Hospital labor costs remain high nationwide amid persistent shortages, inflation and government policy changes, according to an Oct. 15 report from Moody's.
"Ongoing staff shortages, a human capital social risk with credit implications, will intensify competition for highly skilled employees hospitals rely on, and keep wages elevated despite management's efforts to reduce expenses. In many cases, government policies will further limit hospitals' flexibility to manage labor costs and hinder their ability to develop strategies to improve operation performance," states the report.
Nationwide, salaries and benefits comprised 53% of nonprofit hospitals' expenses last year, based on 2023 medians. But not every hospital is created equal, and some will feel the impact more than others based on size, geographic location and pre-pandemic financial stability.
Three areas hit hardest by labor shortages:
1. Where the gap between employee supply and demand is the highest. Hospitals in the Northwest have the biggest gap between employee supply and demand, according to Moody's. The competition drives wages up. For example, Oregon average RN salary was $113,440 and Washington RN average salary was $111,030 in 2023, well over the national average of $94,480, based on data from the Bureau of Labor Statistics.
2. Where hospital beds are scarce. States in the Northwest also have the lowest number of hospital beds per capita, meaning it's more challenging to leave beds unstaffed, according to the report. Certificate of need laws exacerbate bed shortages and make it more difficult to add needed capacity. During the pandemic when the length of stay increased, the demand for staffing exacerbated high wages.
"Although the growth of hospital costs is falling in the Northwest similar to other regions, higher base rates and the prevalence of unions will continue to squeeze operating performance in the region," noted the report.
3. Where cost of living is high. A high cost of living will push hospital pay higher in the future. Strikes, even outside of the hospital, could increase demand for higher pay and lead to "multiyear expense challenges for hospitals," according to the report. Becker's tallied the RN pay for adjusted cost of living here, noting the states with the highest cost of living.
4. Where states mandate nurse ratios and minimum wage. Four states have minimum nurse staffing ratios: California, Massachusetts, Oregon and New York. The policy increases competition for highly trained staff in the area.
California recently raised the minimum wage to $25 per hour for nurses, gradually increasing over the next few years.
"The financial impact on hospitals will vary depending on the location of the system. Urban systems whose current rates are already at or exceed the new mandated levels face little change. Hospitals located in rural markets paying below $25 an hour, however, will experience a more significant effect as the increase gradually adds to labor costs," stated the report.