Is Your Healthcare MSP Over-Committed?

healthcare costsFirst, let’s start with a definition of MSP.  According to the Staffing Industry Analysts:

Managed Service Provider (MSP) is a service whereby a company takes on primary responsibility for managing an organization’s contingent workforce program. Typical responsibilities of an MSP include overall program management, reporting and tracking, supplier selection and management, order distribution and often consolidated billing. The vast majority of MSPs also provide their clients with a vendor management system (VMS) and may have a physical presence on the client’s site. An MSP may or may not be independent of a staffing supplier.

The healthcare industry may have been late to welcome the MSP (and VMS) business model, but anyone familiar with the healthcare supplemental staffing market understands that MSP adoption has accelerated rapidly in the past 10 years, driven primarily by the large unmet demand for nursing professionals. As this growth has compounded, many of us are asking how MSP providers have delivered on the promise of increased operational performance and financial savings for their clients. In other words, is it working? And if so, how could it work better? Surely there are lessons to be learned.

Why MSP?

In reviewing how the market has changed from the early 2000s, when most healthcare providers had contracts with an assortment of different agencies – often under different pricing and contractual terms,  it is apparent that MSPs have delivered value in a variety of ways. Enforcement of rigorous contract requirements has enabled hospitals to standardize job descriptions, address quality, credentialing and compliance requirements, while reducing their risk of exposure in the process.

For example, the widespread use of 1099 contractors (usually without the knowledge of the hospital) has been impacted significantly. Additionally, by using a trusted MSP partner, hospitals have sought access to staffing best practices, market intelligence and streamlined on-boarding processes. Similarly, by utilizing VMS software and other tools, hospitals are better able to measure and in many cases forecast their utilization patterns and identify areas of further opportunity—not only in their use of contract labor, but also in the context of their overall workforce strategy. In short, MSPs have to a large extent enabled hospitals to focus on their core competencies of delivering quality patient care while gaining access to a variety of human and technology resources to manage their contingent workforce.

But there is more to the story. Let’s look at the travel nursing market, the largest segment of healthcare staffing industry, which has experienced record price inflation and is the source of the majority of supplier-led MSPs. One unique aspect of healthcare staffing is the national scope of the talent pool and the complications of relocating, housing and licensing traveler staff to the hospital. Regional and seasonal fluctuations in supply and demand of temporary staff are related to the overall nursing shortage, which may be fundamentally demographic for areas with aging populations, or may be more related to a scarcity of educational opportunities in other areas.

For most hospitals that rely on a significant amount of clinical contract labor, it is very important to have access to this national talent pool. By comparison, for many other industries, the potential pool of local workers can easily transition from one approved MSP provider to the next. Not surprisingly, some of the largest national traveler agencies have been successful in building their MSP businesses given their strong supply and national scope. In fact, the majority of supplier-led MSP firms built their foundations in the travel nursing space.  However, in many cases visibility to trends in supply, demand and pricing is actually diminished as a result of the exclusive MSP relationship. While the hospital often gains in process improvements, they may also lose access to their previous preferred agencies and an independent perspective on market dynamics. This is impacted further by the well-documented nursing shortage in the US, but not always in the ways that may be expected.

PREMIUM CONTENT: MSP Market Developments Summary

The Supply Conundrum

In theory, having an MSP led by a strong national staffing company should address these concerns. However if that were the case would we be witnessing the deterioration of fill-rates and the ability of MSPs to provide staff under the standard rates negotiated in their contracts? Is the nursing shortage simply that acute? There certainly are a finite number of qualified nurses in the country. Soare there other factors at work?

Some of the reasons that MSP fill rates have been lower than hospitals’ expectations are undoubtedly related to the supply. But despite the popular perception, the reality is that the demand for travel nursing has not increased substantially in the past two years, while supply has grown. This may seem counter-intuitive given the nursing shortage and the fact that pricing for travel nurses has steadily increased with no clear end in site. We have documented this trend in our own analysis, and it is borne out by the NATHO Open Orders Index which shows year-over-year unmet demand.

Source:  National Association of Travel Healthcare Organizations (NATHO.org)

Source:  National Association of Travel Healthcare Organizations (NATHO.org)

Given relatively flat demand and significantly higher penetration of MSPs, one nagging question is: are hospitals being artificially restricted access to the supply of available staff? Several of the supplier-led MSPs with the most exclusive agreements have actually not added significant numbers of nurses to their payrolls in the past twelve months, and may have even experienced a decline.Yet these firms are taking on more new MSP clients than ever, often with multiple “exclusive” clients in the same market. In this scenario, individual nurses are typically directed to the hospital with the higher bill rate.

Your MSP may have a group of sub-contracted agencies that support your hospital’s staffing needs, but are those agencies truly motivated to prioritize hospitals at a lower effective bill rate, longer payment terms and low visibility to core hospital needs in real time? The answer in many instances is “no,” particularly when the situation is exacerbated by their risk of losing their top staff to the more strategically situated MSP agency. Additionally, many of the strongest agencies have elected not to support these MSPs due to adverse contractual language or their perceived business practices.

“Crisis” Management

All too often hospitals are approached for elevated, or even “crisis” rates when they struggle to fill needs at their contracted rates. Since the hospital cannot easily validate market data and are restricted from outside relationships with other agencies, they frequently resign themselves to the “new normal.”  But while to some extent this might be expected for certain specialties or seasonal fluctuations, is it a market-driven phenomenon that a hospital is required to pay crisis rates for Medical/Surgical RN openings that have gone un-filled for months? At this point, it becomes prudent to question the market intelligence provided by your MSP. Is there always a need for elevated pricing to access supply?Or is your MSP simply over-committed?

An MSP becomes overcommitted when they sign up too many customers, but have not grown their own supply or otherwise filled the gap with supporting agencies. Confronted with this situation, it may very well seem to hospitals that the overall demand has surged ahead of the supply in the market for contingent staff. Sure enough, this is exactly the rationale often used by MSPs to justify crisis rates, essentially forcing their clients to bid against each other for the artificially limited supply resulting from their exclusive contracts.Moreover, as these hospitals increase their rates to access nursing supply, other competing hospitals in the market are often compelled to follow suit, resulting in a vicious cycle of bill rate inflation. Viewed in this light, it becomes apparent that overcommitted MSPs are not merely reacting to market-driven forces, but are actually creating many of these imbalances which affect market pricing for supplemental staff.

While many agencies may welcome this type of market inflation, others recognize that it is not sustainable and is not in the long-term best interests of the hospital or the agency community.In our own experience, whenever we have had the opportunity to submit staff at market rates to a facility unable to fill their needs under their MSP agreements, the net result has been a reduction in overall rates.

When evaluating whether to select (or change) an MSP, hospital systems should explore whether the MSP is already overcommitted to avoid this paradigm. Not only should they ask how many exclusive client relationships the MSP has – particularly in their own market(s) – but they should also explorethe extent to which the MSP agency has increased their internal staff to support new clients and how they engage their sub-contracted agencies to support their endeavor. By addressing the underlying over-commitment of MSPs, rate inflation can be mitigated and discussions of pricing can be centered on the fundamental market dynamics.

MORE: The Incestuous Nature of Healthcare Staffing VMS/MSP

Peter Kaufman

Peter Kaufman
Peter Kaufman is vice president of workforce strategy at Aya Healthcare. He can be reached at pkaufman (at) ayahealthcare (dot) com.

Peter Kaufman

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