The COVID-19 pandemic has left hospitals facing higher costs across the board, according to a recent report from the American Hospital Association (AHA).
In fact, hospitals and health systems have significantly higher input costs for labor expenses, drugs, supplies and equipment. The report comes as inflation has reached 8.5% as of March 2022, according to the latest consumer price index from the Department of Labor. Coupled with ongoing challenges from the pandemic and previous cuts to Medicare payments, hospitals and health systems resources are more strained than ever, AHA found in its report.
“America’s hospitals and health systems, and our caregivers, have been on the front lines in fighting the pandemic for over two years now, facing numerous challenges along the way,” AHA President and CEO Rick Pollack said in a statement. “While we have made great progress in the fight against the virus, this report shows that we are not out of the woods yet when it comes to addressing the need to repair and rebuild our hospitals.”
Labor Crunch
Hospitals have played a pivotal role in the pandemic, and the issues are also compounded by a labor crunch across the healthcare industry. Hospital employment is down roughly 100,000 from pre-pandemic levels, according to the Bureau of Labor Statistics. To retain staff and recruit new employees, healthcare providers have been forced to boost pay and incentives.
Overall, labor expenses per patient increased 19.1% through 2021 compared to 2019 levels, the AHA found. Labor costs, including costs associated with recruiting and retaining employed staff, benefits and incentives, account for more than 50% of hospitals’ total expenses. That means hospitals have really been feeling the sting of this higher expense.
Additionally, hospitals and health systems have had a higher need for travel COVID-19 nurses, a position that typically fetches a higher wage. One recent study found hospitals are paying upwards of $150 per hour for COVID-19-specific travel nurses. In 2022, the total nurse labor expenses for contract travel nurses was 38.6% for hospitals in January 2022. That’s compared to a median of just 4.7% in 2019.
“Travel nurses are in particularly high demand because they serve a critical role in delivering care for both COVID-19 and non-COVID-19 patients and allow the hospital to meet the demand for care, especially during pandemic surges,” the report stated.
As the demand for travel nurses has skyrocketed, staffing agencies have increased their recruitment of contract or travel nurses. The hours worked by contract or travel nurses as a percentage of total hours worked by nurses in hospitals has grown from 3.9% in January 2019 to 23.4% in January 2022, according to data from Syntellis Performance Solutions cited in the AHA’s report. Unfortunately for hospitals, hourly billing rates that hospitals pay staffing firms for contract employees increased 213% compared to pre-pandemic levels and led to a 62% profit margin for contract staff agencies.
Rising Healthcare Costs
However, it’s not just labor costs that have stressed hospitals; drug costs have also risen dramatically over the last two years.
Here are the top expense increases for hospitals:
- Drug expenses per patient are up 36.9% compared to pre-pandemic levels.
- Drug expenses grew from an 8.2% share of non-labor expenses in January 2019 to 10.6% in January 2022.
- Medical supply expenses grew 20.6% through the end of 2021 compared to pre-pandemic levels.
- ICUs and respiratory care departments medical supply expenses increased 31.5% and 22.3%, respectively, from pre-pandemic levels.
“The dramatic rise in costs of labor, drugs, supplies and equipment continue to put enormous pressure on our ability to provide care to our patients and communities,” Pollack said. “The pandemic has clearly demonstrated that America cannot be strong without its hospitals and health systems being strong.”
According to AHA, the expense hikes are unsustainable for hospitals, and the organization has asked Congress to support healthcare providers with more aid. The expense increases as far out of the ordinary for hospitals, as well, as hospital prices have grown an average 2.1% per year over the last decade, according to BLS data.
“We continue to urge Congress to provide additional support to address these challenges, including by reversing harmful Medicare cuts, replenishing the Provider Relief Fund, granting flexibility on accelerated and advance Medicare repayments, and extending or making permanent critical waivers that have improved patient care,” Pollack said.
Amy joined TriMed Media as a Senior Writer for HealthExec after covering home care for three years. When not writing about all things healthcare, she fulfills her lifelong dream of becoming a pirate by sailing in regattas and enjoying rum. Fun fact: she sailed 333 miles across Lake Michigan in the Chicago Yacht Club "Race to Mackinac."