Hospital Contract Labor Expenses Jump 258% As Shortages Persist

March 13, 2023 - Not only did hospitals and health systems rely more on contract staffing firms to meet patient demand in 2020, but facilities also paid staffing firms more to compete for workers.

A recent report from the American Hospital Association (AHA) and Syntellis found hospital contract labor expenses surged by about 258 percent from 2019 to 2022. The report analyzed 2022 data on over 1,000 hospitals showed.

The report also showed that contract labor full-time equivalents (FTEs) also increased by 138 percent over the three years, and the median wage rate paid to contract staffing firms jumped by nearly 57 percent. Researchers noted that the wage rates are not the same as those paid directly to nurses and other contracted healthcare workers, which include up to a 60 percent administrative fee.

“The rates reflect some of the significant cost increases impacting hospitals as they navigate workforce shortages,” the report stated.

Outside staff filled gaps across hospital and health system operations from 2019 through 2022, with contract FTEs increasing over 180 percent per unit of service.

However, nursing departments saw the greatest increase in their contract staffing pool. On average, 46 percent of total contract hours were used for nursing in 2022. Meanwhile, emergency services comprised 12 percent, surgical services 7 percent, and imaging services 3 percent.

Hospital contract labor expenses hit clinical areas particularly hard as hospital and health system operators had to make difficult decisions on where to focus resources, researchers said. For example, hospital emergency departments (EDs) likely experienced the most significant increase in contract FTEs per unit of service during the three-year period at 187 percent because they serve as the front doors to hospitals.

“They already relied heavily on contract labor and that dependence has grown even greater due to workforce shortages,” the report continued. “Patients often turn to EDs when they cannot access care in other areas in a timely manner. EDs are available 24/7 and open to all who need their services, while other hospital departments, postacute care centers, or outpatient facilities can delay new patient admissions or schedule appointments later if they are understaffed.”

Researchers also were not surprised nursing saw the second largest increase in contract FTEs per unit of service at 183 percent since nursing services “is the backbone of a hospital responsible for the largest share of direct patient care.”

In total, clinical expenses rose significantly over the three years, with nursing and emergency services experiencing the largest jumps at 27.3 percent and 27.1 percent, respectively.

Additionally, the report stated that imaging and surgical services expenses per FTE grew by about 10 percent each compared to pre-pandemic levels.

In contrast, total non-clinical support expenses decreased slightly by 0.2 percent over the three-year period. The report defined the measure as admirative expense per FTE.

“The growth in clinical expenses suggests hospitals put a priority on ensuring clinical care was not compromised in the face of workforce issues, reflecting the many difficult decisions hospital leaders had to make in light of these challenges,” the report stated.

The AHA said the report “builds on growing evidence of the unprecedented input cost growth facing hospitals and health systems.” The trade association previously reported that hospital expenses per patient have increased from 2019 through 2021 across all major categories, including prescription drugs, labor, and supplies. The AHA stated that higher expenses coupled with historic volume and revenue losses have led to billions in losses for hospitals.

Researchers from AHA and Syntellis expect workforce issues and rising costs to persist throughout 2023.

“As a result, hospital leaders will continue to navigate these and new, yet-unknown challenges in an evolving environment,” the report concluded.