Healthcare providers face high costs, demand for agency staff as COVID-19 rages

As the pandemic nears the one-year mark, healthcare providers still struggle to find travel nurses to handle the surge of COVID-19 patients.

And those workers come at a price, with the competition for nurses doubling or even tripling normal pay rates, meaning wealthier hospitals can woo a disproportionate number of nurses.

Staffing agencies said the demand they’re seeing is unprecedented in their company histories. “The industry has never seen demand like this,” said April Hansen, executive vice president of the staffing firm Aya Healthcare. “This is new territory for everyone.”

Demand for travel nurses has been on a near-constant climb since September when there was an average of 12,800 job openings. Since then, the number of openings rose 239% to 30,880 on Jan. 4, according to Aya Healthcare data.

Providers say it’s a challenge to compete financially for staff but agencies say demand is driving cost and nurses need to be compensated for the risks they’re taking.

Freedom Healthcare Staffing has added staff to handle the increased demand, attracting personnel by offering protections in their contracts, said Susan Whitman, the company’s executive vice president and co-founder. Because workers are often being sent to areas with COVID-19 outbreaks, if they test positive for the virus and need to quarantine, their salary is contractually covered, Whitman said. 

“It’s not fair for a healthcare professional to go out and risk their health without protecting them as well,” she said. “It’s well-earned compensation right now.”

In some cases, pay rates are double. Workers also can receive health insurance, car allowances and scrubs reimbursement, she said.

“I think there’s no secret that a lot of healthcare workers may be leaving their permanent employment to join a traveling association like Freedom. Compensation is really attractive,” Whitman said, but added that money is not the primary motivator. “Even though the work is mentally very taxing right now, emotionally very draining, there’s still a huge reward for being on the front line and giving assistance.”

Hospitals weren’t eager to discuss what they’re paying for travel nurses as COVID-19 cases continue to climb. Most of those contacted declined to comment. That’s even as many health systems have watched their largest expense category—labor—balloon during the pandemic, a side effect of contract hiring, overtime pay and bonuses.

HonorHealth, a six-hospital system based in Scottsdale, Ariz., where COVID-19 cases are soaring, resumed using travel nurses during the pandemic. A robust float pool of local nurses had allowed the system to avoid using contract labor for the previous three years, but it maxed out during the pandemic, said Ashleigh Gerhardt, HonorHealth’s vice president of network operations.

Bill rates for travel nurses during the pandemic have been at least three times what hospitals would normally pay, Gerhardt said. Those rates include the nurses’ pay, the agencies’ cut and miscellaneous costs like credentialing, paying for nurses’ housing and travel and even health insurance, workers’ compensation and malpractice coverage.

For the most part, Gerhardt said the current sky-high bill rates are driven largely by demand. Hospitals are raising their rates to compete with one another for a limited pool of nurses, which means the more financially stable ones are able to hire travel nurses more easily, she said.

“During this surge, it seemed like everyone was surging at once,” Gerhardt said. “Everyone was competing for the same resources across the United States. That really drove that bill rate up.”

And unlike in the past, HonorHealth isn’t just competing with other health systems in Arizona, it’s competing with other states. If travel nurses can make more in Florida, they’ll go there instead.

That said, Gerhardt doesn’t think staffing agencies are totally off the hook for the higher rates, since they point out to providers the higher rates in other markets.

“They’re kind of in the middle of driving that rate up,” she said.

PIH Health, a three-hospital system based in Whittier, Calif., hired more than 260 travel nurses between Nov. 9, 2020 and Jan. 4. The system also hired 123 permanent nurses during that time, Andre Martelly, the system’s health enterprise director of talent acquisition, said in a statement. Whittier is in Los Angeles County, an area that’s also seeing a spike in coronavirus cases.

He said bill rates increase based on market demand and how quickly hospitals need the nurses.

“With the demand for staffing agencies services, it does appear that they are increasing their rates to hospitals for their services,” Martelly said.

For their part, staffing agencies were eager to dispel what they described as a widespread misconception that they’re price gouging hospitals during a pandemic.

In fact, some agencies turned the table back on hospitals and said they’re the ones driving up rates as they compete to attract a limited pool of travel nurses to their openings. That means wealthier hospitals get a disproportionate share of nurses.

“The reality is that hospitals that are able and willing to pay higher prices to be the ones to capture that talent, they’re posting higher rates,” Aya’s Hansen said.

Freedom’s Whitman estimated demand for travel nurses is up 30%-40%.

“I don’t think there’s one area of the country that needs help more than another,” she said. “Every hospital right now is facing the balance of finances and providing care. Most quality healthcare organizations are going to make sure they have the staff to serve their community.”

The rates themselves are set in accordance with the fundamentals of economics—namely, the rising demand and stable or falling supply leads to higher prices, but the nurse’s specialty and regional cost of living also play a role.

“It’s really a function of, ‘How badly do you need to bring in more staff?’ ” said Brian Scott, chief financial officer of AMN Healthcare, a publicly traded staffing company. “If you need it that badly, you’re going to have to offer a higher bill rate to the staffing agencies so that we can in turn offer a higher pay package. Ultimately, the nurses decide where they want to go and the hospital decides what bill rate they’re willing to accept.”

