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Healthcare worker shortage sends labor expenses for hospitals soaring

by John R. Fischer, Senior Reporter | May 18, 2022
Business Affairs
The nationwide healthcare worker shortage has sent labor expenses for hospitals soaring by 37%.
In the last three years, U.S. hospitals have seen a 37% rise in labor expenses per patient, brought on by a nationwide shortage of healthcare workers that has only been made more challenging by the pandemic.

With healthcare systems relying more on contract labor, expenses for this workout of total labor costs rose from 2% in 2019 to 11% in 2022.

This has hit profit margins for hospitals hard, according to a new analysis by Kaufman Hall, with the 37% increase bringing adjusted discharge from $4,009 to $5,494. Median hourly wages for contract nurses went up 106% during this time, going from $64 to $132, compared to 11% for employed nurses ($35 to $39). "Skyrocketing labor costs, decreasing patient volume and lower revenues create a perfect storm for steep declines in profit margins. Hospitals now face a number of pressures to attract and retain affordable clinical staff, maintain patient safety, deliver quality services and increase their efficiency,” said Erik Swanson, senior vice president of data and analytics at Kaufman Hall.

Additionally, the pandemic made it more expensive to care for hospitalized patients by disrupting the workforce. It also subjected hospitals and healthcare systems to more competition from non-hospital employers due to the increases in wages and inflation, say analysts. One in five healthcare workers quit their job during the pandemic, and over one-third of nurses plan to leave their current positions by the end of 2022, says the report.

The company’s April National Hospital Flash Report showed negative operating margins among hospitals and health systems for the third consecutive month. The median year-to-date Kaufman Hall Operating Margin Index was -2.43% in March, but the median change in operating margin increased 32.7% more from February.

Additionally, outpatient volumes and revenues improved, as did the pace of inpatient volumes, albeit slowly. Adjusted patient days went up 12.5% month-over-month and 4.2% year-over-year, while adjusted discharged grew 18% month-over-month.

The average length of stay was also down 6.2% from February, as fewer patients required longer hospital stays. Physicians saw their productivity rise, as well as compensation and revenues in the first quarter due to higher patient volumes, which was attributed to many seeking care put off during the Omicron surge.

While Swanson admits these increases contributed to ongoing expense hikes and the need for more investments and subsidies in providers, he says that seeing more patients is beneficial for practices. "Declining COVID-19 case rates also meant hospitals had fewer high-acuity patients. While the road to recovery remains long for many hospitals, these trends indicate some pressures of the pandemic may be lifting."

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