Contract Labor is Here to Stay: Three Strategies for Long-Term Success

As clinical leaders and administrators, we often find ourselves on both sides of a contract labor seesaw. Perhaps you can relate. A mitigating event occurs (such as a global pandemic), which increases the need for contract labor positions. Budgets for the following year include room for these positions but carefully outline a plan to ramp down.

As contract positions decline on one side of the seesaw, overtime often increases for full-time staff on the other, which leads to burnout. Prospective budgets then aim to decrease overtime, which in turn increases demand for contract labor. The seesaw continues.

COVID-19 tipped the seesaw for an already exasperated healthcare workforce, which led to a 500% increase in contract labor demand in fall 2021 compared to 2019. While demand has since decreased, it is still nearly triple pre-pandemic levels. Moving forward, Vaya Workforce, a leader in healthcare staffing services, projects contract labor demand to remain as high as 20% above the 2019 baseline.

With this forecast in mind, the two most pressing considerations for hospital leaders continue to be quality and cost. Conventional industry wisdom is that increases in contract labor decreases quality. However, Vizient data tell a different story. To better understand the true impact of contract labor on patient outcomes, Vizient analyzed over 170 acute care facilities using pre-pandemic data, as much of the reporting around staffing during the pandemic is not reliable enough for rigorous analysis. The analysis found no significant correlation between contract labor and nursing-sensitive quality outcomes. In short, Vizient’s research findings go against the traditional way of thinking and found no relationship between contract labor and patient outcomes.

On the cost front, unprecedented demand for contract labor is straining already thin financial margins. Shifting our mindset to approach contract labor as a strategic advantage can bolster employee retention and promote a culture of flexibility, which can help us rethink traditional approaches to improving the bottom line. As a result, leaders must think differently to create a long-term contract labor strategy that balances reliance with efficiency — and ultimately avoids seesaw reactions.

Here are three steps to help achieve this balance.

  1. Understand the value of contract labor within your organization

As you evaluate the right level of utilization for your organization, you should also understand the value contract labor can bring to your organization, such as travel nurses. For example, travel nurses can boost retention by decreasing overtime hours for full-time staff, which is a contributor to burnout. Retention has a direct effect on the bottom line, as Vizient research and academic literature report the average cost of turnover is $88,000 per nurse. According to a recent study, a slight increase in emotional exhaustion resulted in a 12% increase in turnover. Also, some travel nurses may not travel forever. Travel nurses who are valued for their unique perspective and vast experience in different healthcare organizations across the country may opt to stay on as full-time staff or accept seasonal work. Those who stay on have the benefit of familiarity with your facility, equipment, technology and patient population.

  1. Establish a culture of flexible work

Flexibility is 2022’s motto. As the pandemic shifts to endemic, workforce expectations have changed. Travel nurses and full-time staff alike desire more options for flexible scheduling. We’ve seen many nurses retire, or plan to retire, in the next two years not because they want to stop working but because they want more flexibility in the length and frequency of shifts. Creating options to allow for shorter shift times, less shifts per week and longer periods of unpaid time off may entice more candidates into direct employment and/or out of retirement. Here are two ways to increase flexibility for your workforce.

  • Structured and consistent onboarding programs: Onboarding programs can help ease transitions both for the travel nurse and full-time staff, but they are often only offered at specific intervals and require dedicated days to complete. For core full-time staff, this is expected and workable. However, for those seeking flexibility like travelers, per diem and PRN staff, this can be a barrier. Offering on-demand modules or recordings and/or more frequent classes brings new resources to the bedside more quickly.
  • Avoid the seesaw of “productive time” and “downtime”: Strategies that only meet minimum staffing requirements based on “downtime” and “productive time” are often short-sighted and can quickly create gaps when patient volumes increase, as we’ve learned with COVID. As we mentioned before, balancing efficiency with resiliency is key. One way to accomplish this is by using technology to better understand and predict your organization’s staffing needs. Machine learning, automation and artificial intelligence tools look at data retrospectively with algorithms driven by current conditions to predict staffing needs. Configuring these systems to also create a strategy for staffing escalation can drive cost savings without limiting the resilience of your workforce. This helps identify not only the face value cost of overtime, contract labor and non-overtime shift incentives, but also hidden costs like those that result from excessive overtime.


