Key labor indicators are trending in the right direction and providing a reason for optimism for hospitals.
Hospitals and health systems are finally seeing labor challenges easing up, even if they’re not returning all the way to pre-pandemic levels.
Specifically, hospitals are experiencing wage inflation stabilization and fewer job openings, according to a report by Fitch Ratings, which is providing organizations some breathing room from the spikes of recent years.
After year-over-year average hourly earnings sat at around 8% from 2021-2022, wages growth has dropped from 4.2% in 2023 to 3% in 2024.
Hospitals’ payrolls remain on the rise, now 6.7% above February 2020, but part of that increase is due to a welcomed decrease in job vacancies. Hospitals have averaged 18,650 monthly job additions from September 2023 to August 2024, compared to the 14,510 jobs averaged in the previous 12 months.
Healthcare workers are also sticking around at their organizations longer, with the quitting rate falling from the high of 2.9% in May 2023 to 2.3% in July.
Fitch noted that the wage inflation in recent years, while costly, helped hospitals reduce employee turnover and cut down on contract labor reliance.
"Healthcare leadership has been satisfied with this labor exchange, and it has resulted in more predictable monthly expenses, qualitative benefits and improved organizational culture,” the report said.
Despite the encouraging labor trends, hospitals are still not enjoying anything close to the pre-pandemic days.
Job openings in healthcare and social assistance fell from 7.9% in January to 6% in July, but remain far off from the 4.2% average from 2010 to 2019.
"Hospitals are still dealing with post-pandemic pent-up service demand, especially from seniors, that has kept labor needs high,” Fitch Ratings director Richard Park 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.”
The increase in demand for services could significantly worsen the labor shortage problem in the coming years.
Based on current projections, the U.S. will have a deficit of over 100,000 critical workers by 2028, when it needs around 18.7 million workers, according to research by Mercer consultancy.
Even with the respite from labor constraints hospitals may be getting right now, CEOs must ensure they’re taking a long-term view of their workforce and continue to prioritize recruitment and retention strategies.
At hospitals and health systems specifically, CEOs are experiencing a high rate of turnover.
Healthcare has dealt with plenty of volatility in recent years, creating fluctuation at the CEO level.
How has that change affected CEO turnover and how does it compare to other industries? Healthcare overall is actually in line with national averages, according to a report by Crist Kolder Associates, though hospitals and health systems as a subset are seeing significant churn.
The research, which measures the turnover of C-suite executives at Fortune 500 and S&P 500 companies, revealed that the average CEO tenure in healthcare is 7.6 years, slightly higher than the average of 7.4 years across all industries.
Healthcare had the fourth-longest average tenure for CEOs, behind financial (9.3 years), technology (9.1 years), and services (8.0 years). Meanwhile, the industries with the shortest average tenure were consumer (6.2 years), industrial (6.1 years), and energy (4.8 years).
In terms of turnover in 2024, the report found only four CEO changes in healthcare through August 1, representing just 7% of turnover across all industries, which averaged 8.8.
Hospital-concentrated turnover
However, the data of Fortune 500 and S&P 500 healthcare companies doesn’t tell the story of most hospitals and health systems.
At those organizations, CEO turnover increased 42% last year with 146 changes recorded, according to a report by Challenger, Gray & Christmas. After starting this year at a similar pace, hospital CEO turnover has somewhat stabilized with 68 exits recorded through July, compared to 100 over the same period in 2023.
There have always been extreme cases of CEOs resigning or being ousted from hospitals after irregularly short stints, but those instances are seemingly happening more often.
Pioneers Memorial Healthcare District in Brawley, California, is one of the latest examples of this trend as the hospital parted ways with CEO Christopher Bjornberg after just seven months.
In some cases, like at Colorado-based Sedgwick County Health Center, the high rate of CEO turnover has made it harder to recruit and hire qualified candidates.
