Hospital labor problems are easing, but they aren’t yet a memory

After years of struggling to find and keep workers during the worst of the COVID-19 pandemic, hospitals are seeing a brighter picture on the labor front.

Hospitals are seeing some relief in their labor shortages, but many are still struggling to find and keep key workers, according to Fitch Ratings.

Hospitals are seeing fewer job openings, and inflation in wages is easing, according to Fitch Ratings.

Kevin Holloran and Richard Park of Fitch Ratings talked with Chief Healthcare Executive® about the improving labor outlook for hospitals. They noted that hospitals are seeing more success in recruiting and retention and they are starting to see more predictability in labor costs.

“When we speak with hospitals and health systems, they're doing two main things right now,” says Park, a director at Fitch Ratings. “They are trying to keep people from leaving … and they're trying to hire as many people as fast as possible, of course. And so what we see is that people are beginning to succeed on both fronts.”

Hospital wages are rising, but at a slower rate, with average hourly earnings increasing 3% on average in 2024, compared to 4.2% in 2023, according to a Fitch Ratings analysis released this week. .

The number of vacancies in the healthcare and social assistance sector is also dropping, with openings falling from 7.9% in January to 6% in July.

However, that remains higher than pre-pandemic levels, with the vacancy rate averaging 4.2% between 2010 and 2019.

• Read more: More hospitals are doing better financially, but gap grows between the strong and struggling

‘Tenuous, fluid situation’

Holloran, senior director for Fitch Ratings, analyzes the non-profit hospital sector. While he says the labor picture is undeniably improving, he cautions that many hospitals are still finding it difficult to fill all their labor needs.

“This is still a very tenuous, fluid situation,” Holloran says.

“Things are trending in the right direction, but we still have a shortage of labor out there and that's not going to be fixed anytime soon,” he explains. “And we are going to live with these elevated salary, wage and benefit numbers compared to historic levels for the near term, if not the long term, quite frankly. So it's good news, but I don't want to oversell that good news.”

Hospitals continue to spend more on payrolls, which have risen 6.7% since February 2020, Fitch says. Hospitals are spending 60% of their money on labor, according to an American Hospital Association report released this spring.

While health systems are spending more on their workforce, the higher wages reflect new contracts organizations have reached with their unions. So even though hospitals are paying more, they’re also locking in wages and building in some stability in their expenses, Holloran says.

Hospitals are also spending less on “contract labor” or staffing agencies to fill positions, and some organizations are finding it makes more sense to spend more on their permanent staff. Holloran says the higher wages can pay dividends for the system.

“It’s better quality … it's better culturally speaking,” Holloran says.

Some organizations are also adopting the philosophy that “retaining is the new recruiting,” he says.

Health systems that are faring better when it comes to finding and keeping clinicians and other key personnel are going to have more success, Holloran says.

“Those organizations that are better recruiters, better retainers, and that's a cultural thing that I keep getting back to, are going to outperform those that aren't,” Holloran says. “People who don't recruit and don't retain well, have good culture, they will struggle more.”

Some organizations are reporting more “boomerangs”, referring to workers who left a hospital and opted to return to the organization, Holloran says.

“They’re worth their weight in gold, you know, because they hit the ground and they're running day one, versus a new hire nurse,” he says.

Vacancies ‘across the board’

Many hospitals have struggled to retain registered nurses, and that’s been a continuing problem for health systems, Holloran says.

But hospitals are also still struggling to fill a variety of roles.

“It's all across the board, quite frankly. And you see a little bit of labor wars going on in certain markets,” he says.

Some health systems are grappling with shortages for information technology staff, including cybersecurity professionals.

“It makes for, depending upon your location, a sort of hyper-competitive position for all labor, not just clinical RNs,” Holloran says.

Hospitals and health systems are increasingly focusing on developing a better pipeline of talent for a variety of roles, Park says. But as he says, building a more robust pipeline can take years.

“The hiring pipeline is growing,” Park says. “It's taking a little bit of time to get there.”

While the dropping rate in vacancies is largely a reflection of an uptick in hiring and retention, Holloran and Park also say some of that decline could reflect some vacant positions being eliminated. Some organizations are also adopting technologies to automate some business functions.

Some systems are reducing staff positions to cut labor costs, including at the managerial level.

“If you need to change the cost structure, you need to change that big rate of cost, that includes your executive-level personnel and your managerial level,” Park says.

Nonprofit hospitals are generally showing better financial performance, but it’s unclear how much they will rebound, Fitch has said. Fitch has continued to hold a negative outlook for the nonprofit hospital sector.

“Nobody truly knows as of yet what the new normal is in terms of the labor industry for healthcare,” Park says. “But what we do as of now is that the openings are still above pre-pandemic averages, the ‘quits’ are still above pandemic averages. We're not back to pre-pandemic levels in terms of the need for clinical talent.”

Turnover rates continue to surpass pre-pandemic levels. Organizations are still “paying more to get people in the door, and it's taking still more time to get people in the door,” Park says.