  1. Treat your staffing agency as a partner, not a transaction

With contract labor expected to sustain currently elevated volumes, establishing a closer relationship with your contract labor provider will help you better understand the caliber of talent you are getting and allow the agency to better understand your strategic goals. A closer partnership will also help ensure you are on the same page about cost sharing long term. We know both clinical and non-clinical staff are not components in a machine that are merely swapped in and out and expected to perform the same. The sacrifice and commitment from the healthcare workforce is nothing short of extraordinary. As a result, they deserve our best efforts to ensure they feel equipped, supported and encouraged no matter their role or employment status. Treating your contract labor organization as a partner helps put this commitment to practice even before a travel nurse walks through your doors.

The first step of this partnership is to assess your current delivery model and determine if it is best aligned with your workforce strategy. Here are the three most common contract labor relationships in use today.

  • Direct Contract: A relationship between a healthcare organization and an agency that is transactional on an assignment-by-assignment basis. Communication typically occurs via email and an organization may work with one or dozens of agencies. Contract terms, conditions and bill rates vary.
  • Vendor Management System (VMS): A software application, most often accessed through a web browser, that centralizes the contract labor process. Depending on the type of relationship, the organization may negotiate their own terms with each participating agency through direct contracts or the VMS provider may do so on your behalf. The organization (health system or MSP, see below) is responsible for administering and managing the program through the application.
  • Managed Service Provider (MSP): Most often comes with a consolidating technology as part of the program, and also includes services around administration, consulting and market intelligence. MSPs may be able to provide rate analysis, market demand trends and support for other workforce strategies. MSPs should also partner with the organization to optimize costs, ensure appropriate approvals to manage utilization and share strategies other organizations have found successful. We find this partnership is at its best accomplished when the MSP is aligned to support the organization in achieving its strategic goals.

As the demand for contract labor persists, the need for long-term, sustainable solutions for healthcare’s new workforce landscape is paramount. We must rethink how we approach recruitment, retention and care delivery to change our seesaw mindset and ultimately achieve balance. Understanding contract labor’s value, focusing on flexibility and approaching your staffing agency as a strategic partner honors your commitment to quality care while also improving your staff’s wellbeing and bolstering your bottom line.


About the authors

Jacqueline Herd, MSN, DNP, RN, NEA-BC, FACHE

Jacqueline Herd (Jackie) is a principal with Vizient. With over 20 years of experience as a nurse executive, her passion is inspiring and empowering nurses to lead. She has served as chief nursing hospital at a variety of community, faith-based, non-profit and for-profit hospitals. Most recently, she served as chief nursing officer for Grady Health System. Jackie is a former member of the Association of California Nurse Leader (ACNL) and is currently a member of the Georgia Nurses Association, American Nurses Association and is an active member of Georgia Organization of Nurse Leaders (GONL). She has served as a member at large, president elect, president and immediate past president on the GONL State Board. She is an active member of American Organization of Nurse Leaders (AONL), and has volunteered on the by-laws committee, the publication committee for the “Voice of Nursing Leadership” and is current board of directors for Region 4. She is a strong advocate for the March of Dimes, serving on the Atlanta Planning Committee and the Nurse of the Year nominating committee. She is a current board member for Byrdine F. Lewis College of Nursing and Health Professions, Georgia State, Prevent Blindness and is a clinical advisor for Good Listening. She has served on the Emory University Nell Hodgson Woodruff School of Nursing DNP Community Advisory Board.  Jackie is very engaged in the nursing community and has presented at Vizient CNO Summit, University of Northern Georgia, Health Leaders CNO Exchange, Georgia State and Augusta University, College of Nursing. She is married with 3 children and 7 grandchildren.

Melanie Bell, MSN, RN, CENP

Melanie Bell is an experienced nursing administrator with a background in labor and process optimization in the acute care setting. Prior to her career as a registered nurse, she was a business and financial analyst, working as a liaison between finance and IT. Utilizing her unique experience in clinical and business settings, Bell has managed nursing operations through rapid expansion and new facility openings. She joined MedAssets, later acquired by Vizient, to do workforce optimization consulting and joined the Contract Labor Management Team in 2015. Vizient Contract Labor Management was acquired by Aya Healthcare in October 2021 and is now Vaya Workforce. Bell led the development of Contract Labor Optimizer, Vaya Workforce’s proprietary Vendor Management System. In her current role, she leads fulfillment and strategy at Vaya Workforce, a wholly owned subsidiary of Aya Healthcare, which supports healthcare facilities in their contingent staffing needs through services, technology and analytics.

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