CFOs Need Sustainable Workforce Planning to Address Rising Labor Costs

Hospital labor costs continue to climb, posing persistent margin pressure. For CFOs, short-term fixes are no longer enough.

: Recent data from the Kaufman Hall “National Hospital Flash Report,” says what many in the C‑suite have long feared: Labor costs remain stubbornly high and are steadily rising across nearly every region and hospital size.

In September, labor expenses per day rose 2% month‑over‑month and 5% year‑over‑year. On a year-to-date basis, costs sit 5% above 2023.

For CFOs, this is not just a short-term staffing shock; it is a structural financial challenge that demands long-term strategic planning, not reactive firefighting.

A Structural Challenge

Labor remains the single biggest line item in hospital spending. According to a recent report from the American Hospital Association (AHA), total compensation and related labor expenses now account for about 56%–60% of all hospital costs.

Between 2021 and 2023, hospitals absorbed more than $42.5 billion in additional labor costs. Over that same period, numerous hospitals turned to expensive contract staffing firms to fill persistent workforce gaps, which only added pressure on margins.

Even as contract‑labor usage moderates from pandemic peaks, the cost level remains high, and this especially goes for smaller or rural hospitals where staffing pools are limited.

Meanwhile, wage growth has consistently outpaced inflation. For example, advertised salaries for registered nurses have increased well beyond general economic inflation over recent years.

In short: labor inflation is no longer episodic — it’s ambient. For CFOs, treating it as a “short-term problem” is no longer viable.

For CFOs

With more than half of operating expenses tied to labor (and rising), any margin plan must account for sustained cost escalation. Even modest wage upticks, contract‑labor premiums, or overtime costs could potentially erode operating profits very quickly, especially for larger health systems where volume and acuity are high.

As costs rise, reimbursement (especially from payers) rarely keeps up. The AHA notes that Medicare and Medicaid payments have lagged behind inflation, creating a widening gap between cost and reimbursement.

That dynamic increases the urgency for CFOs to control costs internally, since external revenue levers may provide only small instances of relief.

Lastly, smaller hospitals (under 25 beds), with limited staff pools and fewer operational levers, recorded 5% year-over-year labor cost increases. For these organizations, even small wage increases or shortages can destabilize entire operations.

Mid‑size hospitals, too, are squeezed: they feel the competition for talent but lack the negotiating power of large systems. For many, long-term survival may hinge on alliances, shared services, or even consolidation.

Strategic Long-Term Workforce Sustainability

Given these pressures, CFOs must shift from short-term cost containment toward sustainable workforce and operational strategies, which should include:

• Investing in retention, internal talent pipelines, and training. Reducing reliance on expensive contract labor begins with building and retaining in-house talent. Investing in learning and development and leadership training can help reduce premium pay and turnover.
• Restructuring care and staffing models. Consider alternative scheduling (e.g., more flexible shift structures), task-shifting (delegating non-clinical tasks to lower-cost staff), and leveraging roles like nursing assistants or scribes to absorb functions that don’t require highly trained clinicians.
• Leveraging technology and automation where feasible. As workforce and operational pressures intensify, many CFOs are exploring technology‑driven solutions to help manage staffing and reduce labor overhead.
• Exploring strategic consolidation, shared-services models, and networked staffing. For smaller or rural hospitals especially, aligning with larger systems, or pooling services like staffing, supply chain, and administrative functions may enable economies of scale and more stable cost structures.
• Embedding labor-cost forecasts into strategic financial planning. Given the consistent 4%–6% annual cost growth, CFOs should bake sustained labor inflation into multi-year capital planning, debt service assumptions, and expansion strategies. This gives more clarity around labor costs rather than assuming a return to pre‑pandemic cost structures.