Amid travel nursing rate spikes, a 'record-breaking' number of PE investments deserves scrutiny: report

A new report outlining a “record-breaking” number of private equity deals involving travel nursing agencies during 2021 and beyond suggests that short-term profit-seeking and potential conflicts of interest are contributing to the healthcare industry’s labor woes.

Travel nurses’ asking rates skyrocketed during the pandemic, particularly during periods of high strain such as this past winter’s omicron wave.

Average pay rates are currently on a steady, but gradual, decline. September’s average travel nurse pay of $3,066 per week represents a 17.3% year-over-year decrease, hiring marketplace Vivian Health reported earlier this week.

Hospitals have acknowledged similar trends in quarterly financial reports but stress that elevated contract worker rates are having material impacts on their operations.

In a report published Thursday by Private Equity Stakeholder Project, a nonprofit organization that researches the impact of private equity investments, researcher Mary Bugbee wrote that private equity firms were investing in medical staffing and contract labor companies all the while.

Citing data from PitchBook, the report highlighted a record 27 private equity deals in the medical staffing space during 2021, up from 11 deals in 2020 and well above any year during the past decade. The platform also recorded at least 18 deals during the current calendar year, Bugbee wrote.

Additional data from Capstone Partners cited in the report indicate that private equity platform investments and add-ons comprised 21.1% of total deal volume within the healthcare staffing sector.

“Private equity firms were already investing in travel nursing and other types of medical staffing companies prior to the COVID-19 pandemic,” Bugbee said in comments accompanying the report. “As a fragmented industry with considerable opportunities for consolidation, this sector has been attractive to private equity. Plus, the combination of an aging population and long-term projected shortage of nurses to meet the needs of this population has also attracted investors.”

With the pandemic came new draws for investors: increased demand for services, numerous departures from staff nursing positions and an influx of emergency COVID-19 funding, Bugbee wrote.

The latter factor—combined with private equity’s financial incentives to target short-term profits—allowed travel nursing agencies to safely increase their asking rates over the past few years, according to the report.

Also of note were some private equity firms’ concurrent investments in staffing software and vendor management systems, which the report noted could lead to conflicts of interest or proprietary supply and demand data that could "theoretically be used to price travel nurse and other temporary staffing services in a non-competitive manner,” according to the report.

Bugbee warned that the investment and pricing activity comes with risks if not addressed. Private-equity-owned staffing companies could be at increased risk of restructuring and debt offloading, she wrote, or may adopt cost-cutting strategies that are detrimental to patients and their employees, she wrote—as has been alleged in class-action lawsuits targeting private equity-owned firms CHG Healthcare, Travel Nurse Across America and Medical Solutions.

Rate increases that have benefited investors have also led to industrywide difficulties, according to the report. Healthcare industry groups and lawmakers alike have called for regulatory action against what they described as price gouging, which they say left many providers high and dry since the end of relief funding.

“As some hospitals close units and lines of service (especially rural hospitals), there appears to be no fix on the horizon,” Bugbee wrote in the report. “Some have speculated that the loss of federal relief funds to pay for increased labor costs will bring the travel nursing costs down, but this alone cannot fix the staffing shortages and disruptions to the health system that have already been set in motion.”

Federal and state-level regulations addressing the rate hikes have been introduced but largely appear to have stalled out, she wrote.

The report didn’t let hospitals off the hook, with Bugbee noting that many nurses flocked to travel positions due to insufficient pay and unheard demands of safe staffing ratios at their previous hospital employers.

A potential fix for lingering high contract rates and the longer-term issue of labor shortages will likely require action addressing both sides of the equation, Bugbee wrote.

“Current regulations and enforcement of those regulations have been insufficient to contain costs and address the acute labor shortage successfully,” she wrote. “Unless regulators and lawmakers pursue a multifaceted solution (that must include higher pay for nurses), nurses will continue to leave the bedside, and patient care will continue to suffer.”