Daily Briefing

Why is nurse pay skyrocketing?

Hospitals continue to face surging labor costs amid a nationwide shortage of health care workers—a problem that some industry groups and lawmakers argue may be due to staffing agencies taking advantage of federal Covid-19 relief funds to increase their profits.

Both demand and cost for nurses continue to surge

According to the National Institutes of Health, the United States faced a shortage of roughly 1 million nurses in 2020, and since then, that shortage has only been exacerbated as many nurses continue to leave the field due to burnout and fatigue.

Nurse compensation increases were inevitable—here's why

In response to this labor shortage, many hospitals have turned to travel nurses to fill the gaps of their staffs, leading what were once small and regional staffing agencies to grow significantly in size, the Wall Street Journal reports.

Parth Bhakta, CEO of Vivian Health, an online health care labor marketplace, said the travel nursing industry has doubled in size over the last year. The average pay for travel nurses has also increased from $1,706 a week in December 2019 to $3,290 in December 2021.

Similarly, Cherie Kloss, founder of SnapNurse, a platform that allows nurses to find potential assignments on a smartphone app, said the platform has grown from 10,000 nurses before the pandemic to more than 250,000 nurses today. In addition, Kloss said the company's revenue grew from $1 million in 2018 to more than $1 billion in 2021.

With demand for nurses still high, especially in areas overwhelmed with Covid-19 patients, hospitals have had faced significant labor expenses as they attempt to bolster their workforces. And because of these increased expenses, some hospitals are using federal Covid-19 relief funds to cover part of the difference between the rates for travel nurses and staff salaries.

For example, the Federal Emergency Management Agency said Hawaii would get $95 million for traveling healthcare workers, and Texas has used billions of dollars in federal relief funds to help cover travel-nursing costs. According to the Journal, several lawmakers and trade groups say the use of funds in this way is putting upward pressure on wages.

Hospitals, lawmakers argue pandemic funds are increasing labor expenses

Hospitals and lawmakers have argued that staffing agencies are capitalizing on the current labor shortage to increase their profits.

6 Advisory Board resources for recruitment, retention, and the workforce landscape

On Jan. 25, almost 200 House lawmakers, led by Reps. Peter Welch (D-Vt.) and Morgan Griffith (R-Va.), asked the White House to investigate wages charged by nurse staffing agencies. In a letter addressed to Jeffrey Zients, the White House Covid-19 response coordinator, the lawmakers said that they have "received reports that nurse staffing agencies are vastly inflating price, by two, three or more times pre-pandemic rates, and then taking 40% or more of the amount being charged to the hospitals for themselves in profits."

Similarly, the American Hospital Association, the American Health Care Association, and the National Center for Assisted Living recently asked Zients and the White House to investigate staffing agencies, noting that staffing agency prices are not directly correlated with the income individual travel nurses earn.

According to Becker's Hospital Review, the American Nurses Association (ANA) has applauded these efforts to end price-gouging by staffing agencies, but wants lawmakers to guarantee individual travel nurses will not be negatively affected during the process.

"While overhead costs associated with staffing agencies have recently been targeted as a driver of staffing shortages, it is only one symptom of a much larger systemic problem. More needs to be done to effectively investigate and mitigate the root causes of nursing shortages," ANA said. "Changes must be made in providing better work environments, appropriate compensation and benefits and making patient safety a top priority to attract and retain nurses today and in the future."

In response, a White House spokesperson said the federal government has taken steps to assuage the nursing shortage and pressure on wages, such as providing funds to hospitals to recruit staff and connecting health care providers to communities that need workers through grants and loan repayments.

For their part, staffing agencies say the higher pay rates for travel nurses is merely an issue of supply and demand. "It's kind of like saying real-estate agents set the price," said Alan Braynin, president and CEO at Aya Healthcare, the largest health care staffing agency in the United States "The buyers and sellers participating in the market do." (Armour/Whelan, Wall Street Journal, 2/8; Gamble, Becker's Hospital Review, 2/8)

Advisory Board's take

How organizations can compete for nurses in the travel nursing era

Karl WhitemarshBy Karl Whitemarsh

The laws of supply and demand are on full display with nurse wages on the rise as the shortage consolidates. Depending on where in the health care ecosystem you sit, the severity with which you experience and how you perceive the current labor market dynamics can vary greatly, as this article illustrates. Providers and their interest/lobbying groups are leveling increasingly vocal allegations of the dreaded P-word—profiteering—against their staffing agency partners, to whom many provider organizations (especially in the acute care setting) are simultaneously paying top-dollar and also losing staff. Meanwhile, staffing agencies counter that it is precisely the shortage-era market dynamics that are dictating the prices they must pay contract RNs and, consequently, how much they charge their provider clients.

While the issue of nurse compensation is reaching the desks, phone lines, and inboxes of politicians as this article notes, I find it hard to imagine lawmakers will intervene. Momentum is hard to achieve, especially in an election year—and there is no clear consensus as to what legislative plan would be the right way to make progress against the problem. 

In the absence of a significant development on this front, we expect these dynamics to continue the current context is here for the foreseeable future. Our guidance to provider members still stands:

1.  Short-term reliance on premium labor is necessary.

Even though premium labor is costly, short-term reliance on premium labor to fill vacancies is necessary to maintain safe staffing and ensure the stability of the practice environment. However, be thoughtful about how you incorporate travel nurses into your workforce. Constantly communicate the necessity of agency labor to full-time staff—travel nurses are there to reduce their workload and serve as a temporary fix. Emphasize that your organization aims to convert agency labor to full-time staff. 

2.  Expect staff to pursue travel contracts but make it easy for them to return.

Financial incentives to join staffing agencies have significantly increased during the pandemic—expect some of your staff to take advantage of this opportunity. Consider allowing staff to leave for a travel contract but maintain their employment status and return to your organization when their contract ends. Establish a program to ensure returning travelers and other nurses at your organization can work together effectively in a positive practice environment.  

3.  Allow staff to scratch their travel itch through opportunities to flex internally.

Nurses are asking for flexibility to alter their schedules, and sometimes, location, to better meet their individual needs. To meet nurses’ needs and compete with agency labor, some health systems are creating internal travel agencies to flex staff across regions. If your system has sufficient scale, get serious about developing an in-house travel staffing resource pool that competes with traditional agencies on compensation. Offering this type of flexibility helps reduce your reliance on contract labor, helps retain staff interested in travel opportunities, and ensures nurses working in your health system are familiar with system protocols and culture. 






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