THE OUTLOOK FOR HEALTH CARE IN 2023:

What you need to know about the forces reshaping our industry.

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April 7, 2022

Are health care wages unsustainable?

Daily Briefing

    Amid widespread staffing shortages, many hospitals have increased wages and offered bonuses to attract and retain workers—but some experts say more sustainable, long-term solutions are needed going forward, Becker's Hospital Review reports.

    Hospitals bolster wages to attract, retain workers

    Currently, hospitals and health systems are struggling with staffing shortages particularly as burnout and dissatisfaction among the health care workforce continue to grow. In addition, a recent report from Elsevier Health found that 47% of U.S. clinicians said they planned to leave their jobs in the next two to three years.

    To attract and retain their workers, many hospitals have implemented new benefits, such as wage increases and sign-on bonuses.

    For example, Centura Health last fall offered a $15,000 market bonus for bedside registered nurses—reducing its RN turnover rate from 41% in October to 28% currently. Centura is also retaining sign-on bonuses for hard-to-fill positions, offering between $7,500 and $20,000 depending on market conditions, vacancy rates, and more.

    Similarly, Providence has offered several different bonuses for its workforce, including $1,000 bonuses for all caregivers, up to $7,500 in referral bonuses, and sign-on bonuses for 17,000 positions.

    However, some hospitals leaders say that an indefinite increase in wages or bonuses is not a sustainable strategy in the long-term.

    "Growth in wages more than revenue trends is not sustainable," said Michele Cusack, CFO at Northwell Health.

    Separately, Andrew Gaasch, CFO of Centura Health, said that, while competitive pay is "paramount for [the organization] to deliver high-quality, whole-person care," the organization also needs to "maintain a healthy margin to be able to continue to invest in our communities, both from a human capital and physical capital perspective."

    "It really is a tightrope between the two," he added.

    Long-term strategies are needed to sustain the health care workforce

    With staffing shortages stabilizing in some parts of the country, hospitals are now turning to more long-term strategies to attract and retain workers, according to Kaufman Hall SVP Therese Fitzpatrick and managing director Dawn Samaris.

    "Initially, there was a scramble to find bonus structures and increase everybody's pay," Samaris said.  "Now, folks are stepping back and saying, 'Well, that can't be the only tool. We've got to have other options available."

    For example, some organizations are partnering with colleges and universities to train students and move them straight to employment, creating a robust pipeline of workers.

    Some organizations, such as the University of Pittsburgh Medical Center, have also implemented "shadow traveler" or internal travel nursing programs. These programs allow nurses to travel within organizations for slightly higher pay instead of going through an outside agency.

    Other health systems have offered housing assistance, childcare assistance, and mental health care as new benefits to help retain their workers.

    In addition, Samaris said some hospitals are lowering costs by optimizing staffing in the areas that need it most, analyzing where there is a duplication of services, and creating partnerships with other organizations to offer services, like behavioral health or home health.

    Health care unions have also emphasized the necessity of long-term strategies to sustain the health care workforce going forward. According to Tyler Kissinger of the National Union of Healthcare Workers, wage increases and bonuses have been successful at attracting new workers, but they do not address the underlying issues driving burnout and resignations.

    "Hospitals were chronically understaffed before the pandemic. Short-term bonus programs might help get more workers hired, but they won't stay if the hospital is chronically understaffed and their patients aren't getting the care they need," Kissinger said.

    "The only way to sustainably attract and retain workers is to increase staffing to sustainable levels so healthcare workers don't burn out trying to do everything they can to care for their patients," he added. "Health care workers get into this field because they want to help people get better. When they see hospitals skimp on staffing, while paying their CEOs millions of dollars, it's disheartening, and it results in people leaving."

    No 'hard stop' to wage increases just yet

    Although wage increases and bonuses aren't a long-term solution to hospitals' staffing challenges, leaders have noted that there is not a "hard stop" to how high labor expenses could rise.

    According to Gaasch, he does not have a set ceiling for labor costs since paying clinicians is crucial to remaining competitive in the current market.

    Similarly, Cusack agreed, saying Northwell Health has not placed a "hard stop" on how high its labor expenses can grow since it must "ensure [it has] appropriate staffing levels in the various clinical functional areas in response to the volume of patients that [its providers] care for every day."

    "There really is no hard stop [to labor expenses]," Fitzpatrick said. "... This is a continually evolving situation. ... I think the solutions will continue to evolve as well." (Emerson et al., Becker's Hospital Review, 4/4)

     

    Advisory Board's take

    Want to achieve nursing workforce stability? This is a key investment.

    By Carol Boston-Fleischhauer and Andrew Mohama

    As the pandemic ebbs and flows, one thing has remained constant: the need for nursing workforce support and stabilization. This has been a continued focus of health care C-suites around the country. Organizations should continue to employ solutions that confront the root causes of unsustainable turnover—and this means largescale investments.

    Here at The Advisory Board, we have developed and distributed a comprehensive set of recommendations to address overall nurse workload, resilience, operational inefficiencies, and professional development, all of which require facing some hard truths about the nursing workforce and actively investing in your employees. Importantly, our recommendations include the need for health care leaders to focus energy on aggressive compensation redesign. As health care leaders question the sustainability of wage and compensation increases balanced against their health financial margins, consideration must be given to the impact of attempting to keep beds and services open with insufficient staff. The downstream impact of insufficient staffing could be more financially substantial than the upfront workforce investments we are recommending.

    The good news is that many hospitals are responding to this need. The Bureau of Labor Statistics just released their up-to-date data on salaries trends in health care, and the average RN salary in 2021 came in at $85,020; up from $81,680 in 2020—marking over a 4% increase in one year. Considering growing national inflation rates, further increases will undoubtedly be necessary.

    Likewise, organizations are reporting substantially increased differentials for various shifts and tough to fill positions. They are also incentivizing nurses who agree to work in different units or sites with flexible work arrangements—either internal travel agencies or expanded float opportunities.

    While some markets may still require recruitment bonuses, research demonstrates limited impact on retention. For this reason, an increasing number of organizations are now providing retention bonuses for permanent staff as a solid alternative. Health care leaders will need to make firm decisions about overall compensation philosophy in the post-pandemic environment, including adjusting market benchmarks to 2022 realities and determining the impact of tenure on annual base pay adjustments. Whereas the trend is to increase starting salaries for nurses as a viable recruitment strategy, be careful with wage compression. Wage compression at the upper bands of your compensation program is particularly problematic and must be avoided at all costs.

    Go beyond compensation

    Beyond compensation, market competition for nurses requires an aggressive review of benefits packages being offered—paying particular attention to the variable needs of employees. A growing trend is the creation of benefits programs tailored to generational needs and preferences; versus a one size fits all approach. For example, older employees may seek more aggressive 401K match options rather than childcare or tuition reimbursement which typically respond to the needs of younger employees. Likewise, flexible shifts are being offered as part of a benefits package as another employment benefit in keeping with employee demands for more work-life balance.

    The bottom line

    Hospitals have been struggling to ensure safe and effective care delivery amid a continued nursing shortage.

    Here's the bottom line: because nursing workforce stabilization and support remains a priority, a competitive total compensation program; both wages and benefits, is a key investment for C-suites to make. We no longer see this as an option; it is a necessity. 

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