Moody’s: Nursing shortage hits hospital margins hard

Hospitals across the country are suffering financially as the nursing shortage worsens, according to a new report from Moody’s Investor Service.

As the population gets older and chronic conditions become more prevalent, hospitals are stretched to meet growing healthcare needs. Making matters worse, the supply of nurses can’t keep up with the demand—a disparity that will last for several years, the report finds.

"Labor is the largest hospital expense and is increasing faster than total expense growth while outpacing revenue growth,” Moody's Analyst Safat Hannan said in the report announcement. “The lack of qualified nurses will compound these expense pressures and negatively affect hospital margins.”

Until supply increases, the shortage of nurses will hurt hospital margins as organizations try to attract nursing talent with higher salaries and other costly incentives. Frequent turnover among nursing staff who switch to better paying contract work or short-term jobs also puts upward pressure on wages and on hospital expenses, Moody’s notes.

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In addition to traditional incentives like hiring bonuses, some hospitals are paying billions of dollars to train and recruit travel nurses. Other hospitals cover relocation costs and reimburse college tuition for long-time employees and their children. For example, nurses who work at UC Health can receive up to $4,000 a year to pursue continuing education.

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The current nursing gap is more difficult to navigate than previous shortages and is headed for crisis proportions. By 2024, the demand for registered nurses will top 1 million, according to the Bureau of Labor Statistics. Hospitals in the South and West will experience the greatest need for nurses.

Moody’s predicts the shortage will hit hospitals in Florida, Texas and California the hardest due to strong population growth, increasing average age and fewer nurses are entering the workforce in those states.

Hospitals that can better address the shortage and close gaps are those that either own a nursing school or are affiliated with a nursing program, such as many large urban hospitals, according to Moody’s. That’s because nurses tend to work near where they attended school and trained. The proximity to nursing schools, the ability to pay competitive wage, and the perks of a city environment put large urban hospitals at an advantage when it comes to attracting nursing talent.