Healthcare’s Ongoing Labor Challenges: It’s Not All Bad News

Steve Wasson, November 1, 2022

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

2 https://www.beckershospitalreview.com/finance/10-hospitals-laying-off-workers.html

3 https://khn.org/news/article/hospitals-cut-jobs-services-rising-costs-budgets-covid-pandemic-inflation/

4 https://www.stcharleshealthcare.org/news/difficult-times-difficult-decisions

5 https://mnnurses.org/15000-nurses-determined-to-win-a-fair-contract-to-put-patients-before-profits-after-historic-strike/

 

Prioritizing Data Governance Amidst Uncertainty

Steve Wasson, August 2, 2022

The U.S. healthcare system continues to face immense challenges as hospitals, health systems, and other healthcare providers endure persistent margin pressures spurred by rising expenses.

Numerous factors compound the problem, including ongoing supply chain interruptions, inflation, and nationwide labor shortages.

Healthcare leaders seeking to navigate these difficulties need access to robust data and analytics to inform decision-making. Yet many organizations lack a core foundation of sound data governance needed to effectively leverage data as a strategic asset. Data governance in healthcare refers to how organizations manage the people, processes, and technologies involved in collecting and analyzing financial, clinical, and operational data.

Effective data governance requires organizations to adopt a leadership structure and best practices for data and analysis. They must ensure they collect the right data, deliver that data to the right users in an actionable manner, and measure the return on data and analytics investments.

One primary challenge is that care teams typically are siloed, which contributes to disparate data and analytics across various departments and service lines. Proper data governance helps break down those barriers to link data and insights organizationwide. Data governance also helps healthcare leaders across the organization understand what data is valuable, how to measure for apples-to-apples comparisons, and how to use insights to drive organizational change.

Looking at a real-world example demonstrates the vital role data plays in planning and day-to-day operations. Since the onset of the COVID-19 pandemic, labor shortages have impacted the financial health of hospitals, staff morale, and ultimately patient care. A recent McKinsey survey found that 29% of responding registered nurses (RNs) in the U.S. indicated they were likely to leave their current role in direct patient care, with many respondents noting their intent to leave the workforce entirely.

Amid the COVID-19 Omicron surge in January and February, many hospitals looked to contract and travel nurses to fill gaps in their staff. The strategy came at a high financial cost — the median hourly rate paid to staffing firms for contract RNs jumped to a high point of 170% above the median hourly rate paid to employed RNs in January 2022, according to an American Hospital Association and Syntellis Performance Solutions report that compared data from more than 1,000 hospitals and health systems.

In recent months, the disparities in pay for contract versus employed RNs leveled off to less than 15%, but hospitals nationwide continue to feel the repercussions of high staffing costs. In May, hospitals and health systems nationwide reported a fifth consecutive month of margin declines due to ongoing labor challenges and other rising expenses, according to the June Syntellis Performance Trends report.

To manage these challenges, healthcare leaders need to accurately assess their expenses and pinpoint discrepancies, such as those experienced during the surge in contract RN costs. However, making these comparisons and evaluating broader impacts is impossible without effective data governance to ensure consistent data processes organizationwide.

Too few healthcare leaders have the right tools to collect and analyze data from across their organizations meaningfully. Consider the contract RN pay rate example: leaders must first ensure those rates are uniformly recorded across various departments, then analyze the data and share it with nursing managers who can implement strategies to address high costs, such as better flexing staffing levels with patient demand and making efforts to retain employed RNs.

Manual processes for these tasks are too cumbersome for an already overburdened workforce; healthcare organizations need technology that makes data normalization, analysis, and result-sharing quick and easy for employees. Syntellis’ intelligent planning and performance solutions empower healthcare leaders with tools that securely integrate data across the organization, minimizing the need for manual entry or data reconciliation. Syntellis’ suite of solutions also makes it easy to compare an organization’s metrics with peer organizations in near real-time and report those results to stakeholders, who then can identify and act on improvement opportunities.

Effective data governance and the ability to connect disparate data empowers healthcare leaders to improve their organizations’ overall financial and clinical performance. With the right tools, hospitals and health systems can better prepare for ongoing challenges and continue serving their communities with excellence.

Labor Crisis in Numbers: Applying Delta’s Lessons to Omicron

Steve Wasson, January 27, 2022

The Great Resignation continues with millions of Americans quitting their jobs in search of higher wages and better working conditions.

