June 17, 2022

Hospitals are Charging Patients More, Allegedly to Offset Rising Nurses’ Salaries

Hospitals are Charging Patients More, Allegedly to Offset Rising Nurses’ Salaries

Right now, there's unprecedented stress on the healthcare system. As empty hospital beds became sparse during the pandemic, hospitals had to expand staffing to keep up with demand. In many cases, hospitals turned to contract nurses to fill in the gaps. Two years since the start of the pandemic, patient levels are returning to normal, but hospitals are claiming that they are still taking on more expenses. To offset these costs, even some of the most expensive hospitals are looking to raise care costs to patients and employers. 

While the exact details of these price increase negotiations aren’t clear, those close to the talks claim that healthcare providers want to raise prices by 7.5% - 15%. They claim that rising nursing costs are the main reason behind seeking a price hike. During the pandemic, labor expenses did go up about 37% per patient, which amounts to about $4,000 to $5,500 per patient. However, those opposed to passing the cost on to patients argue that the problem is more complicated than labor expenses. 

Prior to the pandemic, many hospitals were already struggling with labor shortages that they filled with contract nurses. This hiring practice only increased as patients started flooding hospitals. The challenge is that contract nurses can earn at least three times the salary of permanent staff nurses. State and federal governments helped cover some of these costs so that patients could receive care, but now that these funds are being discontinued, hospitals are looking for new ways to cover the costs and patients might be the ones who have to pay up. 

According to Erik Swanson, Senior Vice President of Data and Analytics at Kaufman Hall, “The pandemic made longstanding labor challenges in the healthcare sector much worse, making it far more expensive to care for hospitalized patients over the past 2 years.”

Why Labor Expenses Are Shifting To The Payors

Moving forward in a post-pandemic world, hospitals are shifting the burden of labor expenses to the payors.

While hospitals tend to lay out the issue as rather straightforward, Rachel French, Ph.D., and RN makes the point that this approach is a distraction from the real issue:

“This blame [for increased costs] has been misdirected in so many ways. Blaming this ‘machine’ of travel nurses who are making wages that have never been seen before in the field of nursing … what I think this does is distract from a relevant conversation. It pins [the blame on] the wrong people … the people who deliver care instead of the people whose job it is to think about profit and workforce staffing issues, who are not the people delivering healthcare.”

Jack Needleman, Ph.D., a professor and chair of the department of health policy and management at the UCLA Fielding School of Public Health agrees that hospitals are unfairly blaming nursing salaries for added expenses without taking a broader view of the problem,

“The executives only see that nurses are one-quarter of the hospital costs and thus a cost center to be managed rather than the service line to be promoted and enhanced,” he said.

French and Needleman are not the only ones calling on hospitals to find better, more effective staffing strategies. There are many who claim that hospital administrators should be doing more to attract and retain staff nurses. Pay is definitely a factor, but the work environment, scheduling, and many other factors create dissatisfaction and burnout among nurses.

Nurses Turning to Contract Work, Retention is Suffering 

With inferior working conditions and pay, it is no surprise that many are turning to contract work, which begs the question: why don’t hospitals simply pay staff nurses a better wage?

Hospitals claim that it wouldn’t be feasible to significantly raise nurse staff salaries. John Galley, a chief human resource officer at the University of Pittsburgh Medical Center argues that “If you were to double a good portion of that — the nursing salaries — you'd completely wipe out any operating margin. Then you wouldn't be able to invest in anything to keep the hospitals going.”

However, it is important to remember that medical costs aren’t the same across the board. The identical procedure at two different hospitals could result in vastly different bills. That is why insurance and employer and advocacy groups are against raising prices for patients. These groups claim that some of the costliest hospitals, which often bill for over five times the Medicare rates, could easily absorb any additional expenses without substantially eating away at their profits.

Ultimately, the pandemic created an even bigger demand for travel nurses who could alleviate staffing shortages in an extremely stressful time. This allowed them to earn top dollar. Now that the crisis has abated, hospitals claim that they need to raise prices for patients in order to cover increasing nursing salaries, but it seems like the increase in labor expenses is still tied to travel nurse salaries. This is why many contend that placing staff nursing salaries somewhere between their current levels and travel nurse earnings, could remedy the problem altogether. Retention rates could increase and hospitals have a more definitive number for labor expenses that wouldn’t fluctuate as much.

While there are many sides to the argument, the fact remains that patients and employers could end up paying if many major hospital systems get their way and are able to secure price increases. Meanwhile, around 56% of nurses continue to leave during their second year of work. 

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