Healthcare providers' financial pressure has dampened the outlook of staffing firms, according to a new report.
Staffing companies that serve hospitals—such as Envision, Team Health and Schumacher—are particularly vulnerable as emergency department volumes decline and health systems develop predictive tools to better measure demand, according to a new report from ratings agency Standard & Poor's. The agency maintained a stable outlook on the staffing industry, although it is a precarious one as providers try to find their financial footing.
Hospitals and health systems are grappling with the ever-rising pressure to control costs, causing them to rethink their relationships with staffing agencies, S&P credit analyst Sarah Kahn said.
"While they have turned to outsourcing staffing, their intense focus on cost cutting has put significant pressure on staffing companies to lower prices, increase the value they add by either specializing or expanding their menu of services, or both," she said in prepared remarks.
Not-for-profit and public hospitals' revenue growth edged ahead of expense inflation last year for the first time since 2015, but operating margins were still low at 1.7%, according to a recent report from Moody's Investors Service. This has launched strategies to lower their overheard as well as grow revenue.
One approach involves implementing more sophisticated, artificial intelligence-enabled solutions that allow providers to better predict the ebb and flow of patient volumes, which reduces their reliance on staffing firms. They are also developing new tools to measure and project turnover, supply utilization, diagnostics, and device resiliency as well as improve diagnostics, among other uses.
Sioux Falls, S.D.-based Sanford Health is constantly using predictive analytics to ensure proper staffing levels, which means it typically has had a low demand for staffing agencies, Darren Walker, vice president of human resources, said. Investment in internships, local residency programs and staff development have also helped, he said.
Still, predicting demand only goes so far; it does not boost the supply of doctors, staffing agency AMN Healthcare said.
"Unanticipated need is caused by many more influences than fluctuations in patient demand," AMN Healthcare wrote in an email. "The most important influence is the scarcity of physicians."
Notably, demand for temporary staffing agencies did not wane during the Great Recession, and the industry will struggle to replace doctors who are aging out of the labor force fast enough, the company added.
Proper staffing levels will become even more crucial as hospitals and health systems compete with reinforced competitors in the retail healthcare space and other sectors backed by third-party investors, S&P said in the report. Robust competition, as well as the push to value, will require staffing agencies to expand their portfolio related to productivity, workflow design, quality improvement and staffing-shortage mitigation.
"Facing increasing competition and pricing pressure for hospital customers, healthcare staffing companies can no longer simply increase prices," the report said.
The pricing practices of Envision Healthcare's EmCare, for instance, have sparked a public outcry. The ability to increase prices has become critical for staffing companies that are trying to offset volume declines as well as increasing exposure to both government reimbursement and uninsured patients as recent policy decisions have weakened the Affordable Care Act, the report continued.
Meanwhile, two key staffing industry business models are emerging—those that offer a more holistic range of services as well as niche companies, according to the report. The prevalence, growth and client retention rates of smaller competitors suggest that providers are open to contracting with smaller, more niche competitors that offer a core value proposition, S&P analysts said.
S&P analysts cited Sound Inpatient Physician Holdings, which contracts with hospitals to staff and manage teams of internal medicine physicians in acute-care settings and uses its proprietary workflow solutions technology and oversees the revenue cycle management for the hospital. Companies like AMN and Cross Country Healthcare have added some intermediary services to replace the middlemen that subcontract with staffing companies.
Radiology Partners, NMSC and U.S. Anesthesia Partners, S&P noted, have grown aggressively by acquiring established radiology and anesthesiologist groups. ScribeAmerica Intermediate Holdco bought PhysAssist Scribes, the scribe staffing business of Team Health Holdings, increasing its concentration in scribe staffing as Team Health decreases its noncore assets. Mednax has been trying to sell MedData, its IT and billing service division, while it also divests one of its noncore assets.