🔒‘Unsustainable’: Tight competition for nurses leads hospitals to use expensive agency labor

As hospitals struggle to retain nurses, they’re increasingly being forced to hire workers from staffing agencies to fill needed positions, driving costs to unprecedented and unsustainable levels, health system executives say.

Hospitals are augmenting their employed nursing staff with traveling nurses who are contracted by various hospitals, often located more than 50 miles from their home.

The tight labor market has allowed staffing agencies to poach hospital nurses with the lure of higher wages. So, unlike the practice of outsourcing labor to save money, hospitals are paying a premium to supplement their workforce through a third party, just to survive.

The issue has caught the attention of state lawmakers concerned with the escalating costs and quality of health care. The General Assembly earlier this year passed a law placing tighter scrutiny on staffing agencies and the prices they charge hospitals, nursing homes and other care providers.

“At the height of the pandemic, some of the nurses were making $10,000 a week for contracts that would run for like an eight- or 12-week period,” said Lisa Zapatka, chief nursing officer for Trinity Health of New England, the parent company of St. Francis Hospital and Medical Center in Hartford. She said some nurses used the extra money to travel, pay for a wedding or pay off student loans.

Increased demand

Trinity Health of New England’s labor costs as a percentage of revenue increased 3.7% between fiscal 2021 and 2022, for a total of about $68 million, according to Jennifer Schneider, chief financial officer for the organization.

Nationally, total hospital expenses were up 8.9% year-to-date as of September 2022, with labor expenses per adjusted discharge up 9.9%, according to a Kaufman Hall report.

At the same time, full-time employees per occupied bed were down 3.3% from July.

Statewide, contract labor costs have increased 50% since 2019, according to Mark Schaefer, vice president of finance for the Connecticut Hospital Association.

The reasons are twofold: hospitals needed more nurses to deal with the surge of patients during the pandemic; and staffing agencies took advantage of the spike in demand by increasing their prices, Schaefer said.

The pandemic shortages intensified the gap between supply and demand, and as of March 2022, the median wage gap for contract nurses was more than three times higher than the wage rate for employed nurses, according to Kaufman Hall’s analysis.

The state’s nursing shortage has been looming for more than a decade, and hospitals have tried to prepare, working to bolster college nursing programs and add faculty, and to promote nursing as a career.

But the pandemic increased the demand for nurses, while straining existing resources. Some nurses retired early or left the industry for more lucrative or remote-friendly jobs with insurance companies; others are making more money working as traveling nurses for a hospital vendor.

Hospital executives say agencies took advantage of pandemic-fueled demand to jack up their prices, passing along the costs.

“Certainly some organizations are filling the hole by hiring travel nurses,” said Vincent Capece Jr., president and CEO of Middlesex Health, parent to Middlesex Hospital. “But that comes at a really high price. And it’s really not sustainable. … It’s a game of supply and demand. So, if there’s a huge amount of demand and not a lot of supply, obviously the price goes way up. We saw costs for travel nurses go through the roof during the pandemic.”

Hard work

With older nurses opting to retire, hospitals are hiring more nurses directly out of college who need extra training and supervision — at a time when patients are generally sicker and need a higher level of care.

Prior to 2019, Middlesex Health typically recruited 10 nurse residents per year. Now, that number is roughly 40, said Kelly Haeckel, vice president of patient care services and chief nursing officer.

Hospitals need to balance the number of novice nurses with those who have more skills and experience, she said.

Compounding the hospital shortage is the nature of the work: long hours, heavy demands and sometimes belligerent patients.

“The work in a hospital is really hard,” Haeckel said. “It’s grueling. Our patients are more sick. The hours are difficult. You have to work weekends, they work holidays, we work off-shifts. That is what is expected of a registered nurse. It is a lot and we need them. It’s one portion of our workforce that’s critical in order to care for patients.”

To attract and retain nurses — or in some cases to lure them back from an agency — hospitals are offering perks like flexible schedules, unlimited overtime and more vacation.

Middlesex Health, which has about 3,000 employees across its system, has roughly 300 open positions — about double the average number of openings prior to the pandemic, Capece said.

The labor shortage spans all sectors of the hospital industry, from doctors to receptionists, but is most pronounced among nurses because they make up the highest percentage of the hospital workforce, he said.

The General Assembly also took action last session, placing restrictions on staffing agencies that provide nurses.

Public Act 22-57 requires temporary nursing service agencies to: register annually with the state Department of Public Health; enter into written agreements with healthcare facilities to which they assign personnel; and report their costs, among other things.

In addition, it requires the state Department of Social Services and DPH to evaluate the rates agencies charge nursing homes.

Those requirements go into effect next year. The legislation had support from nursing homes as well as nursing labor unions.

The American Staffing Association, which represents the state’s healthcare staffing firms, opposed the legislation. In written testimony from Toby Malara, vice president of government relations, the group said temporary nursing is an “attractive option” and keeps nurses who would otherwise leave the industry because they can receive competitive wages with greater scheduling flexibility, which helps to mitigate the nursing shortage.

In the testimony, Malara said the cost of nurse staffing services has risen as a result of a supply-demand imbalance that required staffing agencies to offer higher wages to attract and retain nurses.

“History shows that price controls always distort markets, and caps on staffing agency bill rates would mean that agencies could not economically afford to pay market wages — forcing nurses to work in other states or leave the profession entirely, to the detriment of patients,” Malara wrote.