Hospital labor costs continue to rise as nurses seek higher pay, requiring providers to reconfigure their workforce.
Total labor expenses rose 12.6% from October 2020 to October 2021, and 14.8% from October 2019 to October 2021, according to Kaufman Hall's analysis of around 900 hospitals. Full-time equivalents per adjusted bed decreased 4.5% year over year while labor expense per adjusted discharge increased 16.3%, suggesting higher salaries prompted by nationwide labor shortages are driving up labor expenses rather than increased staffing levels, the report concluded.
"We continue to see labor expenses rise at a much greater rate than you'd normally imagine," said Erik Swanson, senior vice president at Kaufman Hall. "Comparing elevated labor expenses to a drop in discharge rates shows how higher acuity care, longer stays, higher wages and contract labor support are driving a really dramatic increase in labor costs."
CommonSpirit Health's financial metrics mirrored national trends. Labor costs across the 140-hospital system were up 16.3% year over year in the quarter ended Sept. 30, primarily because of higher contract labor costs, premium pay, overtime, etc.
CommonSpirit is reworking its staffing models as a result. It is tasking virtual registered nurses with administrative duties, like supervising non-licensed personnel, to relieve onsite RNs. CommonSpirit has used a team-based patient care model using pharmacists, licensed practical nurses, nursing assistants and paramedics in its Iowa division over the past year. It plans to roll out that model across the entire system over the next five years, the organization said in its latest earnings report.
Contract labor rates have been out of control, said Don Lilly, chief networks and affiliates officer at University of Alabama-Birmingham Medicine.
"If we can't find revenue stability for many of these safety-net hospitals, we are really concerned about what is going to happen in the next two to four years," he said. "CARES dollars have benefited some hospitals. But the costs associated with what we have had to pay nurses to compete with staffing agencies and other providers aren't going away once the pandemic is less than it is now."
UPMC's labor expenses rose nearly 5% through the first nine months of 2021 compared to the same prior-year period.
Transfer times between hospitals are going up due to staff shortages. Both COVID-19 and non-COVID-19 patients are being turned away as the labor market tightens and practitioners leave the profession, hospital executives and industry observers said.
"Nurses are leaving rural hospitals to go to their larger urban counterparts, become travel nurses or work at brick-and-mortar retailers like Walmart for better pay. The stress of this pandemic has also caused a number of nurses and administrators to simply say enough and retire early. No one can blame them," said Michael Topchik, national leader for the Chartis Center for Rural Health, adding that some nurses are also leaving because of COVID-19 vaccine mandates. "This has led to skyrocketing costs."
It has been even harder to find specialty nurses, like ones with expertise in neurology and critical care, health system executives said.
Vanderbilt University Medical Center has tried to fill the gap via telehealth and advanced practice providers, but there is still a supply-demand mismatch, president and CEO Dr. Jeffrey Balser said.
"We have to make sure we're using all practitioners at the top of their license," he said.