Hospital Contract Labor Costs Topped $4.5M in 2020

As labor costs rise and labor shortages continue, hospital labor costs are skyrocketing. 

According to a Definitive Healthcare report, average hospital contract labor expense rose to $4.59 million as hospitals faced labor challenges and high labor costs persist.

In addition, hospitals contract labor expenses ranged from a few thousand dollars per year to more than $280 million, with a median value of $1.56 million.

Using data from nearly 3,000 hospital researchers found that the 2020 annual average increased by 8 percent for in-hospital spending on contract labor. As a result, the total operating expenses increased almost 4 percent year-over-year.

The average contract labor cost more than doubled in less than ten years. Hospitals spent an average of $2.23 million in 2011 for contracted labor.

Definitive Healthcare found using data from the Medicare Cost Report that the top ten hospitals with the highest contacted labor included:

1.  Mayo Clinic Hospital-Saint Mary’s Campus (Rochester, MN) - $286,784,628
2. Fontana Medical Center (Fontana, CA) - $200,218,085
3. Los Angeles Medical Center (Los Angeles, CA) - $176,274,880
4. Kaiser Permanente Zion Medical Center (San Diego, CA) - $156,699,82
5. Kaiser Permanente-Oakland Medical Center (Oakland, CA)- $122,956,930
6. Kaiser Permanente-Roseville Medical Center (Roseville, CA) - $126,900,246
7. Orange County-Anaheim Medical Center (Anaheim, CA)- 
8. Kaiser Permanente-Santa Clara Medical Center (Santa Clara, CA) - $118,333,451
9. Kaiser Permanente-South Sacramento Medical Center (Sacramento, CA) - $112,520,748
10. Downey Medical Center (Downey, CA) - $109,106,926

As a result of the labor expenses, hospitals and health systems reported low revenue margins, according to a recent National Hospital Flash Report from Kaufman Hall.

In November, the report found that overall hospital performance remained below the pre-pandemic trend as expenses exceeded revenue growth.

“Widespread labor shortages are driving up already high labor expenses, posing significant operational challenges for our nation’s hospitals,” Erik Swanson, a senior vice president of data and analytics with Kaufman Hall, said in a public statement.

“Hospitals are grappling with higher labor costs despite lower staffing levels, due to intense competition for qualified healthcare workers. In addition, the highly contagious Omicron variant could put more pressure on hospitals in months to come.”

The Kaufman Hall report showed that labor expense per adjusted discharge increased by 26.4 percent compared to pre-pandemic trends. In addition, labor expense per adjusted discharge increased 2.7 percent month per month despite lower staffing levels.

Hospitals in the West experienced an increase of 28.8 percent for year-over-year labor expense per adjusted discharge, which is the greatest labor expense increase for the month.

The report also shows that nationwide labor shortages and global supply chain challenges initiated a consistent increase in per-patient expenses across all measures. For example, the total expense per adjusted discharge increased 24.7 percent, while labor expense per adjusted discharge increased by 26.4 percent and non-labor expense per adjusted discharge increased by 20.5 percent relative to pre-pandemic levels.