Healthcare Labor Shortage, Especially of Nurses, Continues to Strain Hospital Profitability

The trend is likely to continue into 2022, as patient acuity in both COVID-19 and non-COVID cases rises, new report says.

An ongoing shortage of hospital workers, particularly nurses, caused by the surge of the Delta variant, will place additional strain on not-for-profit hospitals' profitability in the long run, says a new report released by Moody's Investors Service.

Some hospitals have lost revenue by suspended elective overnight surgeries due to COVID cases and insufficient staffing, the report says.

"Over the next year, we expect margins to decline given wage inflation, use of expensive nursing agencies, increased recruitment and retention efforts, and expanded benefit packages that include more behavioral health services and offerings such as childcare," the report says. "Even after the pandemic, competition for labor is likely to continue as the population ages—a key social risk—and demand for services increases."

After a short reprieve, expensive contract labor for nursing has increased as COVID-19 cases have risen with the Delta variant, and in some cases, to a higher level than during the surge seen in mid-2020, some hospitals report. The use of traveling nurses has further driven up the demand and cost of contract labor.

This trend is likely to continue for the remainder of 2021 and into 2022, especially as patient acuity related to both COVID-19 and non-pandemic cases rises, requiring more advanced care, the report says.

The nursing shortage will be intensified as employees leave because of burnout, taking care of family, contract labor opportunities, refusing to take the COVID-19 vaccine, or retirement.

Moody's predicts the worker shortage may provide opportunities for unionization or lead to more difficult negotiations with unions over the near term, which will contribute to higher expenses.

Though salaries and benefits generally exceed half of any hospital's expense base, this percentage is likely to rise over the near term as hospitals increase budgets to cover recruitment and retention costs. Many hospitals report an increase in minimum wage for non-clinical workers to compete with other employers in service sectors. This has led to wage inflation as other salaries within a hospital must be raised to avoid salary compression.

Enrollment in undergraduate nursing school programs increased 5.6% in 2020, according to the American Association of the Colleges of Nursing, indicating a more robust long-term staffing pipeline.

Hospitals and health systems are working with local schools, as they did pre-pandemic, to increase faculty members, expand class sizes, and create scholarship opportunities.

Until there is a more sufficient nursing supply in hand, however, hospitals and health systems will seek various methods to attract staff and keep staff, such as signing bonuses in exchange for a multiyear commitment; retention bonuses to keep existing staff; establishing internal float pools to defray the expense of agency and temporary nurses; and recruiting from other countries, the report says.