Hospital and health system labor expenses are stabilizing after years of steep growth during the pandemic, according to a report from Fitch.
But costs remain high despite initiatives to control them and return to a more stable workforce.
"Initial efforts to improve recruitment and retention, as well as efficiency have not offset expensive increases for some acute care providers," the report notes. "As a result, many hospitals and health systems restructured administrative staff, focused on supply chain management, engaged in revenue cycle improvements, reduced length of stay and implemented other enhancements to bolster financial performance after lengthy challenges."
Fitch expects hospitals and health systems will need to keep labor costs managed well for a financially stable future, noting organizations shouldn't rely on investment returns to fuel profitability long term.
Four things to know:
1. Labor expenses are still above pre-pandemic levels, signaling a new normal. But hourly earnings growth has slowed to below 4% monthly from January through October of this year. It's unfeasible to reduce staff because patient volumes are growing, even in areas where the population is stagnant, according to the report.
2. Hospital employee average hourly earnings growth dropped 3.2% in 2024, compared to 4.2% the year prior. However, hospital payrolls have increased every month for the past 35 months, while health system payrolls have risen consistently for the past 46 months.
3. Over the last 12 months, the average hospital job additions hit 17,780, up from 15,800 over the previous year. Health systems added an average of 29,630 jobs per month in the last 12 months, compared with 28,760 the year prior.
4. Quit rates for the healthcare and social assistance sector hit 2.3% in October, compared to 2.9% in May 2023, according to the report. While quit rates have decreased, they are still above the 1.6% average in the 10 years before the pandemic.