Healthcare sector report: how to treat the US healthcare labour crisis?

The Federal Reserve Bank of Dallas recently estimated rising wages for healthcare workers could almost double the rate of healthcare inflation between mid-2022 and mid-2023. Insurance companies are now factoring in surging labour costs for hospitals and health networks into clients’ bills.¹https://www.dallasfed.org/research/economics/2022/0906

It comes at a time when the healthcare industry battles another wave of the “great resignation”, with one in five physicians and two in five nurses planning on leaving their practice within the year.²https://www.sciencedirect.com/science/article/pii/S2542454821001260 By 2034, the US faces a projected shortage of between 37,800 and 124,000 physicians.³https://www.ama-assn.org/practice-management/sustainability/doctor-shortages-are-here-and-they-ll-get-worse-if-we-don-t-act#:~:text=The%20U.S.%20faces%20a%20projected,American%20Medical%20Colleges%20(AAMC).

What has driven US healthcare labour shortages and wage inflation? 

A former executive at Amedisys told Third Bridge Forum that healthcare systems underestimated the “great resignation” stemming from COVID-19. Mass departures or retirements caused by the pandemic have put further stress on healthcare professionals that remained, contributing to “very high turnover rates”, according to our expert. The low levels of clinicians has been exacerbated by educational facilities and universities not meeting market demand, according to a former executive at LHC Group.  

The shortages run even deeper in hospice and home health, according to a former executive at The Ensign Group. Post-acute skilled nursing and general nursing care face shortages, with the specialist highlighting licensed vocational nurses being approved for leadership roles as a sign of the lack of registered nurses “across the board”. We heard that managing staff ratios with lower acuity level patients in rural care homes had previously been possible. However, as acuity levels increase in all areas, more specialised staff are needed, which they said the industry does not have. Such is the problem, the specialist said, 11 nursing homes have shut down this year to date in Colorado as a result of staffing shortages.  

Clinicians who choose to stay have been incentivised by salary increases and enticing packages. Doctors still earn “disproportionate” salaries, according to a former executive at Envision, while other clinicians are being “fought after”. The former Amedisys executive said hospices are increasing paid time off, healthcare plans and 401(k) plans to “remain competitive”. Attracting new labour also requires greater expenditure, according to the former executive from LHC Group, with groups investing in “creative” recruitment strategies. 

Are reimbursements keeping pace with healthcare inflation?

Extra costs have also arrived at a time when reimbursements are dwindling. All our specialists said this is in part due to legislation such as Medicare, Medicaid and the No Surprises Act (click here to read an article on the NSA).  

We heard the Centers for Medicare & Medicaid Services is attempting to spend less and is in the middle of overseeing USD 810m Medicare reimbursement cuts. This has become “problematic” for home health margins given they are providing the same services but getting paid less, according to the former Envision executive. Such threats of cuts are why LHC Group has been looking to invest more in hospice and value-based care – which aligns with Medicare’s goals – rather than home health, the former LHC Group executive told us. Lower reimbursement and rising costs are also making it increasingly difficult for smaller providers to invest in staff and “thrive”, the specialist added.  

Legislation such as the No Surprises Act has also created advantageous conditions for insurance companies like UnitedHealth and Aetna over physician groups, according to the former executive from Envision. UnitedHealth and Aetna have the resources and the regulatory framework to “strong arm” independent physician groups, they said. More doctors are choosing to join larger firms, and independent practices are being “gobbled up” by the likes of United, we were told. 

What can be done to reduce payroll to profit ratios? 

The US government appears to have recognised that Medicare reimbursement has left hospices “struggling”, according to the former executive at Ensign. A proposed 2.7% increase in 2023 outpatient prospective payment system and ambulatory surgical centre reimbursement rates was described by the specialist as a “big help”. It will also likely justify adding more staff to centres, in the expert’s opinion. The Inflation Reduction Act introduced in August this year could also help with reducing some inflationary costs, according to the former executive at Amedisys.

Investing in the next generation of clinicians is also important. The former executive at LHC Group told us their former company is investing in healthcare workers in a similar vein to sports teams – drafting individuals from schools and then fast tracking them into their workforce. The specialist said this is “smart” but only one piece of the puzzle. They added that such a strategy is also unattainable for small providers, who will need to rely on contract labour, which can be more expensive. 

This includes the use of emergency medical service fill-ins and licensed practical nurses, which some of our specialists called a useful “stopgap” measure. However, they all agreed it is not a long term solution. Whilst the former LHC Group executive said it is “better than nothing”, a far preferable strategy in their opinion would be to pay nurses more and restructure internal operations. “The reality is, if you want to be fully staffed or close to fully staffed with care providers, you’re going to have to pay them more”, they added. 

The former Amedisys executive agreed, adding that full-time workers are needed not only to work but also to act as the “greatest marketers” companies have during a recruitment crisis. “Sweetening the deal” through compensation packages rather than only increasing wages was also suggested by the specialist. This way, they said organisations can remain competitive “without completely throwing out their budget goals by spending everything on wages”.

Are increases in Medicare reimbursements enough to cover wage inflation?

Medicare reimbursement increases alone may not be enough to cover wage inflation. Therefore, the former executive from LHC Group believes that Medicare and CMS must pay more. Returning to almost normal labour conditions could be reached by early next year, this specialist told us. But in their opinion, it will never quite be the same. “So many clinicians, especially nurses and therapists, have just gotten out of the market by retiring or doing something different that isn’t direct patient care”. 

Recruiting more labour is one of US healthcare’s greatest challenges going into 2023 and beyond, according to our specialists. Higher salaries for clinicians may be a bitter pill to swallow. But our specialists say these firms may just have to take their medicine.