Labor expenses still wreak havoc on health systems

Labor expenses continue to increase for large health systems across the nation as many report losses or small gains for the first quarter of the calendar year.

Inflation and staff shortages are driving up salaries and wages, while some health systems are still working on reducing contract labor after the height of the pandemic. Health systems are also finding creative ways to leverage automation, artificial intelligence and digital technology to boost their current workforce while others are cutting costs and services.

Livonia, Mich.-based Trinity Health reported salaries and wages were up around 4.5 percent to $6.9 billion for the nine-months end March 31, 2023, compared to the same period in 2022. The company also reported contract labor costs were up 40.7 percent to $683.7 million for the first three quarters of the fiscal year.

Kaufman Hall reported in general contract hours relative to paid hours were up 91 percent in March 2023 compared to March 2020, and health systems' labor expenses overall increased 20 percent between March 2022 and March 2023, driven by a growth in contract labor. Contract labor wages are still 150 percent higher than pre-pandemic levels, according to the report, which surveyed nearly 1,000 hospitals.

Cleveland Clinic reported salaries, wages and benefits grew from $1.8 billion for the first quarter of 2022 to $2 billion in 2023. The health system reported operating income of $32.3 million for the quarter.

Dallas-based Tenet Healthcare reported a 3.5 percent increase in salaries, wages and benefits from the first quarter of 2022 to 2023, when the line item hit $2.3 billion. Saum Sutaria, MD, CEO of Tenet, said the health system's workforce is starting to stabilize and the system is reducing its reliance on contract labor during the first quarter earnings call. Contract labor was 6 percent of overall salaries, wages and benefits expenses in the quarter, down from 7.3 percent in the same period last year.

HCA Healthcare, based in Nashville, Tenn., reported a slight increase in salary and benefits expenses for the three-months end in March, from $6.9 billion last year to $7 billion in 2023. The health system is making progress to rely less on contract labor, which reportedly dropped 21 percent by the end of the quarter.

St. Louis-based Ascension reported $21.3 billion revenue for the nine-months end with a $1.8 billion operating loss. The health system's financial report noted persistent expense challenges amid the "inflationary environment." The 140-hospital system managed to slightly decrease salaries and wages from $9 billion in the first three quarters of 2022 to $8.9 billion in 2023.

Even for health systems reducing reliance on contract labor and managing inflation, other staffing expenses are on the rise. Kaufman Hall reported talent acquisition spending was up 27 percent year over year in March and learning development spending hit its highest point since March 2020. The firm estimated health systems will spend $27.7 billion on employee learning and development this year.

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