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Labor, Medications, And Supply Costs Plague Hospitals And Health Systems

Analysis  |  By Amanda Schiavo  
   May 05, 2022

Even small increases in labor costs can have consequential impacts on a hospital's total expenses and operating margins.

More than two years into the COVID-19 pandemic and hospitals and health systems are still burdened by financial challenges caused by inflation and a rise in workforce expenses, medications, medical supplies, and other equipment needed to serve patients.

The American Hospital Association has analyzed the rising hospital and healthcare input costs and the challenges these organizations are continuing to face as their resources are strained and the industry hemorrhages workers. There has been close to a 120% increase in job posts for contract and traveling nurses since before the pandemic, according to research from EMSI/Burning Glass. The AHA report found that even small increases in labor costs can have consequential impacts on a hospital's total expenses and operating margins.

Hospital employment has decreased by 100,000 since before COVID hit, according to data from the U.S. Bureau of Labor Statistics, cited in the AHA report. But labor expenses per patient grew by 19.1% through 2021, when compared to 2019, according to the AHA data. Labor costs—costs associated with recruiting and retaining employed staff, benefits, and incentives—make up over 50% of a hospital's total costs.

"While we have made great progress in the fight against the virus, this report shows that we are not out of the woods yet when it comes to addressing the need to repair and rebuild our hospitals," Rick Pollack, president and CEO of the AHA said in a release."The dramatic rise in costs of labor, drugs, supplies, and equipment continues to put enormous pressure on our ability to provide care to our patients and communities."

One of the largest costs hospitals and health systems must deal with is one of the main medicines used to treat COVID-19: Remdesivir. The average price of this drug is $3,120 per patient, according to the AHA report. Initially, this drug was covered by the federal government, but now hospitals must reach into their own coffers to directly cover the cost.

Hospitals and health systems are also struggling with costs related to medical supplies, which account for 20% of hospital expenses, according to the AHA.  

"The pandemic has clearly demonstrated that America cannot be strong without its hospitals and health systems being strong," Pollack continued. "We continue to urge Congress to provide additional support to address these challenges, including reversing harmful Medicare cuts, replenishing the Provider Relief Fund, granting flexibility on accelerated and advanced Medicare repayments, and extending or making permanent critical waivers that have improved patient care."


Amanda Schiavo is the Finance Editor for HealthLeaders.

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