In September alone, 4.4 million employees resigned. Healthcare workers are also seeking greener pastures, with an estimated half a million workers quitting since February 2020, according to the U.S. Bureau of Labor Statistics.

Hospitals and health systems face a crisis as global supply chain constraints and staffing shortages lead to increasing expenses. As the Omicron variant continues to spread, healthcare providers face additional pressure.

Over the past several months, Syntellis has published the Syntellis Performance Trends, a report capturing near real-time data from over 1,000 hospitals and 135,000 healthcare providers nationwide. We can look at labor data from the past several months to anticipate how the Omicron variant could impact health systems and how they can account for the continued staffing shortages.

 

Lessons from Delta

In summer 2021, COVID-19 cases jumped 1,000% nationwide during July and August, with the Delta variant accounting for 98% of new cases. To inform future potential surges, it’s critical to look at Delta’s impact on hospitals.

Intensive care unit (ICU) volumes picked up as individuals suffered with severe COVID-19 complications. The September Syntellis Performance Trends report revealed that Pediatric ICUs, in particular, saw dramatic volume increases, with Patient Days jumping 35% in August versus pre-pandemic levels. Adult ICUs also saw sharp increases, with Patient Days spiking 19% in August 2021 versus August 2019.

With this rise in Patient Days, hospitals faced significant overtime challenges: Medical ICUs’ national median overtime percentage rose 2.4%; median overtime percentages increased 4.7% in the Great Plains, 4.1% in the South, and 3.7% in the West; southern hospitals had the largest overtime increase at 8.2%.

If Delta’s impact is an indication of what hospitals can expect during future surges, healthcare systems will need to account for increased volumes and staffing challenges.

The Labor Crunch Continues

Following the initial Delta surge, healthcare organizations faced rapidly rising labor expenses as they competed for a shrinking labor pool. As noted in the October Syntellis Performance Trends report, ICUs saw high patient volumes even as overall COVID-19-related hospitalizations tapered, with new COVID-19-related hospital admissions dropping 35% throughout September after spiking more than 500% from mid-June to early September. However, ICU Patient Days increased 27.8% in Medical ICUs, 23.9% in Surgical ICUs, and 17.3% in Pediatric ICUs compared to pre-pandemic levels.

With these numbers, hospitals’ Labor Expense per Adjusted Discharge jumped 20.4% compared to September 2019 despite a 4.6% decrease in hospital staff per patient.

A prime example of the labor shortage impact was in respiratory care departments, where the hourly rate paid for respiratory therapists increased even as volumes recovered. Hourly rate for respiratory therapists rose 10.2% and median Labor Expense per Procedure was 21.9% higher in September 2021 versus September 2019.

In October, Judy Stroot, R.N., BSN, M.A., NEA-BC, managing director at Huron, said, “Organizations are using this time to take a step back and assess their core talent strategy and tactics, with a significant emphasis being placed on introducing innovative solutions to care delivery and re-examining total rewards offerings.”

Healthcare leaders who didn’t do so in the fall should conduct those assessments now and look for innovative solutions to support short- and long-term needs.

With Tight Competition Comes Higher Rates

The November Syntellis Performance Trends report showed rising hourly rates for registered nurses (RNs): +8.8% for Emergency Room RNs, +8.7% for Acute Medical or Surgical RNs, +8.5% for Intermediate Care RNs, and +8% for Intensive Care RNs. Additionally, hourly rates for respiratory therapists increased 11.5% in October compared to 2019, despite slower growth in respiratory procedures. Consequently, Labor Expense per Procedure jumped 27.5% in October compared to October 2019.

Though wages and labor costs climbed as patient demand and staffing levels decreased, competition for talent and stress among healthcare workers remain high. To address the labor shortage, healthcare organizations should look beyond pay by recognizing top performers, and creating a safe environment that encourages individuals to challenge the status quo, think innovatively, and bring new solutions forward.

Planning Ahead

Rising labor expenses challenge an industry already strained by the ongoing pressures of COVID-19. As labor shortages and global supply chain challenges continue, organizations must adapt and find new ways to build financial health and stability.

To face the labor shortage head-on, healthcare leaders need an in-depth understanding of the changes to the financial landscape. As utilized in the Syntellis Performance Trends report and Axiom™ Comparative Analytics, benchmarking data can identify opportunities for improvement and guide recovery efforts. With data-driven insights, healthcare organizations can ensure both exceptional patient care and long-term financial sustainability.