Labor costs continue to rise amid ongoing staff shortages: 8 things to know

Staffing shortages are causing high turnovers, employee burnout and wage pressure at health systems, and have driven up the cost of labor, increased competition for talent and forced hospitals to consider the links between workforce design, talent, compensation and performance management, according to a Feb. 21 report published by consulting firm SullivanCotter.

Eight things to know:

1. Year-over year comparisons suggest that annual payroll costs have increased by nearly 10 percent from 2021 to 2022. 

2. SullivanCotter found that 7.1 percent of the nearly 10 percent jump is not attributable to full-time equivalent headcount increases, which have only grown by between 1.9 percent and 2.6 percent for the overall healthcare workforce.

3. For the average participating health system with an annual base payroll expense of $1.6 billion, this has added about $115 million dollars to the bottom line, according to the report.

4. While 2022 saw a 9.3 percent growth in base salary expense for individual contributors — partly driven by minimum and living wage increases — many hospitals and health systems are recording potentially unsustainable growth across various career stages. 

5. Manager and director salaries have increased 13.7 percent and 14.8 percent, respectively, adding to overall cost concerns, according to the report. 

6. Headcount growth for overall leadership — especially in newly identified roles such as  population health, value-based care and health equity — is significantly outpacing that of individual contributors by increasing at rates between 3.5 times and 5.5 times higher, the analysis found. 

7. From 2021-2022, nursing and human resources saw the most notable headcount drops at the largest organizations (those with more than 30,000 FTEs) with decreases of 8.8 percent and 8.3 percent, respectively, according to the report. On the other hand, legal and compliance saw large increases in their populations at smaller and mid-size organizations with 20 percent to 25 percent growth.

8. SullivanCotter recommended that health systems address rising payroll costs by investing in technology, improving key processes and rebalancing the size and shape of the workforce to create a more sustainable model.

"It is important to note that while there is value to be gained by reassessing workforce design to leverage cost savings and build a more effective leadership structure, managing the size and shape of the workforce alone will not transform the organization," Ted Chien, SullivanCotter president and CEO, said in a Feb. 21 news release. "Understanding how workforce design, talent management and compensation strategy work together to influence system-wide performance is critical in today's environment."

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