Labor costs and availability were major pain points for hospital and health system operations during the pandemic but finally look to be leveling out even as demand for care services remains high, Fitch Ratings wrote in a recent report.
Wage growth among hospitals had spiked in late 2021 and through much of 2022, when year-over-year average hourly earnings hovered at or above 8%, per U.S. Bureau of Labor Statistics cited in the agency’s report.
During that time, hospitals had ramped up their salary offerings “to reverse persistently high turnover and external contract labor use,” Fitch wrote in its report.
From January through July of this year, that same metric has now fallen to an average of about 3%, which is also above the 4.2% average of 2023.
Hospitals and health systems have also managed to grow their total workforces for 32 consecutive months and have increased their pace in the past year. Specifically, hospitals have logged average monthly job additions of 18,650 between September 2023 and August 2024 as opposed to the 14,510-job average of the prior 12-month period. As of August, the subsector’s payrolls are 6.7% higher than they were in February 2020—outpacing the broader private sector’s 4.6% gain during the same period.
Fitch noted that the summer’s wage growth numbers came in below the private (4% year over year) and ambulatory healthcare services sectors (3.2% year over year). Ambulatory workforce growth has still solidly outpaced that of hospitals, having logged an average of 29,470 job additions per month in the prior year.
Though the numbers are trending favorably for provider organizations, there’s still plenty of slots left to fill as the healthcare labor pool remains short of demand.
Job openings within the broader healthcare and social assistance sector have steadily dropped from 7.9% in January to 6% in July. That’s still well above the 4.2% average of the 2010s, “which Fitch believes indicates the ongoing shortage of clinical labor that will take time to address.” The agency also noted a dip in the sector’s quit rates to 2.3% as of July, which is similarly above last decade’s 1.6% average.
High volumes and acute care demand recovery have been a common refrain among recent health systems earnings and industry reports—though some have warned that the post-pandemic recovery period will eventually come to an end. Still, Fitch wrote, an aging baby boomer population will sustain demand and drive a need for more healthcare workers in the long term.
"Hospitals are still dealing with post-pandemic pent-up service demand, especially from seniors, that has kept labor needs high,” Fitch Director Richard Park, one of the report’s authors, said in a statement. "Sustained high volume levels are a modest positive for health systems, but often come with administrative challenges, slow payments and denial of prior authorizations for care, in particular when dealing with Medicare Advantage insurers.”