U.S. hospitals are still seeing the effects of a tightened labor market due to the COVID-19 pandemic, even as federal funding and the vaccine rollout could offer some relief for the industry.

According to April 10 data reported to the U.S. Department of Health and Human Services, 657 hospitals across U.S. states and territories reported that they were experiencing a critical staffing shortage that day, about 11.8% of hospitals that responded on that metric. At the same time, 787 reported that they expected to experience a critical staffing shortage within a week, or about 13.9% of hospitals that responded on that metric.

The hospital industry is no stranger to staffing shortages; it has faced thousands of open nursing positions in past decades, Peter Buerhaus, nurse economist and director of Montana State University's Center for Interdisciplinary Health Workforce Studies, said in an interview with S&P Global Market Intelligence.

"I'm talking anywhere from 75,000 open positions that hospitals couldn't fill all the way up to 125,000 to 130,000," Buerhaus said. "These were the big category fives, these were knock-down, drag-out — I mean, they just were tough."

However, the length of the COVID-19 pandemic and its effects on employees have put a unique kind of pressure on hospitals, according to Suzie Desai, S&P Global Ratings senior director and not-for-profit acute health care lead.

"There [was] burnout, there were people retiring early just because of the nature of the situation. ... Staff was needing to be quarantined because they were exposed," Desai said. "So you had all those kinds of dynamics that don't necessarily always come into play in typical years, where it's just sort of the normal nursing shortages in any community."

HHS's Office of Inspector General ran a pulse survey of 320 hospitals nationwide in February and found that people were performing many different clinical and administrative duties in order to bridge staffing gaps, which put extra stress on the workforce. The emotional toll along with some higher-paying opportunities caused a lot of turnover, particularly among nurses, according to the OIG survey.

An American Nurses Foundation survey of more than 22,000 U.S. nurses found that 18% of respondents were planning to leave their current positions during the next six months while 21% had not yet decided. Nearly half of those nurses who planned to leave said their work had negatively affected their health and well-being, while 45% of them cited insufficient staffing as a reason for wanting to leave.

Desai said that many hospitals have already increased their labor budgets going into 2021. As the second quarter begins, hospitals will face questions around whether their labor costs exceeded what they budgeted for and how that will affect their margins, Desai said.

The impact on hospitals

Consulting firm Kaufman Hall's National Hospital Flash Report, which looks at data from over 900 hospitals, showed that in February, hospitals' total labor expenses increased 3.9% year-to-date and 1% year over year. Labor expense per adjusted discharge rose 25.4% year-to-date and 18.8% year over year as hospitals maintained higher staffing levels.

Labor and staffing costs already equate to about 50% of a hospital system's total expenses, Desai said. During the last year, hospitals spent more money on meeting requirements through contract staffing organizations, which hospitals have been competing with for employees, according to the OIG survey.

"Many hospitals reported that they were unable to compete with staffing agency salaries, with one administrator describing the competition over healthcare workers as a 'wage war,'" the report's authors wrote.

During fourth-quarter 2020 earnings calls, executives from HCA Healthcare Inc. and Universal Health Services Inc., the two largest for-profit healthcare systems in the U.S., described increased labor costs related to nurse staffing as COVID-19 cases rose in the latter half of the quarter.

UHS CFO Steve Filton noted the company experienced a lot of wage pressures not only from paying staff overtime and hiring temporary nurses but also from staff leaving due to early retirement or higher-paying opportunities elsewhere.

A representative for HCA declined to comment further on how the company was impacted but directed S&P Global Market Intelligence to a series of measures the company took to help employees including quarantine pay of 100% of base pay for patient care staff that was forced to quarantine due to a positive COVID-19 test or exposure and 70% of base pay for employees in care settings with reduced hours.

A representative for UHS did not provide further comment by the time of publication.

For some hospitals, Desai said, an increased labor budget may eat into their margins while others will be able to adjust other parts of their budgets as needed.

"They have to keep looking for new ways to keep their cash flow to certain levels so they can continue to invest in the things that they need to invest in," Desai said.

Looking ahead

During a March presentation at the Barclays Global Healthcare Conference, UHS' Filton said the company was hoping to see a "measurable impact" in the easing of labor woes during the month as the vaccine rollout picked up and COVID-19 cases decreased.

However, respondents to the OIG survey were concerned that COVID-19's impact on staffing would be felt over the next few years if it deterred people from entering the medical profession. These respondents also said new nurses may not be as well trained on treating other ailments as they have been focused on COVID-19 over the last year.

According to Therese Fitzpatrick, senior vice president at Kaufman Hall, nursing schools were struggling to bring new graduates into the workforce because all of their resources were focused on meeting patients' needs amid the pandemic. However, Fitzpatrick noted that the "Fauci effect," coined after U.S. National Institute of Allergy and Infectious Diseases director Anthony Fauci, appears to be taking shape.

"We're now beginning to see an increase in interest in nursing, physical therapy, other clinical programs as a result of this. ... So that means that we're going to have this bolus of millennials and Gen Z's coming into the workforce, and we will need to accommodate to those needs as well," Fitzpatrick said.

Montana State's Buerhaus said it would be concerning if data showed that more experienced nurses were exiting the profession at a faster rate than new nurses were entering it.

"When [retiring nurses] go out, we've been having a growth in their supply that we can replace those nurses, one for one, but what you can't replace is all that that knowledge and sophistication and experience," Buerhaus said. "And in part what is hard for organizations is really replacing that person with so much of a background."