Labor costs have mostly started falling for hospitals across the country with one exception: the tristate region.
While labor costs have cooled across the country, facilities across the tristate have continued to grapple with increasing expenses, mainly due to a competitive labor market and reliance on temporary staffing.
The continued pressure of labor expenses has led to a lower median operating margin for tristate hospitals compared to the national margin, slowing their financial recovery, according to Erik Swanson, senior vice president of data and analytics at Kaufman Hall.
Nationally, the median operating margin for hospitals in May of this year was 0.3%, inching into positive territory but still trailing pre-pandemic levels, according to a Kaufman Hall report released last week.
Across the country, operating margins rose by 40% between May 2022 and May of this year, the report said. But in the tristate area, median operating margin increased by just 14% during the same period.
Labor expenses, while falling compared to past years of the pandemic, continue to plague tristate region hospitals; they saw a 3% increase in labor expenses in May 2023 from last May, compared to a 15% increase from 2021 and a 23% increase from 2020, the data shows.
Elisabeth Wynn, executive vice president of health economics and finance at the Greater New York Hospital Association, said that financial recovery has been inconsistent among hospitals in New York state, noting increased challenges among safety net facilities. While hospitals have been working to ensure facilities are adequately staffed, expense pressures have continued to put facilities at risk of financial volatility, she said.
Two significant labor deals among health care workers in the New York City region—the 7% wage hikes this year achieved by the New York State Nurses Association and 1199SEIU—have added to the pressure to increase salaries and benefits, according to Wynn.
“We’ve really seen that costs have started to ripple through to non-union employees as well,” Wynn said, noting that hospitals have to raise salaries to attract staff in a tight market—a challenge for organizations such as safety net facilities.
Some providers have also remained reliant on agency staffing because of difficulties recruiting and retaining staff, Wynn said. “That cost continues to really challenge them from a financial viability standpoint,” she added.
Swanson noted that labor expenses adjusted for discharges started to decline in the tristate region, meaning that money spent on labor went further as patient volume increased. Even so, he noted that hospitals in the region are going to have to keep a close eye on managing persistent labor costs.
“For the tristate area in particular, managing labor both in terms of productivity, premium pay, utilization of contract labor, efficient deployment of those staff and ensuring that you've got the right staff in the right place is all going to become very, very important,” Swanson said.
Some hospitals are using internal resources to manage expenses for resources such as temporary staff. Northwell Health has an internal staffing agency to hire temporary workers, which can mitigate costs for contract workers, according to Maxine Carrington, senior vice president and chief people officer at the health system. Still, she said that the health system has tried to reduce its reliance on temporary staff—both because it is more expensive, and because permanent staff creates a more stable work environment.
Howard Tuchman, assistant vice president of workforce intelligence at Northwell Health, said that planning how the health system will use contracted workers such as travel nurses—months in advance, if possible—helps reduce labor costs.
“If you're waiting until December 24 to find someone for Christmas Day, you're going to pay a hefty premium on that nurse,” Tuchman said.
Hospitals that do not have internal staffing agencies have started to come up with other ways to control the local labor market. Wynn said that at least two hospitals, for example, have considered limiting their travel nurse workforce by refusing to hire travelers who work too close to campus. This ensures that travelers are really travelers and not a part of the local labor pool, she said.
Wynn said that GNYHA is also working on developing an early pipeline to bolster the future health care workforce and mitigate shortages that lead to these increased labor costs.
But as hospitals continue to spend on staffing in the interim, revenues will have to follow suit to cover the costs. She said that increasing reimbursements for Medicaid and Medicare—which pay $0.61 and $0.85 on the dollar—is necessary for hospitals who rely on government subsidies to maintain services in their communities.
“It puts hospitals in a very difficult position financially,” she said. —Amanda D’Ambrosio
July 7, 2023: A previous version of this article mischaracterized how hospitals receive lower payments from Medicare and Medicaid as being related to reimbursements from private payers. The article has been updated.