The results of a survey just released by the Chicago-based Kaufman Hall consulting firm confirm in statistics what hospital and health system executives already knew anecdotally: one debilitating impact of the COVID-19 pandemic has been the explosion in hospital labor costs, most especially in the costs of having to engage agency/traveling nurses, which have more than doubled.
As a May 11 press release from Kaufman Hall begins, “A nationwide shortage of healthcare workers made worse by the pandemic, and hospital and health systems’ increased reliance on contract labor, is driving expenses upward and contributing to steep declines in profit margins, according to a new analysis by healthcare consulting firm Kaufman Hall. Labor expenses at U.S. hospitals and health systems increased 37% per patient between 2019 and March 2022 ($4,009 to $5,494 per adjusted discharge). The spike in costs was largely attributable to increased contract labor expenses during the same period, rising from just 2% of total labor expenses in 2019 to 11% in 2022.”
Critically, “Median hourly wages for contract nurses rose a whopping 106% from 2019 to 2022 ($64 in 2019 compared to $132 in 2022), while wages for employed nurses increased 11% over the same period ($35 in 2019 vs. $39 in 2022).”
“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, in a statement contained in the press release. “Skyrocketing labor costs, decreasing patient volume and lower revenues create a perfect storm for steep declines in profit margins. Hospitals now face a number of pressures to attract and retain affordable clinical staff, maintain patient safety, deliver quality services and increase their efficiency.”
The press release went on to note that “Kaufman Hall’s April National Hospital Flash Report shows hospitals’ and health systems’ operating margins were negative for a third consecutive month. The median year-to-date Kaufman Hall Operating Margin Index was -2.43% in March, though the median change in operating margin rose 32.7% over February figures. Analysts sed the healthcare workforce and opened hospitals and health systems up to greater competition from non-hospital employers as wages and inflation rose. The Kaufman Hall report cites data showing one-in-five healthcare workers quit their job during the pandemic, and more than one-third of nurses plan to leave their current role by the end of 2022.”
And the introduction to the report itself notes that “The pandemic and its complex social and economic effects have dislocated the modern workforce, creating an intense and likely long-term problem for employers across industries and for the people who rely on the workforce for important goods and services. In healthcare, the problem is especially profound . During the pandemic, almost 1 in 5 healthcare workers quit their jobs .1 One-third of nurses plan to leave their current roles by the end of 2022, with more than a quarter of those intending to become traveling nurses.2 At the same time, hospitals find themselves competing with non-hospital employers that are aggressively pursuing hourly staff—companies that can pass along wage increases to consumers in the form of higher prices in a way that healthcare organizations cannot . The resulting labor shortages are a top concern for hospitals’ efforts to remain financially stable and to deliver safe, high-quality care.”
Indeed, among the report’s key findings are the following:
Nationally, hospital labor expenses increased by more than one-third from pre-pandemic levels.
The largest increases were in the South and West, while the highest expense levels consistently were in the West and Northeast/Mid-Atlantic.
Contract labor as a percentage of total labor expenses increased more than five times the rate from pre- pandemic levels.
As of March 2022, the median wage rate for contract nurses had risen to more than three times that of employed nurses.
The report goes on to note that, “In the first three months of 2022, hospitals saw dramatic declines in YTD operating margin in a perfect storm of expense, volume, and revenue pressures attributable largely to the effects of COVID These findings suggest that healthcare leaders will need to confront the workforce challenge on multiple levels. Financial plans will need to be reworked to accommodate higher labor expenses moving forward. Recruitment and retention strategies will need to be sensitive to subtly different segments of people and jobs. Real-time data will need to be used to improve process and workforce efficiency. And the nature of work itself will have to be redefined for the new socio-economic environment. For the sake of patients and communities, and for the workers who have given so much of themselves during the unbelievable stress of the pandemic, healthcare executives will need to bring their most flexible attitudes and their most creative thinking to a challenge of great dimension and even greater complexity.”
