Demand for labor drives costs up, straining hospital profitability, report finds

The surge of COVID-19 cases driven by the delta variant is creating a shortage of healthcare workers, leading to hospitals increasing wages and suspending elective surgeries. In turn, hospital profits are taking a hit, an Oct. 5 Moody's Investors Service report found.

The report also said it expects margins to decline because of wage inflation, expensive nursing agencies, increased attempts at recruitment and retention, and expanded benefit packages.

According to Moody’s not-for-profit medians for 2020, growth in salaries has surpassed hospitals' expense growth, a trend expected to continue for the rest of 2021 and into 2022. 

The nursing shortage will be prolonged as employees leave because of burnout, to take care of family, pursue contract labor options or retire. Such conditions might lead to more unionization on the part of employees, which would create more expenses for a given hospital.

The report also said that on average, salaries and benefits account for more than half of a hospital's expense base, a percentage likely to increase as hospitals raise wages to compete with other facilities and continue retention and recruitment efforts.

But the rise in nursing school enrollment costs may help the shortage in the long term; they increased 5.6 percent  in 2020, according to the American Association of Colleges of Nursing. However, as the country’s population ages, a strain on staffing will continue, the report said.


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