The repercussions of national labor shortages are rippling throughout healthcare.
While the industry has endured shortages on and off for decades in key clinical positions, such as nurses and physicians, broader shortages spurred by the pandemic, inflation, and other economic forces have magnified the challenges in recent years.
The results include high labor expenses that are pressuring operating margins and creating significant financial instability for many providers. Healthcare leaders nationwide are wrestling with how to adapt to an increasingly tight labor market and a new normal of near-term rising costs.
In a new Syntellis survey,1 U.S. healthcare finance leaders cited their top priorities as:
- Workforce optimization and productivity monitoring
- Managing and reducing costs
Looking ahead to 2023, respondents identified employed and contract labor costs as the primary expenses most likely to keep them up at night, and it’s not hard to see why.
Hospital Pay Rates Rise
Hospitals nationwide are feeling the pains of rising labor costs and a shrinking labor pool. Intense competition for qualified healthcare professionals combined with steep inflation have caused many organizations to raise salaries and wages.
Hourly pay for hospital workers steadily climbed over the past few years, according to a recent report from Syntellis and the AHA, which analyzed data from more than 1,300 U.S. hospitals and health systems. The median hourly rate for hospital workers (including contract and employed workers) rose to a new high up 14% in the second quarter of this year compared to the first quarter of 2019.
These growing costs have led hospital leaders in many states to lay off employees.2 For example, Bozeman Health in Montana announced in August that it laid off 28 leaders and won’t fill another 25 open leadership positions.3 In May, St. Charles Health System in Oregon planned to cut 181 positions, due in part to skyrocketing labor expenses.4
Some have raised concerns that reduced staffing jeopardizes patient care. In mid-September, the Minnesota Nurses Association cited patient care concerns from understaffing in a three-day strike involving 15,000 nurses from 15 hospitals. It was the largest strike of private sector nurses in U.S. history.5
Yet even extreme efforts aren’t enough to bring operating margins into the black.
Shortages Hit Margins, Labor Expenses
Operating margins have remained down nationwide throughout 2022 as hospitals battle increasingly high expenses. Compared to August 2021, the absolute change in Operating Margin dropped -2.9 percentage points in August after falling -7.6 percentage points in July.
Additionally, labor expense increases have outpaced non-labor increases over the past 12 months. Compared to August 2021, Labor Expense per Adjusted Patient Day peaked during the Omicron surge in January, jumping 16.8%. The rate of increases has lessened in the months since, but the metric remained up 6.8% in August 2022 compared to the same baseline.
Contract Labor Costs Easing
After several months of high contract labor costs significantly contributing to rising expenses, organizations are finally feeling some relief. Contract labor costs spiked in the beginning of this year but have softened in the ensuing months.
The median Contract Hourly Rate for Emergency Department personnel, for example, peaked at $56.17 above August 2021 rates in April 2022. By August 2022, those rates had decreased more than $41 per hour.
Data and Analytics Offer Solutions
As healthcare leaders work to cope with rising expenses, robust data and analytics tools offer an advantage. An analysis of 180 organizations that use Axiom™ Comparative Analytics shows they are more successful in controlling margin declines, labor cost increases, and contract hours.
Hospitals that use Syntellis’ Axiom Comparative Analytics have a 1 percentage point higher Operating Margin — they experienced -1.3 percentage point decrease in Operating Margins over the past 12 months compared to a -2.3 percentage point decrease for non-users. Looking at expenses, Comparative Analytics users had a 6.8% increase in Labor Expense per Adjusted Patient Day versus an 8.9% increase for non-users.
Many unknowns remain about the future course of the labor market and its long-term impacts. As these results illustrate, having sound recent data and analytics is essential to helping healthcare leaders identify cost drivers and model potential scenarios to inform decisions and set organizations on the best path forward.
1 Syntellis: 2023 Healthcare CFO Outlook Survey
Steve Wasson is General Manager, Data & Intelligence Solutions at Syntellis Performance Solutions, where he directs the data and intelligence strategy and leads the teams overseeing Syntellis’ ever-expanding data footprint. With a focus on innovation, Steve drives how our portfolio and our customers accelerate value through data, artificial intelligence, and machine learning.
Steve has been a central figure in leveraging data as a strategic asset for over 25 years, previously serving as SVP and General Manager, Connected Analytics & Capacity Management at Change Healthcare and Vice President of Clinical Solutions at RelayHealth. He has led businesses through significant transformation and growth while delivering differentiating solutions and has applied the power of data across various sectors, with a primary focus on healthcare technology.
Steve holds a B.S. in Economics from Bloomsburg University of Pennsylvania and an Executive M.B.A. from San Diego State University.