AMN’s bill rates were up 20% year-over-year in the quarter ended Sept. 30, a rate that Scott said isn’t coming down anytime soon. In hotspot areas, though, bill rates are 100% or more above their normal levels, he said.

In a typical environment, travel nurse bill rates tend to fluctuate between 3% and 5% year-over-year, so 20% is far above the norm, said A.J. Rice, a healthcare services analyst with Credit Suisse whose coverage includes the two publicly traded staffing agencies, AMN and Cross Country Healthcare.

Even though hospitals have to pay a lot more for travel nurses now than they usually would, both AMN and Aya insist they’re actually making less profit than usual on those assignments.

“It is absolutely not the case that we’re taking a bigger chunk,” Aya’s Hansen said.

That’s probably true, Rice said. Even though rates are higher, the agencies still have to pass through the same percentage onto the nurses they’re sending to hospitals, he said. That said, 10% of $200 is double 10% of $100, so they’re obviously drawing more revenue.

Travel nursing was a $6.1 billion market out of an estimated $18.1 billion U.S. healthcare temporary staffing market in 2019, according to a report from Staffing Industry Analysts, which is part of Crain Communications.

AMN drew far and away the most revenue: almost $1.1 billion in 2019 on its travel nurse program, or 17% of the market share that year. Medical Solutions had the second highest revenue at $735 million, 12% of the market, followed by Aya Solutions at $583 million in revenue and Cross Country Healthcare at $343 million.

John Sauer, CEO of LeadingAge Wisconsin, which represents not-for-profit long-term-care providers, called staffing agencies “a last resort” for many long-term care facilities.

“We’re thankful that they’re there when we need them, but our preference is certainly not to utilize staff that are not part of our caregiving team,” Sauer said.

Most prefer to have staff that can develop long-term relationships with residents, he said, and only turn to staffing agencies when they “simply cannot fill shifts,” preferring instead to incentivize and compensate in-house staff for extra shifts.

“During the pandemic, the pressure has been even more intense as we’ve had outbreaks of COVID-19 where we’ve lost a number of staff at one time, and we have residents to be cared for,” Sauer said. “Frankly, during some periods of the outbreak, even staffing agencies weren’t able to meet our needs.”

It’s hard for long-term care facilities to compete with hospitals for agency staff, Sauer said. During the fall, agencies quoted rates of $105 per hour for a registered nurse and up to $65 per hour for a night shift certified nursing assistant, far above the normal rates of $95 for nurses and $25 for CNAs, he said.

“For the most part, they’re barely keeping their heads above water,” said David Coppins, CEO of IntelyCare, a staffing firm and workforce management company that mainly serves nursing homes and assisted-living facilities. “As soon as the federal funding runs out, it’s going to be disastrous.”

Long-term care facilities are in a tough position because they can’t accept more residents unless they have more staff but they can’t afford more staff. Right now, facilities are operating at about 80% occupancy, Sauer estimated.

“COVID has turned our world upside down in a number of facilities,” Sauer said. “We’ve had to really curtail admissions, sometimes stop admissions, because of staffing concerns.”

Staffing firms, like the healthcare providers they serve, have struggled to maintain workers, too. At the beginning of the pandemic, IntelyCare, which employs a network of 15,000 registered nurses and CNAs, lost 35% of its CNAs and 10% of its nurses, Coppins said. The nurse population recovered fairly quickly but many CNAs didn’t return until after the federal government’s enhanced unemployment benefits expired, he said.

“We still can’t fill all of the demand we’re getting” but it’s improving, Coppins said.

Demand for staff is up about 15%-20% per facility, he estimated, and the company, which has been doubling its business each year, has increased its business by about 130% year-over-year.

“The demand across the board has massively increased for staff,” Coppins said, all while “a large percentage of staff just are sitting on the sidelines and unwilling to work or are working at a reduced capacity than they were previously,” Coppins said.

Most of IntelyCare’s employees, known as IntelyPros, have full-time jobs at other facilities and work for the company part time.

Coppins said the prices for contract staff are market driven and that IntelyCare isn’t demanding higher pay rates than during pre-pandemic times.

“A facility decides if they want to pay higher than that to get a shift filled,” Coppins said. “We will not be price gouging anyone; we don’t need to.”

Chris Caulfield, chief nursing officer for IntelyCare, said contract employees make about 25% more than they would being employed at a facility. Any pandemic-era increases, he said, are passed on to the nurses and CNAs.

Devana Mills, a registered nurse for IntelyCare who lives and works in the Cape Cod, Mass., area, was working full time at a nursing home and part time at a hospital before becoming a contract nurse last July. Now, she works 32 to 40 hours per week and makes the same amount as she did juggling two jobs.

“Sometimes you get bonuses on your shift. If there’s a hole in a schedule and there’s a great need, you can get double or triple the amount you usually make, which is a plus,” she said.

One week’s paycheck can sometimes be the equivalent of two weeks’ worth of work, she said. That gives her the flexibility to choose her hours and take time off when she needs it to care for her 5-year-old son and attend classes to become a nurse practitioner.

“It works for me,” Mills said. “If I want to work, I can. If I don’t want to, I don’t have to.”

So far, she hasn’t had to travel more than 5 miles from home and generally works at the same two facilities.

“Since I’ve started, there hasn’t been a time that I couldn’t find work. Even if it’s not at the same facility, there’s always work,” Mills said. “I’m very happy with the choice I made.”