April 1, 2022

Rising turnover, agency costs compound hospital labor problems

Even as COVID admissions continue to wane, hospitals report that workforce shortages persist. The impact on hospital finances is stark: as shown in the graphic below, there has been an eight percent increase in clinical labor costs per patient day since the start of the pandemic, amounting to an additional $17M annually for an average 500-bed hospital. Two of the primary factors driving this increase—higher turnover among clinical staff and a continued reliance on travel nurses—are mutually reinforcing. Quarterly turnover rates for some nursing positions doubled from Q4 2019 to Q2 2021, as hospitals turned to expensive agency labor to fill resulting vacancies. Spiking demand for travel nurses, still running nearly three times higher than the pre-pandemic baseline, fueled more turnover, as more nurses left for these lucrative roles. It’s unclear how long increased labor costs will persist. Some HR tactics, like signing and retention bonuses, are one-time expenditures. But total hospital employment is still down two percent from pre-pandemic levels, pointing to a diminished healthcare labor supply. Permanent wage increases may end up being unavoidable, especially for lower-wage jobs, where a new compensation baseline for talent is being set by the market, both inside and outside the healthcare industry.

Nurse Turnover Graphic Image