Monopolistic market control depresses healthcare wages
Wages have predominantly flattened or decreased throughout the healthcare industry over the past decade, which in part could be driven by the rapid rate of consolidation.
While hospitals continue to drive the national economy as the leading employers in the industry, employment in outpatient care, where wages are markedly lower, has grown at six times the rate of hospitals and will likely continue to expand, according to new data from the Center for Economic and Policy Research, a left-leaning think tank.
Healthcare spending was nearly 18% of GDP in 2015 and accounted for 12.8% of private sector jobs. It was also the only industry that consistently added jobs during the Great Recession, as the sector grew by 20% from 2005 to 2015.
Yet, much of that growth has been in outpatient centers, where wages have fallen about 6% over the past 10 years. Meanwhile, wages have stagnated for hospital workers.
Providers increasingly look to scale up to spread costs over a wider patient base, accommodate lower reimbursement levels, and adapt to changes in payment models and policy that reward reducing unnecessary variation in care. But antitrust concerns abound as the industry consolidates, competition wanes, and wages fall, researchers said.
Health systems increase their bargaining power with insurance companies in setting prices when only a handful of them control a local market, which translates to leverage in setting wages, researchers said.
"The increased concentration that is often the result of M&A activity creates opportunities for anti-competitive behavior that can raise prices to patients and hold down wages of workers," according to the report.
If providers become overleveraged and cannot bear the expense of their acquisitions, that can lead to stagnant or declining wages, researchers added.
Median earnings for full-time workers fell on average by 2.4%. This may be due to dwindling Medicaid and Medicare reimbursement rates coupled with increased labor costs associated with Affordable Care Act compliance, said Angelo Spinola, a shareholder with employment benefits specialty firm Littler Mendelson.
Given the labor shortages throughout healthcare in areas like nursing and home health, the wage depression came as a surprise, he said.
"Demand for healthcare workers outweighs the supply," Spinola said. "Many healthcare organizations are experiencing hiring shortages and the U.S. population continues to age and the need for medical care increases."
The findings were also surprising because educational levels rose for nearly every occupational group and are higher in outpatient centers than in hospitals, said Eileen Appelbaum, co-author of the report and senior economist at CEPR.
"Declining real wages in outpatient services cannot be explained by factors that often influence wage determination: educational level, age or the share of workers who are part-time or foreign-born," she said in a statement. Some of the disparity between hospital and outpatient wages may be in part because more hospital workers are in unions, Appelbaum added.
But when the outpatient sector balances out, wages will eventually rise, said Gurpreet Singh, a partner at the consulting firm PricewaterhouseCoopers and its health services sector leader. There has been an influx of investment in outpatient facilities that offer lower costs and better access through improved care coordination. It will take time to stabilize, he said.
"We are in a position right now where we still absorbing the significant growth of those outpatient facilities—we haven't hit an equilibrium yet," Singh said. "As it grows, by nature you will have more supply, which is depressing wages. As we get to a bit of equilibrium, then the wages will increase."
Workers are bearing the cost of providers' organizational restructuring as they shift care to lower-cost ambulatory settings, researchers said.
"The cost reductions have gone to improve financial outcomes for healthcare systems and insurers, but they have not been used to invest in the skills of frontline healthcare workers or to improve workers' wages," according to the report.
While pay is declining on average, higher compensation is going to employees who specialize in strategy, clinical operations, finance and data and also have leadership qualities. People who can navigate the evolving payment models and changing landscape are in high demand, experts said.
Providers that are focused on preparing for the incentives of value-based payment to reduce costs and improve quality are looking for employees who have a unique understanding of how technology and data influence outcomes, Singh said.
"To be able to track outcomes, you need capabilities around insight and data and providing a better longitudinal view of the patient," he said. "There is high demand for those who have a good understanding of technology and data."
While the healthcare sector became more diverse over the decade, substantial gender wage gaps occur in nearly every occupational group in both hospitals and outpatient facilities, the report found.
Jobs held by black workers grew by almost 25%, Hispanics by 57% and Asian and other workers by 48%. Jobs among white workers, by contrast, grew at 11.5%—lower than the industry average. Men increased their workforce participation by 27%, but overall, women still held 78% of healthcare jobs in 2015.
Yet, women earn between 7.7% and 24.3% less than men depending on occupational group and work location, data show.
There is still work to be done, Singh said.
"We are seeing more diversity in healthcare, which is positive," he said. "Having a diversity of thinking and problem-solving creates a much more high impact team. It removes some of the echo chambers."
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