The US economy keeps adding new jobs. A big reason: your local hospital.
Healthcare contributed 70,000 jobs in January, accounting for almost 20% of additions to the American workforce. The new hires included people who work in hospitals, outpatient centers, and nursing and residential care facilities.
Investors can expect that strong hiring to continue this year, experts say, because of a structural shift underway as the pandemic recedes: Hospitals are relying less on the temporary help they needed when COVID-19 was at its peak and more on full-time staff as normal routines return.
This workforce restructuring is a blessing for healthcare providers that had to shell out big money for traveling nurses during the pandemic but a potential reckoning for publicly traded staffing companies that provided many of those contract workers.
"The healthcare industry is healing and better able to meet peak demand when needed," Courtney Shupert, an economist at MacroPolicy Perspectives, told Yahoo Finance. "And so it means that firms ... can hire more permanent, full-time employees and maybe rely less on some of those expensive contract nurses and just contract labor in general."
Returning to normal
To understand why healthcare hiring is changing, it helps to understand how COVID-19 upended staffing across the industry. As turnover accelerated and demand spiked in different parts of the US, hospitals turned to contract nurses for help.
Overall, total healthcare staffing more than tripled during that time, with the travel nurse subsegment growing even faster, Trevor Romeo, a research analyst at William Blair & Company, told Yahoo Finance.
Those nurses weren't cheap. For instance, AMN Healthcare Services (AMN) in 2019 billed hospitals $75.49 per hour for temp staffers who were largely nurses, according to data from Romeo. That then surged to $145.34 per hour in March 2022, or almost double the pre-pandemic rate.
The use of these contract workers has begun to unwind as hospitals take on a larger permanent workforce. Some of the job gains in the healthcare sector have been offset by losses in the temporary staffing sector, according to Shupert.
"While temp services are a smaller share of total employment than healthcare, you can see these two industries moved more inversely since 2020, especially in 2023, when temp services continued to decline while healthcare employment continued to grow," she said.
Still the need for more healthcare staff remains. Patient volumes are robust as folks are now getting procedures they put off during the pandemic. Add to that aging baby boomers needing more healthcare services, a long-term trend that will continue to grow.
For example, HCA Healthcare (HCA) was able to accept 90% of patients coming into its healthcare facilities at the end of the year.
"In other words, we weren't able to take roughly 10% of the patients who were referred to us," HCA CEO Sam Hazen said on the company's fourth quarter earnings call at the end of January. "What we have seen is more patients coming through our transfer centers and other patient navigation programs than we did in 2019."
At the same time, many of the nurses and other healthcare staff who traveled during the pandemic didn't return to their home bases, leaving their original hospitals, especially in more rural states, understaffed.
"It's almost like an emergency situation in places like Mississippi, where they ran out of nurses because everyone traveled and … as things normalized, not all the nurses that left states like that came back," Brian Tanquilut, an equity analyst at Jefferies, told Yahoo Finance. "So there's a geographic and a migration component that has contributed to some of that recruiting or hiring that you're seeing, especially for nursing."
And now there appears to be some declining interest in nursing careers altogether. Enrollment in Bachelor of Science in Nursing programs fell by 1.4% from 2021 to 2022, according to the American Association of Colleges of Nursing, the first decline since 2000.
"So that's another indicator that the critical nursing shortage that we see isn't going away anytime soon," Romeo said.
'Comprehensive human resources plan'
To manage the current and expected increase in demand, hospitals are boosting their permanent workforce while lowering their dependence on contract workers.
For instance, HCA's contract labor declined 20% for the year in 2023, the company's CFO said, with those costs comprising 5.3% of the company's fourth quarter salaries, wages, and benefits expenses, down from 7.1% in its first quarter last year.
Tenet Healthcare Corp. (THC) has seen an even starker reduction. By the fourth quarter of 2023, contract labor made up just 2.8% of consolidated salaries, wages, and benefits, a 62% reduction from 7.3% in the fourth quarter of 2022.
"Our investments in nurse recruitment and retention have paid dividends as we have strengthened our workforce and effectively reduced contract labor spend throughout the year," CEO Saumya Sutaria said on the company's latest earnings call on Thursday.
A reduction in contract labor provides significant savings. Even though rates have declined some, temp nurses are still charging about 20% more than pre-COVID levels, according to Tanquilut, which is more pricey than full-time staffers.
The hourly rate AMN Healthcare charged hospitals for temp workers was $96.43 at the end of 2023, according to Romeo's data. That was down 51% from the March 2022 level, but still up 28% from 2019 rates.
"So there's still a premium that they're charging," Tanquilut said. "So it's better bottom line-wise to have just those permanent people [and] from a care quality perspective, most hospitals would prefer to have the permanent nurses who are very familiar with the facility."
For future needs, some hospitals are creating their own in-house temp staffing companies, or float pools. These allow nurses who typically work three times a week for 12-hour stretches to voluntarily sign up for additional shifts if they want and if the need arises.
"There certainly is an effort from the hospitals to still reduce their labor costs and address or reduce their reliance on these contract agencies," Tanquilut said.
'A market reset'
The change in staffing shows up in the stock performance of the two major healthcare staffing agencies — AMN Healthcare Services and Cross Country Healthcare (CCRN). Both stocks peaked in late October 2022. Since then, AMN shares have fallen 41%, and Cross Country's stock has lost 48% in value.
"We anticipated a market reset was coming," AMN CEO Cary Grace acknowledged in November during the company's third quarter earnings call. "But it has been deeper and more sustained than we and the rest of the industry expected."
While AMN doesn't report its fourth quarter and full year 2023 financial results until Feb. 15, with Cross Country following on Feb. 21, Romeo offered a preview. He said the temp nursing business dropped 30% to 35% year over year in 2023, and, even worse for these companies, that decline is likely not over.
"Our expectation at this point is for another 20% or so decline in that market in 2024," Romeo said. "The question is when do we see that point of stability … and my best guess at this point is in the second half of 2024."
In the meantime, AMN and Cross Country are capitalizing on the one area where contract healthcare staffing is increasing, and that's temporary physicians, which didn't boom like nursing did in the pandemic, Romeo said. Last year, the temp physician staffing market grew 10% to 15%, Romeo said, and it's expected to expand another 7% to 10% in 2024.
"It's a smaller part of their businesses, but actually both of them have made acquisitions in that space lately," Romeo said. "So I think it will be a bigger part of their business going forward."
Janna Herron is a Senior Columnist at Yahoo Finance. Follow her on Twitter @JannaHerron.
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