New Report Highlights Damaging Shift In Healthcare Labor Expenses

Sarasota, FL (WorkersCompensation.com) – Last year, 30 percent of hospitals were expected to report financial losses, with a total loss of $54 billion. To add insult to injury, a new report from Kaufman Hall shows that hospital labor expenses have also increased 37 percent over what they were prior to the pandemic.

According to a Morning Consult report from last fall, during the pandemic around 12 percent of job vacancies in healthcare were due to layoffs, and 18 percent were due to workers quitting. Around 31 percent that remained had entertained the idea of leaving healthcare. An Incredible Health report found that more than a third of nurses plan to leave their current jobs by the end of this year, with around 25 percent switching to traveling healthcare jobs due to the increase of pay and bonuses.

Analysts from Kafuman Hall reviewed data supplied by Syntellis Performance Solutions of over 900 hospitals, and determined that contract labor expenses had increased dramatically for both rural and urban hospitals across the nation. The median labor expense per adjusted discharge jumped from $4,009 in 2019 to $5,494 the first quarter of 2022. In 2019, labor comprised 46 percent of the total expenses but rose to 49 percent in 2022.

The Southern and Western regions saw the biggest increase in labor costs at 43 percent and 42 percent. The remaining West, Northeast, and Mid-Atlantic regions showed the most steady and highest labor expenses through the period reviewed.

A large part of the increase in expenses was due to contract labor. In fact, use of contract labor increased one and half times when compared to pre-pandemic levels, and as a percentage of total labor expenses increased more than five times. In 2019 and 2020, contract labor made up 1 percent of total hours and 2 percent of total labor expenses. In 2021, contract labor comprised 3 percent of total hours, and 6 percent of total labor expenses. For first quarter 2022, contract labor made up 5 percent of total hours and 11 percent of labor costs.

When broken out by region, the percentage of total paid hours for contract labor increased more than two times in the South and Midwest. In the Great Plains, Northeast, Mid-Atlantic and Western regions the increase was three to four times pre-pandemic levels.

Broken out by hospital types, the contract labor expense percentage for Acute Care hospitals jumped from 2 percent in 2019 and 2020 to 12 percent in 2022. Academic Medical Centers also saw a drastic increase going from 2 percent in the first two years to 9 percent in 2022. Urban areas saw a slightly higher increase in contract labor than rural areas. In 2019 and 2020, only 2 percent of labor expenses were from contract labor. In 2022, 12 percent of urban hospital labor expenses and 10 percent of rural hospital labor expenses are from contract labor.

Not only have hospitals begun using more contract labor, but the wage has increased as well. In 2019, the average hourly wage for an employed nurse was $35 an hour and $64 an hour for a contracted nurse. In 2020, that rate increased slightly to $36 an hour for employed nurses, and $71 an hour for contract nurses. In 2021, the wage gap increased significantly with employed nurses only earning $39 an hour while contract nurse rates went up to $103 an hour. This year, the average rate for employed nurses has remained the same, however the rate for contract nurses has jumped significantly again to $132 an hour.

In some cases, hospitals are offering higher sign on bonuses as opposed to rate increases. In fact, in Texas sign on bonuses for nurses nearly doubled from an average of $5,800 to $10,700 last year. Florida had the highest average sign on bonus at $13,095. The gap in wages between employed nurses and contract travel nurses has created quite the rift. Seventy-seven percent of nurses have reported seeing an increase in travel nurses in their units, and a third have stated they are extremely dissatisfied due to the difference in compensation. Additionally, 47 percent believed the increase in contract labor reduced the quality of patient care.  

When factoring in reductions in reimbursement and volume, paired with such significant increases in expenses, the first quarter of 2022 has painted quite a bleak picture for healthcare operating margins. From December last year through the end of first quarter this year, the median operating margins with CARES funding dropped from 5.6 percent to -1.4 percent. Not including CARES funding, the margins dropped from 3 percent to -2.4 percent.

The loss of revenue paired with labor shortages that drive up costs has potentially created a scenario that may not be sustainable long term. When factoring in the high percentage of dissatisfaction and potential impact on patient care, it’s possible that this is only a glimpse of the storm to come.

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