Between retirements, leaders choosing to step down or head elsewhere, and organizations searching for the right guiding hand in a post-pandemic world, hospitals and health systems are expected to continue experiencing much of the CEO upheaval in healthcare.
Labor challenges in the industry are expected to mount in the coming years, forcing leaders to be proactive.
The workforce shortage in healthcare isn’t going away anytime soon.
In fact, a report by Mercer consultancy projects a shortage of over 100,000 critical workers nationwide by 2028, which means many hospital and health system CEOs will have to be thoughtful in how they fortify their labor force.
For the study, Mercer used historical data and trends through 2023 to forecast changes to the labor market by state and metro and micro statistical areas.
The analysis revealed that if workforce trends hold, the U.S. will have 18.6 million healthcare workers in 2028, compared to the 16.9 million currently working in the industry. The projected increase isn’t expected to keep pace with demand, with the need for labor growing to around 18.7 million over that period, resulting in a shortage of more than 100,000 workers.
“While that figure may not seem like a crisis in absolute terms, it represents an added burden to a system strained by geographic and demographic disparities in access to care,” the report said.
What’s driving the shortage?
The workforce problem will only get worse as the demand outweighs the supply.
Because Americans are living longer than ever and older people utilize services more, the needs of an aging population will require more workers.
The supply side, however, is heading in the opposite direction. Workers are either leaving the industry or fewer people are entering clinical professions due to factors like burnout, non-competitive compensation, and pandemic-related reasons, Mercer highlighted.
Deficit and surplus
The good news? Not every state will face a deficit of workers as the shortage will vary based on geography and occupation, researchers found.
Populous states like California, Texas, and Pennsylvania are projected to have a workforce that exceeds demand, while states like New York and New Jersey will face greater deficits.
Even states that are expected to have overall surpluses may deal with shortages in a specific occupation though. For example, California and Texas will deal with some of the biggest deficits in physicians, compared to states like Pennsylvania, Massachusetts, and Minnesota having greater surplus.
The supply of registered nurses nationwide is projected to outpace demand with a surplus of nearly 30,000 anticipated by 2028, the report stated. Even still, states like New York, Tennessee, and Massachusetts will face a shortage of RNs.
Mercer noted that nurse practitioners are expected to grow at the fastest average annual rate among the occupations in the study (3.5%), while nursing assistants will grow at the slowest (0.1%).
How CEOs should respond
Understanding how their region will be affected by the workforce shortage in the coming years can give hospital CEOs a better idea of how to improve recruitment and retention.
Especially when it comes to compensation, knowing if there is a shortage of physicians in your state, for example, can impact your decision to offer more competitive salaries to workers in your area or recruit from states with a surplus.
Prioritize the occupations that are critical to expansion of services and fill them as soon as possible, Mercer said. Build out your pipeline to include partnerships with local universities and schools to improve your access to future employees.
Most important of all, focus on the workers that are currently in your organization. Employee turnover is costly in the short and long term, so avoiding the loss of workers should be of utmost importance. That requires investment and attention to well-being measures and getting creative with benefits, such as flexible scheduling and career growth.
Taking the administrative burden off of clinical workers by investing in automation, for example, will not only improve retention, but it will cut down on demand as well, Mercer noted.
“Actions should be prioritized against a long-term vision — discrete actions to address ‘the problem of the day’ will not lead to sustained success and will drain limited resources,” the report said. “The path to lasting success requires comprehensive analysis of data to inform decisions and prioritization of actions based on the highest return on investment.”
Peter Slavin is preparing to guide the Los Angeles-based health system into a new era.
Taking the helm of a health system right now as an incoming CEO is no easy feat. To combat the multitude of financial and operational obstacles in the way of keeping a system humming, new leaders have to rely on their experience while learning on the fly.
Peter Slavin, who is set to replace longtime CEO Thomas Priselac at Cedars-Sinai on October 1, expects his varied background to be an asset as he transitions into the role.
