Paula Carynski, chief nursing officer at OSF St. Anthony Medical Center, scored a $1.2 million victory for her northern Illinois hospital by sharply curbing its use of temporary nurses in 2004.
By analyzing employee overtime, sick days and leave, and the ebb and flow of admissions, the 238-bed hospital and a consultant slashed spending on temps-travel or per diem nurses-by adding 16 full-time nurses and another eight for on-call shifts.
True, Carynski's budget for nurses' salaries and wages rose 3%. But the Rockford hospital's expenses for agency nurses fell to $55,400 in 2004 from $1.87 million the previous year.
Carynski's triumph spells trouble for the nation's $6.5 billion nurse-staffing industry, which witnessed a modest rebound in early 2005 after two years of declining revenue. Backlash among hospitals and health systems, whose heavy use of temp nurses fueled a boom for agencies from 2000 through 2002, is widely blamed for the slump. Temporary nursing's decline eroded operating margins at the industry's largest agencies and reversed nine years of solid growth in overall healthcare staffing revenue, which peaked at $12.5 billion in 2002, according to Staffing Industry Analysts, a market research firm.
A recovery hinges on winning back nursing officers like Carynski and addressing concerns about agency nurses' quality and cost.
If the approach of a large for-profit hospital chain is any indication, a turnaround may be slow. Health Management Associates, with 56 hospitals, will "eliminate outside agency nurse staffing," said Joseph Vumbacco, president and chief executive officer, in an October 2004 statement. One year later, at least half of HMA's hospitals are "agency free," said John Merriwether, a company spokesman.
Still, industry insiders and analysts see solid potential for growth driven by the nation's aging baby boomers and demand for doctors and nurses. The nation's shortfall of registered nurses-a gap which totaled about 110,000 nurses, or 6% of the needed work force in 2000-is expected to reach 29% by 2020, or roughly 808,000 RNs.
"We're always going to need healthcare," said Sue Riordan, operations manager for Daniel & Yeager, a physician staffing subsidiary of Team Health. Demand for Daniel & Yeager's temporary hospitalist staffing is so strong the company will launch a separate division for the specialty, she said.
"There may not be money to pay for it ... but you still have to have it," Riordan said. "It's like gas for your car. You can't get away without having it."
Parent company Team Health has announced plans to go public late this year and last week said the Blackstone Group would acquire a majority stake in the agency by February 2006 from a trio of investors: Madison Dearborn Partners, Cornerstone Equity Investors and Beecken Petty O'Keefe & Co.
Team Health's deal was one in a string in recent months. The industry witnessed a spike in mergers and acquisitions in 2004 as interest in opportunities to diversify services and gain market share continues, analysts said.
This year's deals, 31 through the third quarter, are on pace with the 37 mergers in 2004, according to Staffing Industry Analysts. Fewer companies appear eager to get into healthcare staffing, but existing agencies are looking to add new business lines, analysts for investment firm Harris Nesbitt Corp. wrote in June.
In another transaction, CompHealth, one of the largest U.S. locum tenens, or physician staffing, agencies, acquired the dialysis and rehabilitation staffing firm Foundation Medical Staffing in late September for an undisclosed amount.
"Big players are looking to get bigger," said Barry Asin, a chief analyst for Staffing Industry Analysts.
AMN will lead the field
The biggest deal in recent years came in early October, Asin said. AMN Healthcare, a nurse and allied health staffing agency, announced its acquisition of the MHA Group, a temporary physician agency, for $160 million in cash and stock. The deal, expected to close in November, includes an additional payment of $35 million to $52 million based on MHA performance. AMN will own 91% of the company, and MHA co-founders James Merritt and Joseph Hawkins and MHA management will own the rest.
Susan Nowakowski, AMN president and CEO, Merritt and Hawkins declined interview requests pending closure of the acquisition.
