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Labor constraints in the hospital space are improving after pandemic-era challenges, Fitch Ratings said in a recent research report, indicating a protracted bargaining process for 75,000-strong Kaiser Permanente employees who opted to strike over working conditions and pay last week.
Kaiser, one of the largest not-for-profit health providers in the U.S., is expected to resume negotiations this week as protesting workers agreed to return to work on Saturday.
The 72-hour trade union action of nurses, lab technicians, and support staff crippled routine medical care for nearly 13M patients nationwide, from California to Virginia, in what turned out to be the largest healthcare strike in U.S. history.
As unions seek negotiations and threaten further walkouts if demands are not met, Kaiser executives are expected to have the upper hand amid softening labor conditions in hospitals and ambulatory healthcare services.
Even before the pandemic, labor was a critical component in healthcare, as costs associated with recruitment and retention, employee benefits, and incentives made up over half of total costs in the hospital sector.
“Labor is the number one expense, and most critical piece, of the health care sector,” Fitch Ratings Senior Director Kevin Holloran told Bloomberg.
COVID-19 changed the equation as the sector contended with nursing shortages aggravated by the pandemic-driven demand for healthcare services.
HCA Healthcare (NYSE:HCA), the nation’s largest for-profit hospital operator, saw its expenses on salaries and benefits as a share of total expenses reach ~54% and ~55% in 2022 and 2021, respectively, up from little over 51% before the pandemic.
However, recent labor data indicate signs of moderation. According to Fitch, average hourly earnings growth has consecutively slowed down at hospitals and ambulatory healthcare services, respectively, for three and four months, while payrolls continued to grow.
That implies higher baseline staffing levels and lower job openings as recruitment and retention efforts ramp up and the burden of seasonal COVID, flu, and RSV infections in the U.S. health system falls.
The firm further states that if labor improvements continue and COVID-related hospitalizations don’t reach a level that can reignite the demand for nurses or hurt surgery volumes, health systems can overcome expense challenges and improve profitability over the next few years.
“Any disruption, either in actual supply of labor or cost of labor” has a significant impact on hospital margins, Fitch’s Holloran warned, adding that “we should expect to still see difficult labor negotiations in the sector for the next several years.”
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