After serving as president of Massachusetts General Hospital from 2003 to 2021, Slavin pursued opportunities in advising, consulting, and healthcare investment, which rounded out his view of the industry, he shared on the HealthLeaders Podcast.
“The experience certainly taught me a lot about the array of healthcare activities that are going on out there,” Slavin said. “I learned a lot more about health insurance companies, technology companies, and other actors in the healthcare system. So that's really helped sort of broaden my perspective and understanding of the healthcare system writ large.”
Addressing workforce challenges will be at the top of Slavin’s to-do list when he takes the reins, along with general financial stewardship.
As expenses continue to rise at hospitals and health systems everywhere, Slavin acknowledged CEOs need to be as creative as ever to cut costs and get the most bang for their buck.
One of the ways Cedars-Sinai can do that is through philanthropy, Slavin highlighted.
“Raising funds from donors to create vocations to help advance the mission of the organization and commercializing the intellectual property of the organization, making sure that the fruits of the research effort are actually making it into the commercial world and in the course of doing so, generating resources that can help support the overall enterprise,” he said.
Listen to this week’s episode to hear more on how Slavin plans to strategize for some of the top pain points facing CEOs.
The partnership will bring eight hospitals and an addiction treatment center into the Henry Ford fold.
Henry Ford Health and Ascension are on the verge of launching their combined organization, the health systems announced.
The joint venture, which was revealed nearly a year ago, is set to close on September 30 and get under way on October 1, bringing eight hospitals and an addiction treatment facility from Ascension’s Michigan and Genesys network under the Henry Ford name.
The move has been described as a joint venture rather than a merger by both hospital operators, with no cash being exchanged as part of the deal.
For Henry Ford Health, the partnership significantly expands the Detroit-based company’s presence while maintaining its brand, assets, and leadership. Henry Ford Health president and CEO Bob Riney will be at the helm of the new organization, which will employ around 50,000 employees at more than 550 sites across Michigan.
“Since we announced our proposed joint venture last fall, we’ve been engaged in thoughtful planning across our organizations – all focused on how we plan to come together to build the future of health on behalf of those we serve,” Riney said in a statement. “It’s given us a wonderful opportunity to make deeper commitments to the sacred mission and privilege of healthcare – and we can’t wait to make this a reality for the people of Michigan and beyond.”
The joint venture for Ascension comes at a time when the system is heavily divesting its hospital assets as it searches for financial stability.
So far this year, Ascension’s activity has included the sale of three Michigan hospitals and an ambulatory surgical center to MyMichigan Health in March and nine hospitals to Prime Healthcare in July.
The company has started to improve its finances, reporting an operating loss of $237.8 million through its first nine months of fiscal year 2024 after suffering a $3 billion operating loss in fiscal year 2023.
Meanwhile, Henry Ford Health reported an operating income of $80.5 million for 2023 and continues to show an appetite for expansion.
The Ascension hospitals and facilities part of the joint venture are Ascension Genesys Hospital, Ascension Macomb-Oakland hospitals in Warren and Madison Heights, Ascension Providence hospitals in Novi and Southfield, Ascension Providence Rochester Hospital, Ascension River District Hospital, Ascension St. John Hospital, and Ascension Brighton Center for Recovery.
The drugstore chain will be a "significantly transformed, stronger and more efficient company."
Rite Aid has exited Chapter 11 bankruptcy by completing its financial restructuring as it aims to chart a renewed path forward.
That journey will be taken as a private company with refreshed leadership after it shed debt and appointed Matt Schroeder as the new CEO, Rite Aid announced.
As part of its restructuring, the Philadelphia-based drugstore retailer slashed around $2 billion of total debt while receiving approximately $2.5 billion in exit financing.
The company filed for bankruptcy last October and went on to shut down hundreds of brick-and-mortar stores.
“Emergence is a pivotal moment in Rite Aid’s history, enabling it to move forward as a significantly transformed, stronger and more efficient company,” Jeffrey Stein, Rite Aid CEO and chief restructuring officer, said in a statement.
