While labor costs in healthcare have decreased over the past 18 months, continuing this trend should remain a top priority for healthcare leaders.
Becker's Healthcare recently spoke with Tim Teague, President, BlueSky Medical Staffing Software, to learn more about the current landscape for contract labor and what the future might bring.
Note: Responses have been edited for length and clarity.
Question: How would you describe the current state of contract expenses at hospitals and health systems?
Tim Teague: The use of contract labor post-pandemic has decreased significantly. We are seeing systems with reductions of anywhere between 20% and 30%. However, it's getting more difficult to decrease further.
Staffing Industry Analysts, the premier data resource in the staffing world, reported that in 2019, spending on healthcare staffing was $19 billion nationwide. That figure tripled during the pandemic to more than $60 billion. Today, even after double-digit decreases by hospitals nationwide, this figure is settling around $40 billion.
Despite the downward trend, we are still spending more than twice as much as we were in 2019. We're seeing several key factors impacting this new normal.
The first is demographics. During the pandemic, more nurses were leaving or retiring than were entering the workforce. Considering the finite number of nurses nationwide, today, hospitals have a bigger competitor for talent than ever before. How the younger nursing workforce is approaching their work and careers has dramatically shifted. The concept of "gig" work has created a new and seemingly attractive alternative for many younger professionals. The idea of picking and choosing when and where to work has impacted career choices for many. Another factor was an unintentional recruiting campaign that the media created for the staffing industry. Non-stop media coverage during the pandemic publicized the exorbitant rates of pay for contract nurses, especially travel nurses. These reports have had a lasting impact on nursing students, hospital employees and even those who never considered a career in nursing.
Q: What's concerning you most and what opportunities do you see?
TT: When hospital-employed nurses saw evidence of how much more travelers were making, it sparked unrest across the workforce. We have witnessed more strikes, or threatened strikes, than any time in recent history. Despite decreasing contract labor, the impact on the total cost of the existing workforce has been significant. These increased costs have an enormous impact on operating margins.
Considering workforce expenses comprise the largest cost for hospitals, closures and even bankruptcies have occurred. Steward Health Care has been in the news recently for its bankruptcy filing. Interestingly, two of the largest creditors in the bankruptcy filing were staffing agencies. Two agencies alone accounted for $60 million of Steward's debt. This signifies how important it is for the staffing industry to work jointly with hospital systems to keep labor costs at manageable levels. Despite the challenges, there are encouraging notes from around the country as operating margins are slowly seeing some increase. Mercer actually projects a surplus of nurses in some states by the end of the decade.
Q: What are some of the strategies that can help drive down contract labor costs, and how has technology affected hospitals and agencies?
TT: In technology, we define "friction" as any point in a process (i.e., supply chain) that slows the function or causes increased costs. Today, albeit slowly, friction in the human resources and talent acquisition space is being addressed with better technology.
Here's an example of where supply chain friction exists. Suppose Vanderbilt Hospital in Nashville needs a labor and delivery nurse. At the same time, Emory Hospital in Atlanta also needs a labor and delivery nurse. The nurse in Nashville flies to Atlanta for the contract position, and the nurse in Atlanta flies to Nashville for the exact same need on a Vanderbilt contract. Can you imagine ordering an Uber from another state to take you across town when there are dozens of drivers in your city?
The key to reducing friction in workforce solutions is to become more proactive in the market. Some systems are aggressively attacking the problem. HCA Healthcare realized their workforce spend would always include contract labor. They decided to create their own agency, HealthTrust Workforce Solutions, and become their own managed service provider (MSP). This in-house move gave them total management of all contracted labor and assured a true competitive environment for vendor pricing. By eliminating that friction, HCA enjoys a significantly lower contract labor-to-FTE ratio than many organizations.
Another example is Adventist Health, a 29-hospital system on the West Coast. They determined that becoming their own MSP would bring a significant ROI. By offering the same services as third-party MSPs, they captured the fees their MSPs were charging and used those funds to fully pay for additional staff, with even more left to fund other HR programs.
Q: What's your number one piece of advice or next step that you'd recommend to healthcare leaders looking to improve their contract labor strategy?
TT: No one wants to change what they're familiar with. Typically, fear of the unknown can be a stronger motivator than the desire for gain. Removing friction is a big step. You're moving out of your comfort zone and challenging the status quo. Fortunately, others have already made this leap. I'd recommend contacting organizations that made the transition successfully and learn from their experience. The pandemic was one of the greatest tests that our healthcare system has ever encountered. I think everyone can be proud of what we accomplished over that incredibly challenging period in our history.