Pandemic nursing shortage poised to keep plaguing hospital finances

Hospitals will face difficulties climbing back to pre-pandemic margins because of higher labor costs driven by nursing shortages, according to a labor force report Moody's Investors Services released Monday.

Burnout and dissatisfaction with working conditions have pushed many nurses away from hospitals, either into other types of nursing or out of the profession entirely, and strained hospitals' ability to offer a full array of services. This exodus of healthcare workers mirrors a broader economic trend of workers leaving jobs or refusing new employment because of low pay and other factors.

The nurse shortage will only continue, and will "erode financial performance for both not-for-profit and for-profit hospitals into 2022," according to the Moody's report.

Data about hospitals' cash flow margins for this year aren't yet available, but the figures from last year offer a glimpse into the present and the near future. Not-for-profit hospitals saw operating cash flow margins fall from 8.3% in 2019 to 7% in 2020 That negative trend will continue, Moody's projects.

Read more: Commentary: Nursing shortage can no longer be ignored; they’re the ‘beating heart’ of healthcare

"These labor shortages are driving up costs for hospitals and hospital systems and forcing some to limit how often they perform more lucrative elective procedures, resulting in lost revenue," the Moody's report says. "Rising costs will make it difficult for hospitals to rebuild margins to pre-COVID levels."

During the roughest stretches of the coronavirus pandemic, many hospitals opted to temporarily halt elective procedures, but it wasn't just COVID-19 caseloads that led to that drastic step. Not having enough nurses on hand to assist with surgeries also contributed.

That's what happened at Novant Health, a 15-hospital not-for-profit system based in Winston-Salem, North Carolina, said Chief Nursing Officer Denise Mihal. The company has since responded with a number of initiatives to shore up its workforce but these efforts have had a limited effect, she said.

"While we have existing and new incentives in place to recruit and retain medical professionals, the reality is that hospitals simply cannot compete with the high rate hikes and sign-on bonuses that national nurse-staffing agencies are using to attract traveling nurses," Mihal said.

Traditionally, travel nurses have been used to address short-term staffing needs. The pandemic has transformed this segment of the healthcare industry as a growing number of nurses quit their full-time jobs for better compensation as itinerant workers.

According to Moody's, hospitals have tried several strategies to fill the gaps. They're better utilizing the expertise of nurses who can work across departments, increasing merit and retention pay, and expanding employee benefits to include amenities such as child care.

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Novant Health has applied some of these methods for nurses and other clinical support staff who also are in short supply, such as respiratory therapists. The health system also created a clinical extender and liaison program, which allows staff to volunteer for extra shifts to support frontline caregivers.

Moody's doesn't predict when the nursing shortage will subside. Allegheny Health Network, a 14-hospital chain headquartered in Pittsburgh, is preparing for that day in the meantime, said Claire Zangerle, the system's chief nurse executive.

Allegheny Health Network is striving to maintain relationships with nurses who've left during the pandemic, in hopes of bringing them back when the public health crisis diminishes, especially since much of its turnover has involved nurses moving between local employers, Zangerle said.

To maintain a connection to those nurses, Allegheny Health Network has kept them on the books as per diem workers. To boost labor supply, the system has tapped retired nurses to work part-time at vaccination clinics, COVID-19 testing sites and even regular hospital shifts, Zangerle said.

Allegheny Health Network also is experimenting with care models that can leverage the expertise of existing employees, Zangerle said.

"There's great utility in bringing licensed practical nurses to the acute care bedside and we've created this concept of blended-team nursing, where we have [a registered nurse], an LPN and a patient-care technician take a cohort of patients," Zangerle said. The health system is trying this approach for lower-acuity rehabilitation, orthopedic and telemetry services, she said. "Our RNs are really into it because it has allowed them to come out of the staffing numbers to be managers."

Hospitals spending money to ameliorate immediate staffing problems may not have forecast how that will affect their future financial prospects, but this short-term challenge will have lingering consequences, according to Moody's.

"While these strategies will ease the effect of labor shortages over the long term, they will cause hospitals' costs to increase in 2022 as salaries and benefits typically represent at least half of a hospital's expenses," the Moody's report says. "Labor shortages will also likely spark an increase in unionization efforts or lead to more difficult negotiations between unions and providers, potentially increasing costs via new contracts." Systems with diversified cash flows and liquid assets will fare better than their counterparts, according to Moody's.

Physicians also are in relatively short supply because the pandemic has chased away doctors, too, leading to higher compensation for in-demand practitioners, according to Moody's.

"COVID-19-related burnout has caused many of these doctors, along with other healthcare professionals, to reduce their working hours and accelerate their retirement," the Moody's report says. "The shortage is resulting in wage inflation at a time when physician staffing companies' revenue is already under pressure from commercial and government payers and when they are trying to control their costs."

These phenomena have downstream effects on physician staffing agencies and the doctors who use them. Unlike nurse staffing outfits that typically bill short-staffed providers themselves, companies that place doctors get paid by health insurance companies, which are guided by cost-control concerns.

UnitedHealthcare, for example, has revoked in-network status for many physicians from staffing agencies to reduce expenses, Moody's reports. To illustrate insurers' concerns, Moody's cites revenue growth up to 20% at physician staffing agencies such as Envision Healthcare and Team Health Holdings.