Dive Brief:
- A “labordemic” of both clinical and nonclinical staffing shortages at nonprofit hospitals is likely to persist through 2024 and could stretch even longer in some markets, according to a report out this week from Fitch Ratings.
- While some hospitals have successfully built up permanent staffing levels by offering higher salaries and bonuses, those that struggle to recruit and rely on expensive contract labor will experience weaker margins this year and next, according to Fitch.
- The report concluded that controlling expenses, especially by attracting and retaining permanent staff, is key to mitigating stress on margins.
Dive Insight:
Nonprofit hospitals have been squeezed by labor costs for the past two years as healthcare workers left the profession and forced systems to turn to pricey contract labor.
In recent nonprofit earnings reports, hospitals have told investors that, while operating volumes have begun to normalize post-pandemic, the costs of recruiting and retaining talent has remained elevated.
Most recently, Trinity Health, one of the nation’s largest nonprofit systems, reported growing expenses that outpaced operating revenue in its fiscal year 2023 as labor costs, particularly contract labor expenses, continued to rise.
The Fitch Ratings report released on Oct. 2 echoed the importance of mitigating expenses and added that labor costs may continue to plague hospitals next year.
While some hospitals have succeeded in recruiting new permanent workers and reducing their reliance on contract labor, the cost of recruitment is higher than it was pre-pandemic.
Hospital employees’ average hourly earnings growth approached 3.8% in July, above the 2.3% average growth reported between 2010 to 2019, but slower than a high of 8.4% since the start of the pandemic.
Labor costs will likely negatively impact hospital margins, the report said. Median operating and operating EBITDA margins declined to 0.2% and 5.8%, respectively, in the 2022 fiscal year compared to the year prior.
With labor costs relatively inelastic, hospitals can “use other levers to control expenses” including by examining payer contract negotiations and supply chain efficiencies as well as eliminating less profitable service lines or exiting financially challenging markets, according to the report.