Stein, who was given both roles to guide the company through the restructuring process, will step down and give way to Schroeder, the current CFO.
After joining Rite Aid in 2000, Schroeder has served as its vice president of financial accounting and in other roles before becoming the CFO in March 2019.
He follows Stein, Elizabeth Burr, and Heyward Donigan to become the organization’s fourth CEO since 2023 and its ninth overall since the company was founded in 1962.
“Matt has served in various leadership positions during his tenure at Rite Aid and has a deep understanding of all aspects of our business,” Bruce Bodaken, chair of Rite Aid’s board of directors during its Chapter 11 process, said in a statement. “He has shown outstanding leadership through this process and is an excellent fit for the Company as it advances as a stronger organization.”
The health system has significantly grown its finances thanks in large part to an increase in demand for services.
Through the first six months of 2024, Advocate Health blew past the financial markers it set in its inaugural year.
The North Carolina-based health system, one of the largest nonprofit operators in the country, is benefiting from the improved patient volume and utilization many providers are experiencing across the country.
In Advocate’s case, the result was $449.8 million in operating income (2.7% margin) in the first half of the year, dwarfing the $85.7 million (0.6% margin) it reported in the same period in 2023.
Revenue jumped 9.5% year over year to $16.7 billion, contributing to a net gain of $1.3 billion through June, compared to net income of $997.9 million over the same period last year.
Driving that revenue has been volume gains nearly across the board. Inpatient and outpatient surgeries increased 1.9% and 1.4%, respectively, while emergency department visits grew 6%. Discharges also rose 8.2% and inpatient length of stay decreased by 2%. Observation cases were the lone weak point, falling by 9.0%.
Advocate’s revenue outpaced the increase in expenses, which grew by 7.5% to $16.2 billion.
Source of relief
It isn’t just Advocate that’s been happy to see the demand for services go up.
In an analysis of more than 1,600 hospitals and 135,000 providers in the U.S. for July, Strata found that inpatient admissions rose 8.2% and outpatient visits increased 13.2% year over year. Those figures resulted in 8.2% more inpatient revenue and 15.9% more outpatient revenue over that same period.
Growth in volume is coming at a much-needed time for hospitals as expenses continue to balloon. Non-labor expenses swelled by 10.8% year over year, including an increase of 17.3% in drugs costs and a 16.4% rise in supply costs.
Labor expenses, meanwhile, jumped 5.7% year over year as total expenses increased 8.2% from July 2023.
Improved volume is allowing many hospitals to stay ahead of inflating costs, but that’s likely not the case for smaller facilities in rural regions.
Large health systems, however, are reporting healthier bottom lines the further out the industry gets from the pandemic.
Risant's second acquisition will receive a healthy investment, should the deal pass regulatory review.
Kaiser Permanente-backed Risant Health has revealed how much it will invest into its second acquisition, Cone Health.
The nonprofit is committing at least $1 billion to the North Carolina-based health system for facility improvements and health equity initiatives up to five years after the deal is completed, according to financial documents filed by Kaiser.
Risant will also fund up to $400 million for Cone’s transition and integration into its network and up to $300 million over a decade to support growth opportunities at Cone, the documents stated.
The definitive agreement to purchase Cone was announced in June and still requires regulatory approval.
Cone represents the second acquisition by Risant in its aim to build a value-based care network, following the completed deal for Geisinger Health. After adding its initial health system, Risant said it planned to bring four to five other systems into the fold in the next half-decade.
Risant’s commitment to Cone isn’t as sizeable as the investment it promised to allocate for Geisinger, which was more than $2 billion.
While Cone is profitable and brought in $197.6 million in net income for fiscal year 2023, Geisinger is larger in size and reported $367 million in net income last year.
The acquisition of Geisinger afforded Kaiser a one-time net asset gain of $4.6 billion in the first quarter and likely contributed to the giant reporting a $2.1 billion net gain in the second quarter.
