More state lawmakers push to end ‘exorbitant’ contract labor prices

A growing number of state legislators want to prevent staffing agencies from gouging health systems that use temporary workers. 

Contract labor, particularly in nursing, has been key to overcoming staffing shortages in the last few years, and many health systems have paid premium rates to fill workforce gaps created by employees who left during the COVID-19 pandemic. As a result, labor costs skyrocketed and pressured balance sheets—and are only just now beginning to normalize. 

Healthcare executives are set on reversing their heavy dependence on contract labor and recruiting their own employees. They, with the help of legislators, want to ensure the emergency-era situation doesn’t repeat itself.

The American Hospital Association estimates the hourly rates staffing agencies charged hospitals grew 213% from January 2019 to January 2022. During that same period, hours worked by travel nurses as a percentage of total nursing hours grew to more than 23%, from less than 4%, according to Syntellis Performance Solutions data.

“The AHA remains concerned that conduct of some of these travel nurse staffing agencies bears all the hallmarks of collusion and perhaps other abuses,” the AHA said in a February letter to the U.S. Senate. The trade group made previous requests to the Federal Trade Commission and the White House requesting investigations into alleged anticompetitive behavior.
 
In January 2022, almost 200 members of Congress requested the White House launch an investigation into “exorbitant price increases,” sparking more questions on staffing agency procedures. 

In New York, Assemblyman Al Stirpe (D) introduced a bill in February establishing guidelines for healthcare staffing agencies, including a provision preventing them from charging more than 30% above what facilities would pay an employee with the same qualifications during a state of emergency. Stirpe did not respond to a request for more details.

A spokesperson for Assemblymember Jen Lunsford (D), who co-sponsored the bill, said the proposed legislation is in flux during New York’s budget negotiations, which are expected to conclude sometime this month.

A bill introduced in Rhode Island last month proposes capping what an agency charges nursing or assisted living facilities for workers at 200% of the regional hourly wage, including administrative and contract fees. The bill is awaiting further review.

Legislation has been introduced in more than 10 other states this year to control contract labor costs.

However, staffing agencies want legislators to better understand their cost structure. 

Agencies don’t make as much profit as providers assume they do, said Toby Malara, vice president of government relations at the American Staffing Association, a trade group. An agency’s rate covers employee wages, taxes, workers’ compensation coverage, unemployment contributions, training and background checks, he said.

The hospital association estimated the average profit margin staffing firms retained during the three years studied was 62%. Before the pandemic, the profit margin was estimated at 15%.

“We try to sit down with the proponents of the bill and find out what they’re really trying to accomplish,” Malara said. “The hourly billing rate has dropped drastically since the beginning of 2022, when we were still in that pinch of omicron. We have seen bill rates drop as much as 30% across the country. I think the issue that the facilities are having is the pay rates and the bill rates are still above pre-pandemic levels.”

Staffing agency Vivian Health estimated the average salary for U.S. travel nurses is more than $2,300 a week, down by about 24% from six months ago, but up by 5% from two years ago. 

Malara said he doesn’t think rate caps work because they can limit nurses’ pay and could exacerbate staffing shortages in some areas, as travel nurses may look for contracts offering higher wages elsewhere. There is also the issue of whether lawmakers should be involved in industry pricing, he said. 

Legislators are exploring other ways to hold staffing agencies accountable. In Texas, Sen. Lois Kolkhorst (R) proposed a bill allowing the state’s attorney general to enact penalties of up to $10,000, on staffing agencies if they price-gouge during public health disasters. As of Monday, the bill had been placed on the local calendar. 

Legislation or not, health systems are doing what they can to reduce labor costs for temp agency workers.

King of Prussia, Pennsylvania-based Universal Health Services reduced its contract labor costs to about $85 million in 2022’s fourth quarter, compared with a peak of roughly $150 million in the first three months of 2022, Chief Financial Officer Steve Filton said. The for-profit system was able to lower costs due to less demand for the workers, which also drove down wages, he said.

“Not only is it a pricing problem for the providers, but there’s all sorts of other issues. The lack of continuity makes it much more difficult to deliver quality care,” Filton said. “Whether legislation is the answer, I’m not sure. I’m a free market sort of person, so I always worry about the unintended consequences of the government trying to fix prices, whether it’s pay for nurses or for anything else. But I certainly acknowledge that this is a continuing issue for the hospital industry.”

He said the healthcare industry could benefit from longer-term legislative solutions, such as incentives for nursing schools to hire more educators or tuition reimbursement to help build the talent pipeline.

Healthcare executives, including Filton, don’t know if staffing issues will be resolved, even as facilities recalibrate to a new normal. Ultimately, there may be no returning to pre-pandemic wage levels.

“If the nurses aren’t willing to go back to what they were being paid beforehand, then [providers’] prices aren’t going to go back,” Malara said.