by Tom Robertson
Executive Director, Vizient Research Institute

Imagine waking up to an acrid smell and a room filled with smoke. You suddenly realize that your house is on fire. Hearing sirens, you take heart knowing that the fire department is already on the way. Amid flashing lights and the chaos of an emergency situation, the firefighters scramble to hook their hoses to a nearby hydrant, then aim the nozzles directly at your burning home. But when they open the valve, only a trickle of water leaks from the hose. Now imagine that the water that you were counting on had been diverted by a seller to other neighborhoods—or even neighboring states—where the price of water was higher. A frustratingly similar scenario is playing out as hospitals and health systems compete for a scarce labor supply.

Pent-up demand for services postponed during the initial phase of the pandemic, and a perilous increase in the severity of illnesses resulting from almost two years of patient reticence to engage with the health care system, have combined to ignite the “house fire”. Subsequent surges of COVID-19 infections have fanned the flames.

The physical and emotional strain on front-line health care workers, with no apparent end in sight, combined with the toll that planned retirements and sickness itself took on the workforce, left precious little water in the pipes to fight the fires. As the scarcity of labor intensified, wages (not surprisingly) increased —accelerated by the impact of contingent, traveling health care workers —adding a financial strain to the already heart-wrenching effects facing understaffed emergency rooms and intensive care units.

Further, the COVID-19 crisis has ratcheted up the nation’s awareness of health disparities, and our attention is rightly directed toward addressing the medical manifestations of adverse social determinants of health. Lost in the moment, however, are underlying payment differences that threaten the long-term economic survival of our health delivery system.

The variation in revenue resulting from enormous differences in prices paid by the government and private insurers, and even bigger discrepancies in the private sector prices paid within any given market, make it virtually impossible for hospitals and health systems to compete for scarce labor on anything resembling a level playing field. In particular, hospitals serving a patient population disproportionately insured by Medicare or Medicaid will find it difficult to compete with hospitals having higher proportions of private-sector patients at much higher payment rates.

Like the interwoven nature of a chain-link fence, the widely variable payment rates are inextricably entwined with the socioeconomic health disparities that are drawing well-deserved attention. We cannot hope to address the latter without dealing with the former.

A long-run solution to the health care labor shortage will require a commitment to attract and train additional capacity and a reimagining of the way we pay providers. Unless we address the price and revenue variation that has become economically untenable, the chasm between the haves and the have nots will widen, not narrow. All of that will take time. Interim measures to tackle the overall shortage of health care manpower—and as importantly, its increasingly uneven distribution—will be required.

It’s tempting to think that the answer to the health care labor shortage is simply more money. Labor accounts for over half of the typical hospital’s operating expenses. If wages rise as a result of a shortage, more revenue will be needed to offset the costs. In the short run, more money will be needed to attract and retain the staff needed to ensure safe and effective care.

More money without systemic changes to the way it gets distributed, however, will not only fail to solve the problem, but it could actually make it worse. Like oxygen to a fire, more money distributed through existing pathways will drive unit labor costs even higher, exacerbating the shortage for the have nots. Simply adding water to the pipes is not enough…we need to take steps to ensure that the water finds its way to all of the hydrants.

About the author: As executive director of the Vizient Research Institute, Tom Robertson and his team have conducted strategic research on clinical enterprise challenges for more than 25 years. The groundbreaking work at the Vizient Research Institute drives exceptional member value using a systematic, integrated approach. The investigations quickly uncover practical, tested results that lead to measurable improvement in clinical and economic performance.

Published: November 9, 2021