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The Current State of Healthcare Labor Expenses & How to Contain Them

Healthcare has been undergoing major staffing upheavals for a very long time, even setting aside the exacerbations that have been felt over the past few years. But while some organizations have pivoted their strategies toward employee-centric retention and engagement models, others have struggled to retain costs. 

A recent report from Becker's Hospital Review concluded that labor expenses are still wreaking havoc on health systems across the country. Here we will analyze the report to identify the drivers of these expenses and provide solutions to these woes.

What Are the Key Drivers of Healthcare Staffing Costs?

The main drivers of healthcare staffing costs may come as no surprise to veterans of the industry — inflation and staffing shortages. Inflation has played a major role in pricing out qualified talent through salary/wage increases, while staffing shortages pose challenges when it comes to finding that talent in the first place. But while some health systems have been able to utilize artificial intelligence (AI) to streamline portions of the recruiting process, it isn't a catch-all solution and it doesn't go far enough to make a meaningful impact.

The Becker's Hospital Review report underlines this point by using a Michigan-based health system as an example, which reported that "salaries and wages were up around 4.5% to $6.9 billion for the nine-months March 31, 2023 compared to the same period in 2022." Additionally, the same organization's contracted labor costs were up 40.7% for the first three quarters of the fiscal year.

Contingent Labor Costs

This brings up another pain point hospitals have felt over the past few years: the cost of contingent labor. Between mass burnout and turnover contagion causing good people to leave the workforce and hospitals' need for surge staff on short notice, systems across the country have become increasingly reliant on contingent labor. It has been instrumental in filling staffing gaps quickly, but at massively increased costs. In fact, a recent report from the American Hospital Association and Syntellis found that overall contract labor expenses surged by about 258% from 2019 to 2022, while reviewing data from 1,000 American hospitals.


Kaufman Hall additionally reported that "contract hours relative to paid hours were up 91% in March 2023 compared to March 2020, and health systems' labor expenses overall increased 20%. . .driven by a growth in contract labor. [Those] wages are still higher than pre-pandemic levels."


Healthcare's reliance on contingent labor in some capacity is expected for the foreseeable future. However, being able to contain these costs is instrumental for long-term sustainability and achieving favorable patient outcomes.

How Healthcare Systems Can Contain Labor Costs

Hospitals that remain profitable create long-term sustainability so that they may grow and provide quality care to a wider community; and the first step toward this profitability is containing costs wherever possible. 

The most effective ways to begin is by strengthening in-house hiring capabilities:

  1. Utilize a Managed Service Program (MSP)

MSPs are one of the most effective ways healthcare organizations can contain contingent staffing costs. HWL is a great example of a vendor-neutral MSP with extensive experience in helping organizations resolve their staffing woes. This is achieved by acting as a partner toward improving self-sufficiency and connecting hospitals with qualified talent quickly, at minimal cost. HWL's MSP services include, but are not limited to:

    • Holistic contract management: Our contracting process engages all stakeholders carefully to ensure competitive market rate structures and supplier commitment by establishing a vendor panel across all locales.
    • Process oversight: HWL's staffing experts manage the entire recruitment process from the initial requisition creation to time collection and invoicing. We become a single point of contact that acts as a liaison between suppliers and your internal stakeholders.
    • Qualification assessments: Our clinicians conduct a one-time intake call with hiring managers to determine skills required, cultural fit, experience, and background needed for staff to be successful on assignment. All certifications, documents, and health information are verified and uploaded to ensure 100% compliance with HR requirements.
    • Screening: From here, we develop screening tools, interview candidates, and confirm the assignments.
    • Onboarding: We will ensure new staff members are up to speed regarding their assignments, expectations, and role responsibilities while ensuring compliance with HR.
    • Data analytics: It is not enough to simply hire and onboard — we ensure stakeholders have clarity regarding utilization, vendor performance, and quality of staff. Through real-time dashboards, reports, and easy data integrations into your systems, we are able to deliver next-level business intelligence that is monitored against KPIs.
  1. Improve Internal Resource Pools (IRPs)

HWL's internal resource pool system helps health systems leverage existing internal resources and build additional pools that can reduce the overall reliance on external staffing vendors. The term 'internal resource pool' references an organization’s central database of contract and/or employed clinicians who have been pre-vetted and credentialed to work in a given facility or department. It allows organizations to pull talent from the database when gaps arise for any reason — sick days, medical leave, vacation, turnover, or a spike in patient volume or acuity.


Technology is key to maintaining IRP efficiency  and improving the way it is utilized. HWL's proprietary IRP platform, for instance, automates menial processes — position vacancies are entered into the system and subsequently broadcast to a mobile app, text, VOIP, and email. Potential, pre-approved staff may then confirm their interest in the job, and the department manager can quickly choose from the pool. If the need is not filled, only then does the job go to external agencies for further assistance.


Read more in-depth on IRP benefits in our post 'Internal Resource Pools: Leveraging Tech for Optimal IRP Staffing.'

  1. Enlist the Help of a Vendor Management System (VMS)

VMSs are technology platforms that streamline and standardize the acquisition and management of contingent workers across the entire healthcare organization to maximize cost savings. 


HWL's VMS allows organizations to manage all types of staff, including: 

    • Local 
    • Travel
    • Contract 
    • Per Diem
    • Clinical and Non-Clinical

A comprehensive VMS has a number of benefits that include, but are not limited to:

    • Centralizing information to keep tabs on each vendor — wages, tracked performance, location, availability, and more.
    • Market benchmarking to measure performance against competitors including market share, fill rate, time-to-fill, conversion rates, compliance performance, and more.
    • Cost containment by getting access to lower prices from vendors and broadening the labor pool.

HWL Is the Key to Containing Contingent Labor Costs

Yes, labor expenses certainly pose challenges for healthcare systems — but it doesn't have to be that way. HWL's managed service programs, internal resource pool technology solutions, and vendor management system combine to form the most comprehensive cost saving measure for organizations big and small.


Still feeling unsure? The results speak for themselves.


HWL can assist your organization in optimizing and improving your healthcare workforce so your organization remains resilient and flexible, even during volatile or unpredictable times. Our state-of-the-art, proprietary talent management technology leverages customizable functionality to meet your organization's unique needs.

To learn more about our solutions and to start containing costs today, get in touch to schedule a demo!

July 05, 2023/By Lori Kiesel
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Author: Lori Kiesel

Lori Kiesel joined Healthcare Workforce Logistics (HWL) in 2020 as Director of Business Development. Shortly thereafter, Lori was promoted to Vice President, after proving herself as a leader in new client sales. Prior to joining the HWL team, Lori served as an account executive with one of the largest healthcare staffing agencies in the country for over 20 years. Lori is a native Californian, who now lives in the greater Boston area with her family.
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