Right When Things Should Be Getting Better, They Are Getting Worse

Hospitals firing contract staff and closing service lines

Hospitals are facing a new and unexpected challenge resulting from the pandemic. Since the start of the pandemic, hospitals have suffered severe supply chain shortages as well as challenges with staffing.  During the pandemic, global supply shortages and the need for nurses resulted in hospitals paying extremely high prices to get necessary supplies and staff. The most recent challenge facing hospitals is directly related to the how hospitals were forced to solve these two challenges: Hospitals have spent the last two years paying premium prices for supplies and staff, all while seeing a reduction in normal procedures, which is costing healthcare facilities millions in revenue. This vicious circle of paying more without being able to sustain operations is dangerous: A combination of increasing costs and shrinking revenue is not economically healthy, neither is it great news for patients. Today, many of the largest healthcare systems are being forced to cancel the contracts for many of their travel nurses, and in some cases, this is resulting in a reduction of available workforce by more than 30%.

The pandemic disrupted global distribution and manufacturing of healthcare supplies.  By now, we are all familiar with the shortages hospitals faced in supplies like masks, gloves, and gowns.  But what is less common knowledge is that two years later hospitals are still seeing widespread backorders of almost all the other supplies within the hospital. For example, there is a global shortage on contrast media, manufacturers of cardiac devices often leave hospitals with unfilled backorders that last 3 months or more.  Hospitals are often forced to look to secondary or tertiary vendors to get necessary supplies – where they often run into the same backorders and delays.  As we now move into the post-pandemic era, healthcare facilities should be seeing supply chain efficiencies increase, but instead they are faced with more of the same.  With a lack of access to necessary supplies, the only solution is to pay more to get what is needed.  Right when things should be getting better, they are getting worse.

...two years later hospitals are still seeing widespread backorders of almost all the other supplies within the hospital.

To understand the labor issue, lets first look at what happened in the nurse staffing market over the last few years.  During the onset of the pandemic, many healthcare facilities in urban areas like New York, Seattle and Los Angeles became overwhelmed with COVID patients.  In order to rapidly prepare for an influx of patients, these facilities turned to contract nurses to meet staffing demands.  These contract nurses were being paid premium rates to work, in some case three times more than the staff nurses working for the hospital.  At this same time, nurses who were in a position to retire, decided that enough was enough and we saw about one third of the nurses working in hospitals retire rather than deal with the harsh working conditions brought about by a global pandemic.  This further increased the national demand for contract nursing labor. As contract nursing pay continued to rise, many employees quit their full-time jobs in the hospital in order to cash in on the exorbitant pay rates they could demand through contract work.  Hospitals had to make a difficult decision: Pay the exorbitant rates in order to keep the doors open and take care of patients - or start shutting down departments right when more and more patients needed their services.  Fast forward two years, hospitals are now forced to make the decision they didn’t make before and start closing departments as they cancel most if not all the contract nurses.  A health system in the Pacific Northwest recently cancelled or renegotiated all the contract staff working for the hospital.  This has resulted in an approximate reduction of available nurses by 30%, and these shortages have resulted in long wait times and cancelled or delayed procedures as there are not enough nurses to take care of all the patients.  This is an example of how many hospitals are forced to make the decision they didn’t want to make before.  They are now forced to shut down services and reduce access to patients, because they can no longer pay to keep contract nurses in the hospital.

            Hospitals are seeing the same cycle play out in two different areas of their operations.  As the demand increases for supplies and staff, healthcare facilities and systems are forced to pay higher and higher prices. Eventually the hospitals reach a breaking point and are forced to make a difficult decision and stop paying what they can no longer afford to pay.  In both cases either from lack of supplies or lack of staff, the result is reduced access to services.

As the demand increases for supplies and staff, healthcare facilities and systems are forced to pay higher and higher prices.

Short term solutions like accepting higher prices or paying more work – in the short term. Long term, healthcare executives need to get off the cost-and-pay rollercoaster and look for more systemic solutions, such as different contracting strategies and circular economy solutions.