Hospitals' labor costs increased 258% over the last three years

Photo: ER Productions Limited/Getty Images

Contract labor expenses for hospitals shot up 258% from 2019 to 2022, which is linked to long-standing labor shortages in the industry, according to data published by Syntellis and the American Hospital Association.

Contract labor has helped to fill some of the gaps caused by those persistent staffing shortages, which were only made worse over the past couple of years by an increase in patient demand due to the COVID-19 pandemic. Compared to before the pandemic, hospital total expense per patient, as measured by median total expense per adjusted discharge, rose 22.5% – due largely to a 24.8% increase in labor expense per adjusted discharge from 2019 to 2022. Total expense rose 17.5%, and total labor expense jumped 20.8% over the same period.

Relying on labor from contract staffing firms contributed to higher overall labor expenses. Total contract labor expense skyrocketed 257.9% from 2019 to 2022 as a result. Contract labor full-time equivalents (FTEs) jumped 138.5% over the three-year period, and the median wage rate paid to contract staffing firms rose 56.8% as organizations competed for a limited pool of qualified healthcare professionals.

In specific departments such as nursing and emergency services, contract FTEs increased more than 180% per unit of service from 2019 to 2022. Both employed and contracted hospital personnel worked longer hours, with overtime hours rising more than 15% over the three years in multiple departments.

Hospitals were not the only facilities to endure staffing issues. Labor shortages at skilled nursing facilities contributed to challenges for hospital clinicians trying to transition patients to the appropriate post-acute care setting. Labor expense per FTE rose 30.8% while FTEs at skilled nursing facilities declined 18% from 2019 to 2022.

The expense increase reflects the magnitude of staffing challenges at these facilities, the AHA said. Those challenges were among multiple factors that contributed to a decline in hospital discharges and longer hospital inpatient stays, with length of stay rising 10.4% over the same period.

WHAT'S THE IMPACT?

Because the median wage paid to contract staffing firms shot up by half over the past few years, organizations had to use more contract labor while also paying exponentially more for the contract labor they used. 

Compared to 2019, contract hours as a percent of worked hours rose 133.1% in 2022. Contract labor expense as a percent of total labor expense increased 178.6% and total contract labor expense skyrocketed 257.9% over the three-year period. 

Looking at specific departments, nursing demanded the largest share of contract labor hours throughout 2022. On average, 46% of total contract hours were used for nursing. Emergency services comprised 12%, surgical services made up 7% and imaging services comprised 3% of total contract hours.

Both employed and contracted personnel worked more hours as a result of staffing pressures and higher care demands. Within emergency services, for example, personnel worked 22% more overtime hours per ED visit in 2022, compared to before the pandemic in 2019. Lab personnel worked 15.3% more overtime hours per lab test, imaging personnel worked 15% more overtime hours per imaging procedure, and nurses worked 12.9% more overtime hours per nursing equivalent patient day in 2022 versus 2019.

THE LARGER TREND

Kaufman Hall's latest flash report, issued in February, illustrated the prolonged increases in labor expenses faced by hospitals last year. The increases were driven in part by a competitive labor market, as well as hospitals needing to rely on more expensive contract labor to meet staffing demands, the report found. Increased lengths of stay due to a decline in discharges also negatively affected hospital margins.

Other factors pushing expenses higher are supply chain disruptions, increased drug costs, higher inflation and increased investment in cybersecurity.
 

Twitter: @JELagasse
Email the writer: Jeff.Lagasse@himssmedia.com