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The Truth About Procuring Healthcare Labor & Containing Labor Costs

With so many dire issues surrounding the healthcare workforce today – from severe labor shortages to unsustainably high labor costs – there’s never been a more important time for the Healthcare Financial Management Association (HFMA) to bring professionals together from across the industry to discuss solutions. Hospitals and health systems are hurting after more than two years of COVID-19 worsening workforce challenges that started well before the pandemic. As an exhibitor at HFMA’s June conference in Denver, our team was excited to see and speak with finance executives who are getting more directly involved in workforce planning and strategy.

At the same time, however, in those conversations, we did encounter a few lingering myths about labor sourcing. Here are some of the misconceptions we ran into and the hard facts every healthcare leader needs to understand.

Myth #1: Nurses and other clinicians just aren’t out there.

Nurses and clinical staff are certainly hard to come by these days. One survey found the turnover rate for staff RNs in 2022 stands at 27.1%, with the average hospital requiring three months to recruit an experienced RN. This level of turnover is likely to persist even past the pandemic due to generational turnover. At the same time, the nurse vacancy rate has mushroomed. For example, according to one report released this month, the vacancy rate for nurse positions in Massachusetts hospitals more than doubled from 2019 to 2022.

It can be easy to conclude there just aren’t enough qualified nurses available to fill open vacancies, and that’s why vacancy rates persist or worsen. However, such a conclusion overlooks the degree to which staffing agencies and managed service providers (MSPs) have successfully drawn a huge segment of the clinical workforce away from core full-time employment. Travel nursing job volume quadrupled between 2020 and 2022.

As a result, we don’t believe the shortage is as vast as many healthcare organizations may assume. It’s not that the nurses aren’t out there. It’s just that you don’t have those nurses. The staffing agencies do.

Myth #2: The nurses will come back on their own.

Too many healthcare executives see these workforce woes as transient. They are hoping that employment will return to pre-pandemic levels, with 80-95% of staffing needs filled by full-time and part-time staff. Unfortunately, as we highlighted above, the pandemic did not create this situation; it only accelerated it.

The labor market in healthcare has changed. While some nurses will likely return to full-time employment as they burn out on constant travel – and travel labor rates eventually come back down – many nurses will not. This workforce of clinicians has tasted flexibility, control over their schedules, and better work-life balance, and they will only want more in the future. If they don’t get these benefits from the hospitals where they work, they’ll get them from the agencies that contract with those hospitals.

But as long as healthcare organizations operate under this myth, they will continue trying to build a product the applicant market simply isn’t buying any more (e.g., including steep work requirements like three shifts a week and every other weekend). Without the flexibility and control the market wants, there’s no deal. The hospital may want to keep its traditionally rigid scheduling structure, but the applicant market isn’t interested in that. If it’s all that’s offered, they’ll just go somewhere elsewhere.

Myth #3: Until the nurses come back, external travelers and contingent workers are the only options.

Finance leaders are the financial stewards of their organizations. They already know excessive use of travelers and per diem, staff cannot continue indefinitely. HFMA reported last year that clinical labor costs increased by 8% per patient day compared to 2019. Nurse travel rates have jumped over 200% and now average $154 per hour (with some as high as $225/hour).

This isn’t just a problem for hospitals, either. A 2021 Hallmark Health Care Solutions survey of staffing agencies found that over two-thirds of respondents reported less success in placing nurses when they are working through a third-party MSP.

Here’s the reality: You can attract these employees without going through a single agency that monopolizes the bill rate.

As one of the only exhibitors at the HFMA Conference with technology that operationalizes internal agencies and resource pools; we know firsthand that healthcare organizations can compete directly with the agency model. Even better, it can be done at literally no cost to the hospital or health system. Hallmark's Contingent Labor Platforms work by creating an open market approach to procuring contract labor. It enables hundreds of agencies to submit candidates directly to a hospital for contract labor procurement, which in turn incentivizes competition, the crucial ingredient in driving down bill rates.

Side note: While there is common knowledge in the healthcare world about how MSP models work – and many finance leaders have already realized that those partnerships do not allow for an alignment of financial goals – there is much less clarity about why or how a traditional MSP model slows procurement and drives bill rates up. For more information on this topic, read our whitepaper, “8 Myths of Working with Managed Service Providers.”

Myth #4: If work models have extreme flexibility, the workforce will gravitate toward the lowest requirements.

Healthcare organizations naturally fear that offering the degree of flexibility that contract and gig workers want will lead to unfilled shifts. If you drop crucial requirements – like mandating three shifts a week and every other weekend – needs will go unmet, right?

The answer to that question is no. Surprisingly, these workers will work double or triple when empowered to do it on their terms.

Matt Dane, DNP, MBA, RN, Vice President of Business Development at Hallmark Health Care Solutions, described for us last month his own experience launching an internal resource pool using Hallmark's solution when he was a health system CNO. His team offered a flexible work model that required participants to work only one shift every six weeks. Before launch, everyone feared these flex workers would limit themselves to only that single shift. However, almost everyone worked at least two shifts every week. The program didn’t require any nights or weekends, yet one-third of program hours were nights and weekends because those hours worked best for certain employees.

Transforming these truths into action: What should hospitals and health systems do with this information?

Now is the time for healthcare leaders to rethink workforce strategies for a sustainable future. Hospitals should be using the time before flu season, before the census goes up again, before more workers retire, to create fact-based strategies for the future.

What’s the first step? Technology will be instrumental to operationalizing any successful strategy, so healthcare organizations need to begin separating the wheat from the chaff among technology offerings. Start by prioritizing your organization’s unique needs and concerns. Make sure any system under consideration will address all of them and, most importantly, ask a lot of questions.

For more help in the technology evaluation and selection process, contact us for personalized guidance.