Labor shortages and expenses remain 'formidable challenge' well into 2023, Fitch says

The problem of higher labor costs will continue to be a "formidable challenge" for nonprofit hospital systems well into 2023 and even beyond, Fitch Ratings said in a report released Dec. 1. That is even if general inflationary pressures cool, Fitch added.

About 75 percent of a provider's expenses remain under intense pressure with the ongoing labor shortage the single largest contributor to operational losses, Fitch said. Nurses, who were already in high demand before COVID-19, are now even more so, with an estimated overall shortage of up to 2 million.

And while volumes may have rebounded somewhat from pandemic lows, expense inflation remains pronounced. 

"It's evident that labor expenses have been reset at a permanently higher level, the remedying of which will take all of 2023 and likely beyond," said Kevin Holloran, senior director at Fitch.

Fitch revised its sector outlook for hospitals to "deteriorating" in August 2022, and the rate of negative rating outlooks more than doubled to 7 percent year over year.

The report also weighs the possibility of a more serious COVID-19 variant emerging this winter and the possible effects of that on the labor crisis in hospitals.

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