Recently, several stories have emerged in the media accusing nurse staffing firms of “price gouging,” especially in regard to travel nurses. Those charges are unfounded. As the pandemic continues and demand-driven costs increase, medical facilities, especially nursing homes, are finding it increasingly difficult to hire their own healthcare staff and are having to turn to staffing firms that pay their nurses higher wages and charge accordingly. Frustrated, the facilities are calling on Congress and state legislatures to investigate and introduce legislative solutions — as if staffing firms are the problem.
While their frustration is understandable, the real problem facing these facilities today is one of basic supply and demand. In fact, the extraordinary conditions caused by Covid-19 have created major inflationary pressures on wages in general. In healthcare in particular, as the supply of qualified healthcare workers decreased, demand for their services by hospitals, nursing homes and longterm care facilities continued to rise, creating market conditions that led to higher wages and bonuses. This had a major impact on the cost of healthcare services provided by staffing firms.
Perfect storm. No segment of the economy has felt these effects more than the market for temporary nurses and healthcare professionals of all types supplied by staffing firms. While the pandemic amplified the critical role of nurses in our healthcare delivery system, the dramatic increase in demand for their services caused by the pandemic, combined with a sustained period of chronic shortage of nurses, created a perfect storm that drove up the cost of nursing services nationwide, including the cost of agency nurses.
Staffing firms’ costs are directly tied to the compensation and financial incentives paid to contract nurses and other healthcare professionals. While agency nurses are a small percentage of healthcare workers, the unprecedented demand for their services has driven up their pay rates with commensurate increases in agency billing rates. Pay and bill rates also rose in tandem due to the unique demands on temporary nurses, including leaving their families for long periods and travel to locations where demand for their services and the risks of Covid-19 infection are highest.
The increase in nurse wages has driven up bill rates, but not staffing firms’ profit margins. After deducting all direct costs of employing temporary workers, including wages, workers’ compensation insurance, federal and state employment taxes, drug testing, background checking, professional liability insurance and benefits — plus the indirect costs of finding workers and placing them in jobs such as advertising, recruiting, interviewing, testing, training and corporate overhead — nurse staffing firms earn relatively modest after-tax profits.
Calls for caps. Some groups and state legislatures believe that the way to help solve this problem is to implement a rate cap system on nurse staffing firms. While the caps are intended to alleviate cost pressure on hospitals and nursing homes, they will inevitably lower nurses’ wages, causing many to leave the profession, which would aggravate the nursing shortage to the detriment of patients.
Rate cap proposals are based on erroneous assumptions about what staffing agencies pay their nurses, what they charge healthcare facilities for their services, and what profits they earn. During the pandemic, nurses justifiably demanded higher wages to compensate them for the extraordinary risks they are undertaking.
Two states, Massachusetts and Minnesota, have imposed rate caps — with negative results. Unable to command salaries commensurate with risk, nurses have either left to work in other states or left the healthcare profession entirely, seeking opportunities with better pay. This has exacerbated the patient care crisis. Massachusetts was forced to increase the cap in 2020 and 2021. Minnesota was forced to offer waivers of caps during Covid.
Instead of rate caps that will exacerbate the nursing shortage and harm patient care, states should take steps to address the nursing shortage itself. States that have not already done so should enact and promptly implement the Nurse Licensure Compact and increase Medicaid and Medicare reimbursement rates to reflect the increase in nurse wages.
The American Staffing Association has created a healthcare staffing coalition that is working with state and federal legislators as well as representatives from the hospital and long-term healthcare communities. We plan to work together to address their concerns and find a workable solution for everyone.
