Labor costs to be biggest single issue for healthcare going forward, S&P says

While demand for healthcare services is robust, the biggest question mark remains over the sector's ongoing struggle with labor costs, S&P said in a March 21 report.

The challenging situation with labor expenses is improving into 2023 but will remain a large burden to hospitals and healthcare providers even as the shift is made to permanent labor over contract staffing.

"In our opinion, labor costs will be the single most important factor influencing the industry over the next several years," the report said.

Shorter-term, such challenges will mean a likely credit profile stabilization for many healthcare services companies during 2023 after what it called a "trough year" in 2022. The outlook, however, remains negative as the labor situation persists as well as inflationary and patient volume pressures.

"The industry does not have a demand problem," S&P said. "Demand for health care, notwithstanding all the disruptions we've seen these past few years due to the pandemic, remains solid and resilient, reflecting aging populations, health needs, and technological improvements. While the costs and availability of personnel (especially nurses) will remain a long-term problem for the industry, we expect wage inflation to moderate from 2022 levels but not return to pre-pandemic levels."

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