What kind of strategic adjustments do hospitals and health systems have to make in a labor crisis that doesn’t seem to be going away? 

That’s the question we’re dedicated to answering here at Organizational Intelligence—and that’s because healthcare labor challenges look like they’re going to be with us for a while. After being worsened by the COVID-19 pandemic, the nursing shortage is expected to intensify over the next 18 months. In response, governors across the country are taking steps to boost healthcare worker recruitment, expand training, and loosen restrictive licensing. 

For healthcare leaders, this is a time to rethink your approach to labor, refresh your strategies, and look for how you can regain control in the midst of ongoing unpredictability. 

Labor Shortage Challenges for Healthcare Leaders

First, let’s look at the environment you’re facing. Leaders across the board are learning how to manage volatility, but it’s been an uphill climb.  : 

  • Hospital operating margins have improved (less the impact of the CARES act).
  • Adjusted discharges were about 5.6% lower in 2021 compared to pre-pandemic levels (though they’re up about 1% from 2020).
  • ALOS has risen significantly, to about 10% higher in 2021 than 2019
  • ED visits were about 8% lower in 2021 compared to pre-pandemic levels, but came in at 22% higher 2021 compared to 2020
  • Total expenses increased 
  • Labor expenses per adjusted discharge were about 19% higher in 2021 than they were before the pandemic. (This is despite a decrease in FTE per adjusted occupied bed.) 
  • Purchased service expenses have increased dramatically: The expense around temporary, agency, and other labor jumped 50% in 2021 compared to pre-pandemic numbers nationally.

The Great Resignation Continues

The Bureau of Labor Statistics reports that, even though there’s been a slight rebound from the worst of the pandemic, the field is down about 375K workers since Feb 2020—long term care and hospitals have taken the biggest hit. 

Healthcare as an industry is facing some of the worst of the Great Resignation, and part of the reason is that frustrated and exhausted workers have options. Before the pandemic, 1 in 67 jobs was remote. Now that number is 1 in 7. As of Feb, 2022, 6% of hospitals have reported critical staffing shortages. This might sound low, but it only reflects facilities that benchmark based on their own internal needs for staffing, excluding anyone using temporary staffing. This means it’s only telling the story of providers who can’t find staff to fill open positions or can’t afford to pay them. That number, by the way, has been expected to grow to 17% in the near future.

How to Respond to Healthcare Labor Challenges: The Supply vs. Demand Strategic Approach

To survive and thrive in an ongoing labor crisis, your long-term plans will have to adjust. Many hospitals were working on razor thin margins before the pandemic—an increasing number are now relying on non-operating revenue like CARES funding. This isn’t sustainable. 

It will be critical that hospital leaders make the effort to understand how short-term decisions impact long-term strategies—especially to stay competitive with compensation. You’ll possibly find it helpful to look at things from a supply vs. demand perspective—deciding where you can focus to make the most improvement. Here’s what we mean. 

Most providers are “supplying” people—doctors, nurses, and other staff. If they aren’t able to make improvements there, then they have to look at the “demand” you’re fulfilling, this is in terms of services provided. To chart your best path forward, you’ll need to be able to perform an analysis to see which side you’re most able to be strategic on and decide what will best fit your organizational goals. 

Supply solutions include options like: 

  • Additional bonus pay, shift differentials, desperation pay, employment/recruiting bonuses
  • Additional flexibility in your schedule
  • Executing partnerships to address gaps: 
    • Student nurses float pulls
    • Leveraging the national guard
    • Maximizing telehealth

Demand solutions include:

  • Examining service lines
  • Managing patient flow
  • Adjusting volumes 

Here’s an example. Many leaders have looked at these challenges and decided to simply move forward with contract labor. While this can work as a short-term solution, the cost of contract labor is continuing to rise. As a strategy, it isn’t sustainable since, at the same time that rates are rising, the pool of labor is shrinking for the reasons we mentioned earlier. Also, more employed nurses are leaving as contract work pays more. Hospital leaders will have to answer how long they can keep this up and how much they’re willing to invest in the long-term.

Healthcare Data Questions to Ask

The best news is that you don’t have to step into your future without guidance. The healthcare finance data you’re generating every day can be incredibly useful in illuminating your best course of action as you work to optimize investment and find the right mix of managing volumes, service lines, and working with temporary vs. employed labor. Here are a few questions to ask and answer to get you started. 

  • What data are we capturing now and what are we missing?. 
  • What does our approach to forecasting look like, and are we optimizing our use of data?
  • Are we actively looking for patterns, correlations, and trends?
  • Is our data up to date (e.g. not weeks and months old)?
  • Have we refreshed our KPIs since the labor shortage crisis (i.e. utilization, financial, labor ratios, quality indicators)
  • Have we talked with our analysts and how their goals align with our emerging strategies?
  • Are we support our analysts? Do they have the tools they need? What small tweaks can help them meet objectives?

As you move forward, having the right tools to get started will be crucial. We invite you to start here with Oi Health to learn what’s possible.