Hospitals are bolstering wages. Is it sustainable?

As the workforce shortages worsened and the pandemic caused widespread burnout, many hospitals and health systems saw their labor expenses significantly rise as they were forced to pay more to attract and retain workers.

Hospitals and health systems ramped up wages, provided hiring bonuses and offered new benefits to ensure they could staff beds. However, it left us with one question: Are these rising labor expenses sustainable?

The answer to the question appears to be multifaceted and dependent on an organization's vantage point. For example, unions say hospitals can afford wage increases and bonuses, while CFOs argue that there needs to be more sustainable methods. 

Northwell Health CFO Michele Cusack lays it out very clearly: "Growth in wages more than revenue trends is not sustainable."

Moving to a more sustainable method

At the start of the workforce shortage, hospitals and health systems turned to more immediate retention and recruitment efforts: bonuses and pay increases, according to Kaufman Hall's Senior Vice President Therese Fitzpatrick, PhD, RN, and Managing Director Dawn Samaris. However, now that the staffing shortage has stabilized in some parts of the country — though not all — hospitals are turning to more strategic, long-term strategies to ease the labor shortage, they said.

"Initially, there was a scramble to find bonus structures and increase everybody's pay," Ms. 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."

New Hyde Park, N.Y.-based Northwell Health, for example, has been focused on bending this unsustainable cost curve of rising labor expenses "by focusing on culture, our mission and ensuring that the employees know and recognize their contribution to their communities and that they are special and are making a difference," Ms. Cusack told Becker's Hospital Review.  

For Andrew Gaasch, CFO of Centennial, Colo.-based Centura Health, a health system with about 21,000 employees, recruitment and retention is about remaining competitive with the market when it comes to pay, while also keeping the sustainability of the organization in mind.

"That's paramount for us to be able to deliver high-quality, whole-person care across all of our flourishing communities in Colorado and western Kansas," Mr. Gaasch said. "At the same time, we have 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 said his health system's motto around this is, "Save where we can to spend where we should."

"We need to be able to spend and should be able to spend on employees and in our communities," Mr. Gaasch said.  

Are hiring bonuses in healthcare here to stay?

In the fall, Centura Health offered a market bonus for bedside registered nurses. The $15,000 one-time payment, which was tied to a certain time commitment to the health system, helped reduce RN turnover from 41 percent last October to 28 percent currently. 

"We took a moment and took a step back and said, 'We have to do something more creative than just adding more dollars just to the average hourly rate. We need to do something different.' So that's why we approached the market bonus for bedside caregivers," Mr. Gaasch said.

About 2,500 employees accepted the market bonus and of those, only 19 have left Centura Health. About 850 employees turned down the market bonus and of those, 137 have left Centura Health.  

One thing that is staying at Centura Health: sign-on bonuses for hard-to-fill positions.

Mr. Gaasch said there are different tiers of eligibility around the sign-on bonuses, which are based on factors such as market conditions and vacancy rates. The range for sign-on bonuses at Centura Health is $7,500 to $20,000. 

Over the last 14 months, Centura Health has invested more than $200 million in additional employee compensation and benefits. Additionally, the health system recently announced another $31 million investment in employees through market adjustments and benefits including student loan assistance and child care assistance. 

"We're really trying to listen to the needs of our incredible people because it's not just about base wages, it's about the total package and it's about benefits," Mr. Gaasch said.

Unions: Hiring bonuses are great, but more long-term change is needed 

One of the health systems that has recently offered major sign-on incentives is Providence in Renton, Wash. In September, the health system announced $1,000 bonuses for all caregivers, referral bonuses of up to $7,500 and sign-on bonuses for 17,000 positions. 

The Providence perks were designed "to reward, retain and recruit," amid a lack of staff and rising numbers of COVID-19 patients. Though the perks may be successful at attracting more workers, Tyler Kissinger with the National Union of Healthcare Workers says those workers won't stay for long unless underlying issues are addressed.

"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," Mr. Kissinger said.

Mr. Kissinger is an organizing coordinator with the NUHW in Northern California, focused on Providence hospitals located in Sonoma and Napa counties. He believes incentives like sign-on and referral bonuses only go so far, and improving the workplace itself is key to attracting and retaining employees.

