Three years removed from the start of the pandemic, we are still feeling the debilitating effects on the healthcare system. We are getting a clearer picture of how challenging things were for the industry, while still formulating recovery plans for the road ahead.

A recent study conducted by Syntellis and the American Hosptial Association found that contract labor expenses for hospitals increased a staggering 258% from 2019 to 2022. While the triple-digit percentage might be surprising, the reason is all too clear: COVID-19 created an overwhelming staffing shortage that challenged and crippled hospitals and health systems across the country. 

The labor expense problem

Contract labor helped to fill in some of those staffing gaps, necessitated by an increased number of patients from the pandemic. Compared to before the pandemic, the report found that hospital expense per patient rose 22.5% due to a 24.8% increase in labor expense per adjusted discharge from 2019 to 2022. The total expense rose 17.5% and labor expense increased 20.8% at the same time. 

Because hospitals and health systems had to rely on contract labor to supplement staffing shortages, the total contract labor expense skyrocketed 257.9% from 2019 to 2022. Specific departments like nursing and emergency services had contract labor full-time equivalents that increased more than 180% per unit of service from 2019 to 2022. 

Additionally, contracted and full-time employees worked longer hours, increasing more than 15% over those three years in multiple departments. Within emergency services alone, staff worked 22% more overtime hours per emergency department visit in 2022. 

What does this mean for suppliers?

We’ve seen this before. When the Affordable Care Act was coming down the tracks, all the hospitals and health systems worked really hard to reduce their expenses to just what they were getting reimbursed from Medicare, trying to be operating expense neutral with the revenue they got from Medicare and Medicaid. 

We saw it again prior to COVID, where specialty pharma costs were so high that it put great urgency on the rest of the supply chain departments to reduce costs so that they could afford that. Now these supply chain departments are absolutely trying to save every dime they can just to be able to afford the outgoing expense of nurses. They can’t get enough nurses and the ones they have they can’t really afford. 

This is why the supply chain puts so much pressure on the suppliers to reduce costs, because their whole budget is in turmoil with the expenses of contract labor. 

Based off of these numbers, budgets for hospitals and health systems are in turmoil over these labor costs, creating more challenges for them to get the supplies they need to provide care for their patients. Although Suppliers have seen their cost rise substantially over the last few years, don’t expect IDNs to welcome price increases anytime soon.

About the IDN Directory

The IDN Directory is the go-to resource for best-in-class Health Care Suppliers and high-preforming National Account Executives who want the latest insights and information about the largest health systems in the U.S. and their supply chain leaders.

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