Pandemic-era overtime, agency staffing costs U.S. hospitals an extra $24B per year

The healthcare industry’s well-documented labor crunch is fueling an average 8% increase in daily clinical labor costs for hospitals, translating to an additional $24 billion in nationwide annual spending on clinical labor, according to a new workforce data analysis.

Premier Inc., which conducted the analysis using its PINC AI technology platform, said the increase would add $17 million to the annual labor budget of an “average” 500-bed healthcare facility.

Contributing to the gain is a 52% increase in overtime hours as well as a roughly 130% increase in the use of agency and temporary labor. Both labor sources typically cost hospitals 50% or more than a typical employee, the group wrote.

Premier’s data also suggest hospital workers are working harder and, as a result, are more frequently at risk of illness or burnout.

Worked hours per unit of departmental volume increased by 7% to 14% year over year across ICU nursing units and emergency department units, the group wrote.

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Compared to pre-pandemic, use of sick time has risen by more than 50% for full- and part-time staff working in intensive care units. Collective turnover across ICUs, nursing units and emergency department units has risen from 18% to 30% during the same time period—a rate that Premier noted could see another bump in the coming weeks as healthcare vaccination mandates begin to take effect.

“Overall, staffing agencies are predicting up to a 5% resignation rate once vaccine mandates kick in,” Premier wrote in the report. “While a minority of the overall workforce, losses of even a few employees during times of extreme stress can have a ripple effect on hospital operations and costs.”

Premier based its analysis on clinical workforce information collected through its PINC AI platform. These data covered the window between October 2019 and August 2021 and are collected on a daily, biweekly and quarterly basis from hundreds of U.S. hospitals.

Premier noted that its analysis falls in the wake of an American Hospital Association and Kaufman Hall report that estimates hospitals will lose $54 billion in net income during 2021. That loss comes after accounting for $176 billion in CARES Act funding, which was not directly addressed by the government relief and are "further eating into hospital finances,” they wrote.

Alongside increased costs, rampant short staffing has strained relationships between hospital administrations and the clinical workforce. National groups have called on the Biden administration to take action on what they consider to be a national emergency, while other experts say that a broader cultural overhaul will be needed to prevent more clinical staff from jumping ship.