The Enduring Place of Contract Labor in the Healthcare Workforce

Over the course of the pandemic, hospitals significantly ramped up their usage of contingent labor and saw their costs soar more than 250%, according to recent data. In the aftermath of this experience, many hospitals and health systems are hyper-focused on getting their contract labor costs under control as they navigate their way out of the worst of the pandemic. And while I completely understand this instinct, I do worry that the pendulum has swung too far in the wrong direction, and the industry is taking away the wrong lesson from Covid-19.

In nursing specifically, the reality is that there just aren’t enough clinicians to go around. We’ve been in the midst of a nursing shortage that predates Covid, and every projection calls for that shortage to increase in the years to come. What’s more, the very nature of nursing — with its seasonal fluctuations, FMLAs and higher-than-average time to hire — more or less necessitates the usage of contract workers. My belief and my hope for the industry is that rather than try to avoid contingent labor altogether, the goal should be to find a balanced, cost-effective mix of both contract workers and FTEs.

Finding Balance

Many hospitals are still reeling from the worst of the pandemic, when pay rates for travel nurses spiked to $150 an hour, three times the national average for full-time staff nurses. Unfortunately, as a result, many mistakenly associate any usage of contract labor as the less cost-effective choice. The reality is that staffing to the average of your census with some contract labor — generally speaking, 5-7% is a good target —  is comparable from a cost perspective to mandating overtime for staff nurses. It also offers a layer of flexibility that keeps your full-time nurses happy while still allowing you to fill last minute shifts.

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Happily, the last few years have seen a wave of innovation from a workforce perspective, with new technologies and approaches that allow hospitals to find the optimal staffing mix. AI and automation has allowed health systems like St. Louis-based Mercy to build an on-demand nursing workforce across inpatient, outpatient, post-acute settings that is optimized for fill rate, cost effectiveness and nurse satisfaction. The proof of this approach is in the numbers: Since its inception, Mercy Works on Demand has cut their travel agency spend by 62% and saved more than $30.7 million in rate reductions in premium labor spend.

Setting Up for Workforce Success

In order to take advantage of these new technologies and find a labor mix that makes sense for their organization, hospitals need to start preparing now. This means creating new workflows, policies and procedures that treat their workforce as a unified whole, rather than the siloed approach of travel, per diem and FTE that most currently use. I’m seeing more and more hospitals create dedicated roles or teams around workforce innovation — with skills across technology, staffing and clinical knowledge — in order to capitalize on the emerging technology and approaches in the space.

It’s no secret that healthcare staffing has been broken for a long time, and Covid merely exacerbated the existing cracks in the system. I know I am not alone in hoping that one of the pandemic’s legacies will be that we finally come together to address this problem. I am seeing a lot of encouraging signs in this direction and feel optimistic about what’s to come.

Becky Kahn

Becky Kahn
Becky Kahn is chief client officer at Trusted Health.

Becky Kahn

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