New Michigan bill goes after 'anti-competitive' travel nurse industry

Michigan is joining at least 15 other states in an attempt to tamp down the high costs of contract travel nurses, even as demand for healthcare workers continues to grow post-pandemic.

Earlier this month, Republican Rep. Sarah Lightner introduced House Bill 6364, which would limit travel nurse agencies to charging hospitals no more than 25 percent above what the agencies pay their nurses.

The intention of the legislation is not to punish nurses, but to limit how much money these contracting agencies can make off them, Lightner told Crain's.

The healthcare industry says travel nurse agencies exploited the COVID-19 pandemic for billions of dollars. That gold rush is largely over as the coronavirus crisis has settled down, but now many states want to prevent a repeat as the industry struggles to make ends meet in a post-pandemic world.

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There are plenty of challenges ahead. Legislators are running out of time as only a few legislative days remain ahead of the Nov. 8 election. At the same time, experts are questioning whether the law would even be effective at reducing costs.

Crain's reached out to nearly a dozen national and local travel nurse agencies and did not receive a call back.

Travel nurses made headlines across the U.S. during major surges of the COVID-19 pandemic as many nurses quit their jobs for short-time contract work through an agency where they could double or even triple what their counterparts employed directly by health systems were earning.

Locally, travel nurses were making as much as $5,000 a week, or as much as $100 an hour, as hospitals and nursing homes struggled with staffing shortages during the pandemic. The staffing agencies reportedly were charging facilities as high as $200 per hour.

Local hospitals and health systems saw labor costs rise rapidly — travel nurses made up 39 percent of hospital nursing budgets in January of this year, up from just 5 percent in 2019, according to the American Hospital Association.

Staffing remains a critical issue for hospitals and nursing homes across the country, pushing profit margins into negative territory for an immense number of facilities.

An analysis released earlier this month by the AHA found more than half of all U.S. hospitals are losing money in 2022, with projected margins down between 37 percent and 133 percent compared to before the pandemic.

Expenses for health systems are projected to increase by nearly $135 billion in 2022 over 2021 levels, largely due to labor costs. The AHA analysis projects labor costs to rise by more than $57 billion over last year with contract labor accounting for more than $29 billion of that total. Contract labor costs are 500 percent higher than before the pandemic, the analysis said. The remaining costs are attributed to equipment costs due to inflation.

Lansing-based Sparrow Health has seen labor costs rise more than 22 percent this year to a projected $832.3 million from $682.1 million in 2019. Contract labor there has risen 369 percent to $50.2 million this year. Overall labor costs at Michigan Medicine are up 18 percent since 2019, the health system told Crain's in an email.

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Many nurses were departing health systems and then returning for a much higher wage as a travel nurse.

Lightner said the legislation came at the behest of Michigan's nursing home industry, which has arguably been hit hardest by labor challenges. Albeit, many of those labor challenges occurred due to historically low pay and benefits.

"In talking to some nursing home facilities, they are struggling to find workers," Lightner said in an interview with Crain's. "They are put in a place where they are not able to compete due to the additional dollars put on by headhunters. This (legislation) should bring some of that in line."

The legislation is currently with the Health Policy and Human Services committee.

But the legislation attempts to toe a line where it does not diminish the benefit to nurses who choose an agency job to earn a better living while also pinching the margins on the agencies.

Mark Kopson, partner and chair of Plunkett Cooney's healthcare practice, said the proposed legislation may be a "tempest in a tea cup."

"The industry is challenging that the agencies are engaging in anti-competitive behavior, not by a monopoly but in cornering the market during a vulnerable time," Kopson said. "The approach is to put a cap on the profit margin of the agency. Other states that are introducing similar legislation are instead capping margins tying what an agency can charge on the prevailing market rate for nurses based on geographics and position. Michigan's legislation is less tied to the market and there's no guarantee agencies will reduce what they charge."

H.B. 6364 regulates that an agency can only charge a facility 25 percent more than it pays its contract nurse. So an agency charging a nursing home $125 an hour for contract labor must then pay the nurse $100 of that hourly fee. Agencies may choose to continue to charge as much as possible to maximize their margin even under the law. And in return, that could raise pay for travel nurses even higher.

Melissa Samuel, president and CEO of the group that helped author the legislation, the Health Care Association of Michigan, said the legislation is designed as a shot across the bow of the travel nurse agencies.

"Our legislation is nuanced because we didn't want to cap what the employees can make," Samuel said. "We're really just dipping our toes in on this to get a dialogue started. We need framework around a regulatory structure for these companies. It is clear we need to do something here and getting what is happening exposure is part of it."

HCAM represents the state's long-term care providers, including for- and not-for-profit, county medical care, hospital-based providers and assisted living communities.

Minnesota and Massachusetts are the only two states with a law capping travel nurse agency rates.

The Minnesota law, passed in 2001, bars an agency from charging more than 150 percent of the average hourly wage of an employee in that role. During the pandemic, the state did allow agencies to apply for wage cap waivers. Massachusetts has an overarching anti-price gouging law that applies to services like nurse agencies, but in May 2020 raised the cap agencies could charge by 35 percent.

Several other states, including Pennsylvania, Illinois and Connecticut, are considering similar legislation. And hospital and nursing home associations are putting pressure on lawmakers to act.

In February, the AHA and 200 others urged the U.S. Congress to use its federal powers to investigate travel nurse agencies for "price gouging" and other anti-competitive practices.

"The conduct of some of these staffing agencies bears all the hallmarks of widespread collusion and perhaps other abuses," their letter read. "Preventing staffing agencies from exploiting hospital and health systems' need for providers would help mitigate some of the financial and operational pressures currently facing hospitals and allow them to continue focusing on critical care for patients."

The Michigan Health and Hospital Association supports the proposed Michigan legislation.

"The MHA supports HB 6364 because it would help to address exorbitant contract labor expenses that threaten the financial sustainability of hospitals," it said in a statement on its website.

Health systems believe the financial viability of their entire industry is at stake given a projected shortage of 450,000 registered nurses alone in the next three years, according to a recent report from McKinsey & Co. And with more nurses reaching retirement age, the facilities don't want to compete, or aren't able to, with travel nurse agencies. The fear is too many patients, too few nurses and, ultimately, a reduction in quality of care.

"We're seeing double-digit increases in costs at long-term care facilities and wages are the No. 1 driver of that," Samuel said. "Staffing agencies are just a part of that picture but it's just not sustainable. We need to do everything we can to attract workers back to the sector, and we can't do that under these costs."

This story first appeared in our sister publication, Crain's Detroit Business.