The Workforce Challenges Facing U.S. Hospitals

COVID-19 creates ‘perfect storm’ of rising costs, lower revenues, volumes for U.S. hospitals

May 16, 2022

Compared to pre-pandemic levels, hospital labor expenses have increased by more than a third, according to a new Kaufman Hall special report.

The special edition of the analyst’s National Hospital Flash Report focuses on the “perfect storm of expense, volume, and revenue pressures” that are challenging the nation’s hospitals, contributing to steep margin declines during 2022.

“The pandemic made longstanding labor challenges in the health care sector much worse, making it far more expensive to care for hospitalized patients over the past two years,” said Erik Swanson, senior vice president of data and analytics at Kaufman Hall.

Here’s what you need to know:

• The rising of contract labor:  Contract labor makes up a growing share of hospitals’ total labor costs compared to pre-pandemic levels. It has increased three times the rate for critical access and children’s hospitals; four times for academic medical centers; and six times for acute-care hospitals.
• By region:  All regions had increases in labor expenses, but the West and Northeast/Mid-Atlantic regions had the highest labor expenses from 2019 through 2022.
• Rural and urban hospitals:  Hospitals in rural and urban settings both saw a “dramatic” increase in contract labor as a share of overall labor expenses. During 2022, contract labor accounted for about 10 percent of total labor expenses for rural hospitals and nearly 12 percent for urban hospitals.
• Margins:  Between December 2021 and March 2022, median operating margins with COVID-19 federal funding fell from 5.6 percent to -1.4 percent.
• Quotable:  “Skyrocketing labor costs, decreasing patient volume, and lower revenues create a perfect storm for steep declines in profit margins. Hospitals now face a number of pressures to attract and retain affordable clinical staff, maintain patient safety, deliver quality services and increase their efficiency,” Swanson said.

This special edition of the National Hospital Flash Report evaluated data from more than 900 hospitals and includes a representative sample of all U.S. hospitals.

HAP continues to advocate for the necessary resources to ensure Pennsylvania’s hospitals can continue to deliver outstanding care in the communities they serve. The report is available to review online.