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Dive Brief:

  • Inflationary labor pressures for nonprofit hospitals and ambulatory healthcare services is easing, as wage growth continues to slow and payrolls rise, according to a Fitch Ratings report out this week.
  • Although wage growth is slowing, hospital and ambulatory healthcare services payrolls have risen for 19 and 31 consecutive months, respectively. Job openings and quit rates have declined from peak levels, but they remain elevated compared with pre-pandemic figures.
  • The report suggests recruitment and retention efforts are reducing job openings, allowing health systems to spend less on external contract utilization. However, increased baseline staffing rates “have likely become the new normal for the sector,” according to the report.

Dive Insight:

Labor costs have been an increasingly expensive line item on hospitals’ earnings statements over the past two years, as qualified nurses and practitioners have become harder to find. 

The COVID-19 pandemic both increased demand for skilled providers to help meet surging patient volumes and fueled an exodus from the industry as providers burned out at higher than average rates or chose to retire early

Health systems turned to external contract labor to plug holes in employment rosters, paying higher rates than they would for in-house labor.

Nonprofit hospitals suffered as they incurred high labor and supply costs and suffered investment losses, causing 2022 to be the worst operational year on record for many nonprofit systems.

The Fitch Ratings report released on Monday suggests the industry may now be at a turning point.

Healthcare and social assistance job openings have fallen from a peak of 9.3% in March 2022 to 7% as of July 2023. Likewise, job quits have dropped from 2.9% in May to 2.3% as of July.

Health systems are also under less operational strain than they were this time last year, when the “tripledemic” of COVID-19, flu and RSV was beginning to drive up hospitalizations amidst the staffing shortage, Fitch Ratings Director Richard Park noted.

“If labor market improvements are sustained and COVID hospitalizations remain at a level that does not create a surge in demand for nurses or disruption of surgical volumes, health systems should be able to manage through expense challenges over the next few years to improve profitability gradually,” the report finds. 

Though average hourly earnings growth has decelerated in hospitals — slowing from a high of 8.4% at the start of the pandemic to 3.8% year-over-year growth in July — average hourly earnings remain elevated compared to pre-pandemic levels, when average growth was 2.3% from 2010 to 2019.

Given that wages have reset to a higher level, the report suspects hospitals may turn to additional avenues to improve operational efficiency, including negotiating favorable rates with payers, launching efficiency initiatives, reducing corporate overhead or eliminating less profitable service lines.


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