Dive Brief:
- In U.S. nonprofit hospitals this spring, average hourly earnings wage growth decelerated compared to 2022, while quits and job openings remained high, according to a report by Fitch Ratings.
- In April, AHE growth remained above pre-pandemic levels at 5.1% year over year — down from June 2022’s high of 8.4%. Still, hospitals continue to hire. As of May, hospital and ambulatory healthcare services payrolls have risen for 16 and 28 consecutive months, respectively.
- To cover the impacts of wage inflation, hospitals are “reducing non-clinical staff positions” and taking steps to optimize bed and surgical capacity, and cost effective care delivery, Fitch Director Richard Park said in a statement.
Dive Insight:
High labor costs are impacting industries nationwide, after average hourly earnings increased about 5% year over year between 2022 and 2023. Unlike other industries, Kevin Holloran, senior director at Fitch Rating told Healthcare Dive, healthcare employers often cannot afford to substitute cheaper labor alternatives.
“An RN position — particularly a specialty RN position, like a NICU — that's such a highly specialized job set, there's not many of them out there to begin with,” Holloran said. “Labor is at a premium.”
This is especially true for nursing talent — Fitch estimated nationally there are between 1 million and 2 million nurses needed to fill current staffing shortages. Providers will have to pay the current wage rates to fill positions, Holloran said.
To balance the books, as healthcare systems continue to add payroll positions, nonprofit hospitals are taking steps to find cost savings elsewhere. One approach is transitioning external contract labor permanent staff positions, Holloran said.
“The trade off between bringing someone on for a little bit more than what they used to make, compared to what external contract labor costs — that’s always a favorable trade out,” he said. Other approaches to improve profitability, according to Holloran, include examining patient throughput and efficiencies to make incremental improvements or renegotiating with payers to increase rates.
More cost-saving measures might occur down the line — Fitch does not expect to see a return to pre-pandemic wages in the immediate future. Holloran said that whether wage growth levels off in the near future is the “million-dollar question.”
“I think we're another year away from us being back to — in big air quotes — back to normal, so to speak.”
