While payers are facing headwinds going into the latter part of this year, the ongoing financial impacts of healthcare's labor shortage will be felt in the hospital sector far longer, according to a new report from analysts at Moody's Investors Service.
The "acute" impacts of labor issues have tapered off, according to the report, but "the budgetary aftershocks will reverberate for years to come." The analysts expect that the labor issues will pull down hospitals' operating results through 2024, if not longer.
For example, though conditions have improved, the industry's nursing shortage is expected to extend through 2030, according to projections from the Bureau of Labor Statistics. This will force hospitals and other providers to develop and roll out new strategies that blunt the impacts, the Moody's analysts said.
"Hospitals are benefiting from some expense relief as staffing has become easier and the need to use pricey contract labor has decreased," the analysts wrote in the report. "But it will take time for improved margins to follow and labor issues will remain an underlying sector challenge."
The report found that while things have gotten better on the labor front, hospitals' margins haven't rebounded at the same pace. About a third (33%) of hospitals rated by Moody's reported operating cash flow margins of less than 3%, according to the report. By comparison, 6% reported margins that low pre-COVID.
Meanwhile, the growth rate for salaries and wages did decline from 11% in 2022 to 7%, according to the report. However, this still tops pre-pandemic growth rates.
"Many nurses and other medical staff have used the huge demand in the past few years as leverage to obtain greater opportunities in terms of flexibility and premium pay," according to the analysts.
The report also noted that given this labor environment, hospitals are likely to continue to face costly and difficult negotiations with nursing unions and other organizations. This trend follows a recent uptick in union membership across the country and "some increasingly contentious labor relations," the analysts said.
For insurers, by comparison, though major firms were off to a strong start for the year, Moody's experts expect that to slow in the back half of 2023 compared to 2022. A key factor is the onset of Medicaid redeterminations, which are anticipated to continue for months.
These eligibility rulings are likely to ding Medicaid membership expansion as well as the commercial sector, both of which are key areas for growth, according to the report.
In the first quarter of this year, payers benefited from strong returns on investments, and the redetermination process had not yet begun. Medicaid eligibility determinations resumed in April, and have made themselves known in Q2. Elevance Health, for instance, reported a loss of 135,000 members in this sector during the second quarter.
In Q1 2023, the insurers rated by Moody's saw Medicaid enrollment increase by 7.4% year-over-year. However, at least 1.65 million people have been disenrolled since eligibility determinations began in earnest, according to a report from the Kaiser Family Foundation.
The analysts said that Moody's projects that 4 million people will lose coverage in Medicaid this year, though some of those losses will be offset by corresponding gains in the individual market.
"The onset of Medicaid redeterminations, plus sluggish economic conditions, will result in lower Medicaid membership and hurt commercial membership growth, which is a key driver of earnings growth," the analysts said.
The report also analyzes the healthcare services market, including physician groups, home health and other provider segments. The experts said that proposed Medicare reimbursement rates would pressure hospice and home health providers given the current labor market. The Centers for Medicare & Medicaid Services has proposed a 2.8% increase for hospice providers and a 2.2% decrease for home health, both of which fail to keep up with wages, according to the report.