Labor spend typically eats up the largest chuck of a hospital's operating revenue, and since 2006, labor costs have absorbed 50 percent of revenue on average.
According to Fitch Ratings, personnel costs represented 54.2 percent of hospital operating revenue in fiscal year 2012, one of the highest figures of the past several years. This high total comes despite the fact hospitals have somewhat grown revenue and reduced their labor force through layoffs and attrition. However, Fitch analysts believe the high labor spend is due to two prevalent trends: physician practice acquisition and health IT.
"Fitch believes that reduced nonclinical staffing may be offset by increased physician employment and practice acquisition by hospital providers and the added training costs for implementing electronic medical record systems during 2012," Fitch's report reads. "As consolidation in the not-for-profit healthcare sector progresses, Fitch expects that personnel costs as percentage of total revenues should slowly decline over the longer term."
Here are 10 statistics on hospital labor costs as a percentage of total operating revenue, broken down by credit rating. Note: All figures are medians and are data from FY 2012.
Hospital labor costs as a percentage of total operating revenue
Fitch median: 54.2 percent
Hospitals rated "AA": 51.3 percent
Hospitals rated "AA-": 52.1 percent
Hospitals rated "A+": 55.1 percent
Hospitals rated "A": 54.6 percent
Hospitals rated "A-": 53.5 percent
Hospitals rated "BBB+": 54.8 percent
Hospitals rated "BBB": 53.1 percent
Hospitals rated "BBB-": 57 percent
Hospitals rated below investment grade: 57.4 percent
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