"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," Mr. Kissinger said. "Healthcare 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."

The same week Providence announced their incentive programs, a Gallagher survey reported a 75 percent increase in average hourly rates for agency RNs nationwide, rising from $75 pre-pandemic to more than $130 in September 2021. Despite the major increase in pay, the national RN vacancy rate stood at 19 percent, more than double pre-pandemic levels. To find enough nurses, 75 percent of healthcare organizations are turning to agency and travel RN companies.

"We're seeing major healthcare chains like Providence rely more heavily on travelers and hiring bonuses. That's not a sustainable solution," Mr. Kissinger said. "The sustainable solution for hospital chains like Providence is to change their business model to focus less on profit and more on providing care, and that starts with hiring more caregivers and making the work more manageable so more people will enter and stay in the field."

Other healthcare unions such as the Illinois Nurses Association signaled their full support for sign-on bonuses to boost critical staffing levels, but say these types of incentives may be sustainable for health systems because they aren't necessarily spending more to fund them. 

"INA understands and supports hospitals that offer signing bonuses to attract nurses if these are used as part of a comprehensive and fair compensation strategy that treats nurses with respect and dignity," an INA spokesperson said. "All too often, we have found that these bonuses replace compensation and benefits that could be used for senior nurses who have worked several years for institutions that have not treated them well, especially during the last two years."

It's a sentiment shared by Mr. Kissinger, who says nurses and physicians may be offered major sign-on bonuses, increased pay and benefits like child care subsidies, but support positions won't be offered nearly as much, if at all.

"At Providence hospitals, we've secured better wages for many workers in certified and licensed positions, but Providence has so far refused our proposals to increase pay for lower-paid workers such as housekeepers, nursing assistants, transporters and kitchen staff," Mr. Kissinger said. 

Reducing or sunsetting other expenses

Dr. Fitzpatrick of Kaufman Hall said the focus is now on creating a robust pipeline of staff, whether it's professional staff, technical staff or entry-level staff. One example of how organizations are doing this is through partnerships with higher education to train students and then move them to employment. Ms. Samaris said some places are also creating simulation labs that imitate a real hospital setting for community colleges to train their students.

Another example is through "shadow traveler" programs, or internal travel nursing, Ms. Samaris said. This gives nurses the opportunity to travel within the system for slightly higher pay, rather than forcing them to move to an external agency. Pittsburgh-based UPMC is among the organizations using this approach.

Ms. Samaris added that hospitals are enacting strategies to lower costs in other areas. This includes 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.

At Northwell Health, Ms. Cusack said that in response to wage pressures and other COVID-19 costs, the health system has reduced discretionary spending and placed a great focus on increasing product standardization and other operating efficiencies. Northwell is also reducing costs through the remote-work shift. 

"With the growth of the hybrid work environment, we can reduce our administrative real estate portfolio to further counterbalance the expense pressure from wage growth," Ms. Cusack said. 

Mr. Gaasch cited examples of where the health system is using its motto to save costs to offset this labor pressure, such as leveraging Centura Health's size and scale where possible; automating processes where possible; considering centralization of services as appropriate; ensuring overhead functions operate as efficiently as possible; and reviewing work-from-home policies and corresponding real estate costs. 

He said Centura Health is also reducing premium pay categories that the health system has been heavily reliant on through the pandemic.

"The pandemic has slowed as far as the number of COVID-19 patients we're treating, so we're starting to look at premium pay categories that we instituted and how can we start to ratchet those down, in a corresponding timeline with the number of COVID patients decreasing and regaining our footing on staffing," he explained.

He said Centura Health is also considering its supply chain and is trying to standardize where possible on products and use across the health system.

Is there a hard stop for how high labor expenses can grow?

Overall, Mr. Gaasch said he doesn't have a set ceiling on how high labor costs can grow, because paying clinicians is vital to remain competitive.  

Ms. Cusack agreed that there's not a "hard stop" on how high labor expenses rise, saying that the health system must "ensure we have the appropriate staffing levels in the various clinical functional areas in response to the volume of patients that we care for every day."

Dr. Fitzpatrick agreed, saying: "There really is no hard stop. … This is a continually evolving situation. … I think the solutions will continue to evolve as well."

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