If the acquisition of Cone is approved, Risant said the system would operate independently and maintain its brand, name, and mission, as well as its own board, CEO, and leadership team.
The health systems agreed to certain conditions put forward by the states to receive approval for their union.
Northwell Health and Nuvance Health have the blessing of their states to join and create a 28-hospital health system.
Attorneys general for Connecticut and New York agreed with the hospital operators to several conditions over the next five years, allowing Northwell and Nuvance to clear a significant hurdle in their pursuit of a merger.
The systems, which announced their move in February, still need approval from the Connecticut Office of Health Strategy and the New York State Department of Health to complete the deal.
The conditions Northwell and Nuvance agreed to are:
Strengthening and investing in labor and delivery services at Sharon Hospital for five years after the merger is completed.
Preserving services and staffing at Putnam Hospital for one year after merging and providing notice to New York’s attorney general office of any changes to services for a period of five years.
Investing to improve Nuvance’s IT infrastructure, data security, and electronic medical records system within three years, expected to cost over $200 million.
Negotiate rates for reimbursement with payers independently for the New York and Connecticut facilities.
“Miles and minutes matter when it comes to labor and delivery, and I am pleased that Northwell has committed to preserving affordable, lifesaving care—especially maternity care—for Western Connecticut,” William Tong, attorney general for Connecticut, said in a statement. “This is a strong, enforceable agreement for healthcare access in Connecticut.”
When Northwell and Nuvance agreed to merge, they billed the move as mutually beneficial. It extends Northwell’s presence to Connecticut and gives financially troubled Nuvance much-needed capital to keep its hospitals open.
For fiscal year ending September 30, 2023, Nuvance reported an operating loss of $164.2 million and a net loss of $121.5 million.
The attorneys general stated that any anticompetitive effect of the merger would be minimal and outweighed by benefits such as maintaining access to healthcare.
“Nuvance is in a precarious financial situation,” the attorneys general wrote. “Closure or further reduction in care at Nuvance hospitals could substantially harm patient access to quality local healthcare in western Connecticut and the Hudson Valley of New York.”
The industry continues to face financial headwinds though, putting organizations on unstable footing.
One year after reaching a five-year high, healthcare bankruptcies are in decline, according to a report by healthcare restructuring advisory firm Gibbins Advisors.
While bankruptcies in the industry have slowed in the past three quarters, the report highlighted that organizations continue to deal with financial challenges and restructuring cases could be taking place outside of courts.
Bankruptcies spiked in 2023, which featured 79 filings, compared to 51 cases reported in 2019. This year in on track to see 58 cases, based on the 29 bankruptcies filed through June 30.
Last year also had 12 hospitals and health systems file for bankruptcy, compared to 11 cases from the previous three years combined. So far in 2024, only one hospital operator, Steward Health Care, has filed for bankruptcy, with 31 hospitals under its control.
The drop in bankruptcy volume is largely due to fewer cases involving middle-market companies with liabilities ranging from $10 million to $100 million. Meanwhile, bankruptcies involving very large companies with liabilities over $500 million remain at the high levels of 2023.
“The very large bankruptcy cases with liabilities over $500 million include sizeable healthcare enterprises, so when you see six such cases filed year to date, that represents a much bigger number of healthcare facilities,” Ronald Winters, principal at Gibbins Advisors, said in a statement. “We are seeing elevated financial distress in nursing homes, senior living, pharmacy, physician practices and rural and standalone hospitals…strained by legacy debts, cash shortages and profitability challenges.”
The decline in bankruptcies doesn’t mean hospitals and other healthcare organizations aren’t financially distressed.
Several factors are putting pressure on companies, according to Gibbins, including high interest rates and increased scrutiny by the FTC and other regulators.
Workforce shortages are also contributing to increased expenses, while payers are not ceding ground in rate negotiations and increasing coverage denials.
Though operating margins for hospitals continue to stabilize, the divide between higher- and lower-performing facilities is widening, especially in rural regions.