Labor costs unlikely to wind down soon, for-profit hospitals report in Q1

For-profit hospital operators hoped the need for temporary nursing staff and heightened labor costs would ease alongside cases of the omicron variant, as they did during previous waves. That wasn’t the case in the first quarter.

Nashville-based HCA, one of the largest chains with 182 hospitals, cut its full-year financial guidance due to higher than expected labor costs, as salaries and benefits expenses rose 10% year over year in the first quarter.

Community Health Systems also lowered its financial expectations, as its spending on contract labor more than doubled year over year, rising from $70 million to $190 million, CFO Kevin Hammons said on a call with investors Thursday.

Universal Health Services saw salaries, wages and benefits expenses rise 13% year over year in the first quarter and didn’t change guidance, but noted it might if trends don’t improve.

“The real challenge is on the back end, you know where the turnover rates continue to go up,” UHS CFO Steve Filton said on a call with investors Tuesday.

Replacing nurses “who were making $65 or $70 an hour with temporary or traveling nurses who are making $225 an hour, that’s really the drag on our earnings,” CEO Marc Miller said on the call.

Challenges retaining permanent nursing staff, many of whom are leaving for temporary roles, mean systems still need expensive contract labor to fill gaps. And rather than surges of Covid-19 patients, systems now expect surgeries and other care deferred during the pandemic to rebound and boost volumes, and the need for staff, throughout the year.

As a slower-than-predicted recovery unfolds, demand and rates for temporary staff could moderate at levels higher than before the pandemic, according to Jefferies analysts.

Data from staffing firm Aya Healthcare showed a 3.5% decrease in available jobs from April 18 to April 25, though its index of travel RN demand now sits 53.7% above pre-Covid levels, according to a Jefferies note.

Jobs available at Fastaff, which focuses on rapid response assignments, rose 29% week over week as of April 25, and the median weekly salary rose for the first time in six weeks to $4,200.

That “supports the idea that we may be closer to normalized levels (that are well above pre-Covid) than some realize,” analysts wrote.

Elevated nursing demand will continue as hospitals shift their focus to completing deferred procedures as the pandemic wanes, they wrote.

Dallas-based Tenet seemed to be an outlier during the quarter, with salaries, wages and benefit expenses falling nearly 1% year over year.

That’s partially due to its approach of managing labor costs and volumes concurrently, SVB Securities analyst Whit Mayo said.

“They’re uniquely focused on trying to preserve surgical capacity and they’re willing to not staff a specific wing when the economic trade off just doesn’t look that attractive to them,” Mayo said.

Tenet’s same-hospital adjusted admissions for Q1 decreased 1.4% compared to the same time last year.

UHS’ same-facility adjusted admissions increased by 5.7% year over year, while HCA’s same facility admissions increased 2.1% and same facility equivalent admissions increased 5%.

At CHS, same-store admissions decreased 0.3% and adjusted admissions increased 3.2% compared with the same period in 2021.

As problems recruiting and retaining enough permanent staff persist, hospitals are considering their long-term pipelines and evaluating different care models to better allocate resources.

Two days before releasing first-quarter earnings, CHS announced a $40 million annual investment to boost employee benefits through an enhanced student loan repayment program intended “to attract and retain a strong workforce,” according to a release from the system.

The program will help pay outstanding student debt of up to $20,000 per employee, and also help reimburse employees for continuing education programs for any employment track offered within CHS, the release said.

CHS executives said its hospitals are also deepening partnerships with local nursing colleges, including its partnership with Jersey College, which enables nursing students to train and get their clinical hours at CHS facilities.

During the pandemic, registered nurses have been the most difficult position to fill, UHS CFO Filton said.

UHS is working to implement new models that rely less on registered nurses and more heavily on licensed practical and vocational nurses, paramedics and others who can relieve RNs from doing clerical and administrative work, like answering phone calls, speaking with patients’ families or changing sheets in a room, Filton said. Healthcare Dive