Salary and wage expenses for nonprofit hospitals increased significantly in the last few years as the pandemic forced hospitals to rely more on expensive contracted labor and boost pay to keep up with inflation.
The median salary and benefits growth increased from around 5 percent in 2020 to 7 percent in 2021 and then rocketed to nearly 11 percent for the 2022 fiscal year, according to a July 19 report from Moody's Investor Services.
Salary and wage growth for nonprofit hospitals slowed in the first quarter of 2023 to a median of 7 percent, but labor expenses are still taking a toll on profitability.
"[Seven percent growth is] still high compared with historical levels and with compensation accounting for more than 50 percent of the average hospital's expenses, the amount significantly restricts financial performance. Many hospitals continue to generate very weak margins with about 33 percent of those we rate reporting operating cash flow margins below 3 percent, compared with 6 percent reporting such low margins pre-pandemic," Moody's stated in the report.
For-profit hospitals are also feeling the crunch, but Nashville, Tenn.-based HCA Healthcare and Dallas-based Tenet Healthcare have found ways to ease the burden. Both health systems reported salary and wages as a percent of revenue dropped in the first quarter to around 45 percent.
Hospital CEOs across the board are getting serious about cutting labor costs with a variety of tactics to retain current staff, leverage technology for more productivity, and recruit international nurses.
"Until the hikes in compensation for permanent staff are absorbed into ongoing expenses, operating margins won't return to historical levels," Moody's said.