Hospitals’ labor costs jump by one-third

The entire healthcare industry, including its workforce, was slammed by the COVID-19 pandemic. As many as 1 in 5 healthcare workers quit their jobs during the pandemic, plus another one-third of nurses plan to leave their current jobs by the end of this year. Another 25% say they intend to become a travel nurse. The findings come from a Special Workforce Edition of Kaufman Hall’s National Hospital Flash Report.

These big changes have led to a labor crunch that has forced healthcare organizations to increase wages and offer more incentives to retain and recruit staff. Labor shortages are top of mind for hospitals to remain financially stable and to deliver safe, high-quality care.

Overall, the report found hospitals’ labor expenses have increased by more than one-third since the start of the pandemic. The median labor expense per adjusted discharge jumped from $4,009 in March 2019 to $5,494 in March 2022. In this same time period, labor as a percentage of total expenses increased from 46% to 49%.

The biggest increases in labor expenses were in the south and west, according to the report, while the highest expenses consistently were in the west and northeast/mid-Atlantic, though all regions have experienced increases in labor costs. 

Contract labor as a percentage of total labor expenses increased more than five times the rate from pre-pandemic levels. This aligns with other reports of hospitals hiring ever larger numbers of COVID-19-specific travel nurses. In addition, hospitals are shelling out more for contract workers––the median wage rate for contract nurses had risen to more than three times that of employed nurses as of March 2022.

The workforce fundamentals has created a “perfect storm” of expense, volume and revenue pressures attributable largely to the effects of COVID-19, causing lower margins for hospitals.

“These findings suggest that healthcare leaders will need to confront the workforce challenge on multiple levels,” the report stated. “Financial plans will need to be reworked to accommodate higher labor expenses moving forward. Recruitment and retention strategies will need to be sensitive to subtly different segments of people and jobs. Real-time data will need to be used to improve process and workforce efficiency. And the nature of work itself will have to be redefined for the new socio-economic environment.”

The hard times will force healthcare executives to do some creative thinking to manage the shrinking margins and labor shortages.

Amy Baxter

Amy joined TriMed Media as a Senior Writer for HealthExec after covering home care for three years. When not writing about all things healthcare, she fulfills her lifelong dream of becoming a pirate by sailing in regattas and enjoying rum. Fun fact: she sailed 333 miles across Lake Michigan in the Chicago Yacht Club "Race to Mackinac."

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