Medicine & Health

Hospitals spending $24B more per year on clinical labor

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Nationwide, hospitals and health systems are spending $24 billion more per year on qualified clinical labor than they did prior to the pandemic, according to an analysis by Premier.

From higher turnover rates and employees working overtime, to soaring costs for travel nurses, healthcare facilities have significantly higher expenses for hiring and retaining workers than in previous years.

While the first COVID-19 surge led health systems to focus on obtaining supplies for patients and caregivers, the second surge has been all about labor, said Mike Alkire, president and CEO of Premier.

“The number one true tragedy is the loss of life, but the second tragedy is the financial hardship that our healthcare systems are experiencing, plus the burnout that these heroes of healthcare are experiencing,” Alkire said.

Premier’s artificial intelligence database study compares workforce trends from October 2019 through August 2021, using daily, bi-weekly and quarterly data from hundreds of hospitals and clinical employees working in the emergency department, intensive care unit or nursing areas.

Compared to a pre-pandemic baseline period in 2019, clinical labor costs are up by an average of 8% per day, according to the analysis.

For a facility with 500 beds, this percentage has meant an additional $17 million in labor expenses since the pandemic began.

Overtime hours have increased by 52% as of September 2021, and productivity, measured in worked hours per unit of departmental volume, grew by an average of 7% to 14% percent year-over-year.

The use of agency and temporary labor for full-time and part-time workers is up by more than 130%, and contingency labor use has spiked as well by nearly 126%.

Higher costs for employees from contracted staffing firms mean it is more expensive to have hospitals properly staffed, and on the other hand fewer staff means fewer patients can be treated, said Aaron Wesolowski, vice president for policy research and analytics at the American Hospital Association.

Since the beginning of the pandemic, annual clinical staff turnover rates have increased from 18% to 30%.

Some health systems have been forced to shut down some services and facilities since they’re not fully staffed, Alkire said.

Due to extra expenses, hospitals nationwide are predicted to lose an estimated $54 billion in net income throughout 2021, even with the $176 billion in federal funding from the Coronavirus Aid, Relief, and Economic Security Act in 2020, according to a study by the American Hospital Association and Kaufman Hall.

Hospitals are not only seeing a dip in revenue because they have not fully recovered in terms of patient volumes, but also because of the increase in their labor expenses which puts pressure on their operating margins, said Rick Kes, healthcare partner at RSM.

However, these margins would have been completely decimated without government aid, he said.

Premier plans to advocate for policies that allow clinical workers to enter the country from abroad, Alkire said.


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