The past few years of ballooning healthcare wages have hit hospitals and health systems hard but appear to be leveling off, Fitch Ratings analysts wrote in a recent report.
Citing Bureau of Labor Statistics data and conversations with its rated nonprofit systems, the report highlights three and four consecutive months of decelerating year-over-year hourly earnings growth for the hospital and ambulatory sub-sectors.
For hospitals specifically, the measure has dropped from a pandemic high of 8.4% and a 2023 high of 5.15% to July’s 3.75%—all of which are still above the 2.3% average of the past decade, Fitch analysts wrote.
The trend coincides with payroll numbers that have grown for 19 consecutive months for hospitals and 31 consecutive months for ambulatory services, they wrote. The hospital subsector has averaged 13,500 added jobs per month from September 2022 to August 2023 as opposed to its monthly loss of 5,500 workers between September 2021 and August 2022.
Job openings within healthcare have dipped from March 2022’s 9.3% peak to 7% in July 2023, while quit rates have fallen from 2.9% in May to 2.3% in July, according to the report. Similar to wage growth, both of these measures remain well above the prior decade’s averages of 4.2% and 1.6%.
“Recruitment and retention efforts are reducing job openings but with increased baseline staffing rates that have likely become the new normal,” Richard Park, a managing director at Fitch and report author, said in an accompanying release. “Generally reduced seasonal cases of COVID, flu and RSV have helped to reduce the operational strain on the U.S. healthcare system that resulted from staffing shortages and competition for a limited supply of nurses.”
Systems told Fitch that these trends have helped reduce the high contract utilization and pay rates that dragged many organizations’ operations into the red during 2022.
Should the trends hold firm, Fitch said health systems should be able to “gradually” manage their expenses and tip the scales toward profitability during the next few years.
“Given the acute care sector's reset of wages to a higher level,” the analysts wrote, “management teams are expected to turn to additional levers to improve operations, including payor contract negotiations, supply chain/purchased service efficiency initiatives, capacity optimization by reducing average length of stay, adjusting staffing and eliminating/consolidating less profitable service lines, corporate overhead reductions and the exiting of financially challenging markets.”