As the economy remains “challenging” and providers are finding rising capital costs and rising staffing costs, survival mode is where many are operating.
For any hospital, SNF, Home Health Agency, or Hospice, labor (wages and benefits) is typically about 60% of the expense budget. With direct care staff in short supply in nearly every market nationwide, providers have turned to wage increases to attract what staff may be available and agency staff to augment openings and keep some semblance of a staffing balance for inpatient and outpatient services. For the first quarter of 2023, salaries and wages have grown 7.3%.
According to Becker’s Hospital Review healthcare/products companies and manufacturers, including hospitals, announced 2,668 job reductions. In seven months, there have been 40,947 layoffs, an increase of 101% over 2022. The target of most of these position reductions is management and support personnel vs. bedside staff.
When clinical staff are affected, the primary cause is lack of census or oddly, not enough staff to keep a particular wing, building or unit open. Where some providers will seek to absorb extraneous staff, others simply don’t have the volume to do so in other programs. Particularly vulnerable units tend to be specialized units such as burn, labor and delivery, and infectious disease. When patient volume is insufficient to functionally maintain a regular staffing pattern, providers are forced to choose between consolidating units (not typically feasible) or shutting the unit down and laying off staff or trying to assimilate them elsewhere, if possible.
The reduction trend is widespread, beyond hospitals and into all sectors and segments. CVS cut 5,000 non-patient engaged staff. Amazon cut jobs in its online pharmacy, digital health and fitness tracker and virtual primary care units. UnitedHealth Group’s Optum is cutting jobs as well. The exact number is not known though the number doesn’t appear to be large enough to required published layoff notices (required when large companies significantly reduce staff levels by most states). The positions that are impacted, as known to date, are middle-level management and some lower-level senior staff such as a director of growth strategy and a Vice President of implementation at AccuReg Solutions.
Workforce reductions are occurring in senior living as well. In June, Enlivant filed a WARN (Worker Adjustment and Retraining Notice) with the State of Illinois indicating that it would layoff 284 workers at its Chicago corporate support center. The reductions began in July and will continue through the end of the year.
When layoffs or labor force reductions don’t change the survival outcome, closure comes next. For example, in Iowa, 26 nursing homes closed or announced closure over a thirteen-month period – May 2022 to July 2023. The common theme for closure begins with staffing shortages followed by inadequate reimbursement and prohibitive regulations. In 2022, there were 128 nursing home closures across the U.S. A recent Becker’s Hospital Review article highlights 32 recent nursing home closures across the U.S. The article is available here: https://www.beckershospitalreview.com/post-acute/13-recent-nursing-homes-openings-closings.html
Home health has not been immune to restructuring and layoffs. Honor acquired Home Instead in 2021. Honor will lay off 15% of its headquarters staff, many of whom are former Home Instead employees. In 2022, Bayada Home Health in Tampa Bay closed four offices and laid off 682 employees. Bayada indicated that the decision to close the offices was driven by poor Medicaid reimbursement for personal care and support services.
ProMedica, a Toledo skilled nursing, home health and hospice company, laid off 26 skilled nursing support staff in June ahead of a sale of its home health and hospice operations (announced in February) to Gentiva. ProMedica laid off 262 employees as it exited its SNF relationship with Welltower, a real estate investment trust.
What is clear is that the economy is dragging health care organization financial performance downward. Margins are eroding due to higher labor costs, principally clinical staff. Capital costs are rising restricting access to credit. Commodity costs are also rising as energy, food, and other supply costs have risen at double digit paces year-over-year in most markets. Reimbursement increases have not kept up with supply and labor inflation. And, while patient volume is more normalized to pre-pandemic levels, capturing this volume can be problematic if inadequate staffing levels do not permit the acceptance of additional patients.
The primary trend that I am seeing is for providers to look across their overhead, non-direct care and non-patient care support related, and seek efficiencies. The focus is on reducing layers of management, outsourcing functions that do not need to be internal via staff, and then, closing programs or reducing services to shed labor and other costs, where market redundancy exists. As there is no real end in-sight to higher interest costs, rising energy, and labor volatility, the war for survival is not soon to end.