Once finished, the transaction will merge the second-largest U.S. health staffing agency, AMN, with No. 8 MHA, Asin said. With combined revenue of $889 million for the 12 months ended June 30, giant AMN will easily move ahead of Cross Country Healthcare as the No. 1 healthcare staffing firm. Cross Country reported $654 million in annual revenue in 2004.
"This is a smart move and a natural thing to do," Asin said. Nurse staffing-healthcare staffing's largest segment-is more volatile than temporary allied health services or locum tenens, he explained. That's because hospitals see temporary doctors as assets that bring in patients and revenue, unlike nurses, which are an expense, Asin said.
Temporary allied health and physician staffing, worth about $5.2 billion in revenue combined, fared much better during the past two years and are projected to grow faster in 2006. Allied health and locum tenens revenue figures are expected to rise 9.5% and 12% next year, respectively, Staffing Industry Analysts figures show.
Growth in travel-nursing revenue is expected to rise 5.5% in 2006 compared with an estimated 2% increase in 2005 and 8.5% declines in 2003 and 2004. Per diem nursing is projected to grow 4% in 2006 after a 1% estimated increase in 2005 and declines of 9% and 13.4% in 2004 and 2003, respectively, according to Staffing Industry Analysts data.
During a conference call with analysts, AMN's Nowakowski cited locum tenens' steady revenue gains and the segment's resilience as reasons for its purchase of MHA.
"This growth is driven by the fact that hospital clients regard physicians as direct revenue generators, making them an essential investment for hospitals and increasing the importance of finding temporary physicians when staffing gaps do occur," she said.
Nowakowski said she expects to see demand for agency nurses rise with AMN's expansion into the temporary physician market. "As hospitals bring on additional physicians to drive in patients, one of the first questions they ask is `Can you get me more nurses'? " she told analysts.
Privately held MHA posted strong returns in recent years, with a compounded annual growth rate of 33% between 1999 and 2004, AMN Chief Financial Officer David Dreyer told analysts in a conference call. The physician placement agency reported revenue of $257 million for the 12 months ended June 30. Temporary physicians generated 75% of revenue. Temporary nursing, allied health and permanent physician placement accounted for the rest.
CompHealth posted a compounded annual growth rate of 32% from 2002 to 2004, said CEO Michael Weinholtz. The privately held agency credits its 2004 acquisition of RN Network, a nurse staffing agency, for roughly 40% of its growth during the two years. But locum tenens accounts for half of CompHealth's overall revenue, Weinholtz said. The remainder of CompHealth's business is evenly divided between temporary allied health and nursing services.
Weinholtz said AMN's emergence as the industry's heavyweight and its entry into the locum tenens segment won't create pressure for others to seek out deals simply for the sake of expansion. Instead, look for agencies to merge with companies that diversify their services. "Size alone, I don't think, is a reason to drive consolidation," he said.
Field in transition
Quality is the single greatest factor hospitals consider when choosing a healthcare staffing agency, a Staffing Industry Analysts 2005 market survey shows. Concerns about temporary workers' productivity, loyalty and ability to fit in an organization's culture rank as the top three reasons hospitals and health systems seek to avoid agencies.
And among industries that rely on temporary workers-manufacturing, telecommunications, finance or government-healthcare clients appear to be one of the hardest to please. Hospitals and health systems ranked second only to business services on a Staffing Industry Analysts ranking of loyalty to agencies measured by willingness to recommend a company to others.
Pressure from outside the industry may help relieve anxiety over temporary hires' competency, though not all agencies have embraced a recent push by the Joint Commission on Accreditation of Healthcare Organizations to certify temporary agencies.
In the Joint Commission's first year-reviewing agencies on 24 standards and 120 elements of performance-59 have received certification and three have failed in the past 12 months, said Chuck Mowll, executive vice president for the Joint Commission's business development, government and external relations. That's out of an estimated 4,000 staffing firms selling services to hospitals and health systems, he said. "I would say it's a field in transition," Mowll said.
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