of its decisions, and this has produced outstanding safety results,” the health system said in its statement. “The health system continuously receives recognition as Michigan’s safest hospital with recent recognitions by top agencies.”
University of Michigan Health also said it “plans to vigorously defend itself” against the union lawsuit.
Hospitals are experiencing significant increases in expenses for workforce, drugs and medical supplies
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
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.