‘This Is Not a Sustainable System’: Providers Struggle with High Contract-Labor Costs

Home-based care providers are short on workers.

It’s the largest, most universal issue facing the home care and home health industries right now. And the problem is being worsened by bottom-line headwinds that come with hiring contract workers meant to fill the void.

Almost every publicly traded home health company mentioned the drag that contract labor was bringing to their financials on their third quarter earnings calls.

“Retention and recruitment are areas that we’ll focus on. We want to continue to be able to replace that high-cost contract business with our own W2 staff,” Amedisys Inc. (Nasdaq: AMED) COO Chris Gerard said on the company’s third quarter earnings call. “We’re running around 4% of our business being performed by contractors, where there’s considerably higher costs than with our own staff.”

The use of contract workers ticking up to even just to 4% is enough to cost a home health agency millions over the course of a year at this point. And it drove up the cost per visit for Amedisys in the third quarter.

Coincidentally, LHC Group Inc.’s (Nasdaq: LHCG) contract labor rate was also 4% in the third quarter. In a normal quarter, these companies would only be relying on contract labor about 1% of the time.

“For about every 100 basis points that we can reduce our dependence on nursing contract labor, that would save us about $1.4 million per quarter,” LHC Group CFO Dale Mackel said Monday at the BofA Securities Home Care Conference. “And that’s a net-savings number.”

The higher costs are not just exclusively associated with heightened staffing woes, however.

Health care providers around the nation have all been dealing with hiked prices for that contract labor, leading to what some insiders are calling a “crisis.”

In Pennsylvania, for instance, health care providers have lost 20% of their workforce, according to Zach Shamberg, the president and CEO of the Pennsylvania Health Care Association (PHCA).

That has led to 75% of Pennsylvania providers limiting or denying new admissions. That’s forced providers there to use contract labor, which often means dealing with third-party players such as staffing agencies.

Many of those agencies, Shamberg said, are taking advantage of the severe shortage – and hiking prices along the way.

“Our providers have been forced to turn away vulnerable senior citizens in need of care, simply because they don’t have enough workers,” Shamberg told Home Health Care News. “Staffing agencies have always been a part of this industry, and staffing agencies have always been partners with our providers. Certainly, at the height of the COVID-19 pandemic, we had providers who had to become more reliant on staffing agencies just to meet minimums.”

But now, the reliance has become such that the market is being manipulated, according to Shamberg.

He went as far as to say that staffing agencies are “price gouging,” which could be part of the reason why companies like LHC Group and Amedisys are seeing such stark hikes in pay when utilizing contract labor.

“We’re starting to see staffing agencies take advantage of our providers with opportunistic wage inflation, to the point where we’re seeing markups for [nurses] at anywhere from 100% to 400% based on geographic area in our state,” Shamberg said.

For home health providers – and even home care providers relying on Medicaid – that’s a near-impossible problem to overcome.

After all, Medicaid and Medicare rates are not heightened in any way for providers that need to find staff from other areas, even if not doing so makes for access-to-care issues. In Pennsylvania, for example, Medicaid rates haven’t been increased since 2014.

“This is not a sustainable system in the months and years to come,” Shamberg said. “This is prevalent throughout post-acute care, and I would argue that it’s prevalent through acute care too. We’re seeing it in hospitals, we’re seeing it in congregate care settings, and we’re seeing it in home care. Staffing agencies have infiltrated every part of the health care continuum.”

It’s not as if the workers in the middle of this are benefiting, either. While they may benefit from a staffing company or home health agency hiring them in this labor environment, they are generally not getting a cut of that inflated price for their labor, Shamberg said.

“That certainly appears to be the case,” he said. “That these rates are going up, up and up, the staffing agencies are pocketing more and more, and fewer of those dollars are going directly to the worker.”

On their end, staffing agencies note that they’re facing the same health care worker shortages that providers are. For them to attract clinical talent, they often need to increase compensation, an added cost they then pass on to providers.

How to solve the issue

Staffing agencies should not be demonized completely. Certainly, there are plenty that are likely helping the situation right now as opposed to hurting it and pocketing the change along the way.

In Minnesota and Massachusetts, for instance, staffing agencies wouldn’t even have that choice. Those two states cap the rates of staffing agencies, which prevents price gouging.

One important solution, Shamberg believes, is more states adopting that policy.

“We’d like Pennsylvania to become the third state to do that,” he said. “So we ensure that staffing agencies are regulated – that they answer to state regulators here and that their rates are capped – so that we can make this a sustainable model given our dependence on Medicaid and Medicare.”

The second change that could be made is perhaps the most simple: to raise Medicare and Medicaid rates.

“We’re able to both recruit and retain workers in long-term care if we can pay adequate wages, if we can offer bonuses, if we can offer benefits, if we can offer incentives,” Shamberg said. “For industries so dependent on Medicaid and Medicare, that has to come with [rate increases]. If the state invests in our providers, our providers can invest in their workers, and that eliminates that need to rely on staffing agencies.”

Moving forward, some sort of change is definitely possible, with staffing-agency rates now in the political spotlight. Earlier this year, a group of senators flagged the issue in a letter sent to Jeffrey Zients, the White House COVID-19 Response Team coordinator, HealthLeaders reported.

The senators specifically wrote about hospitals struggling with steep staffing-agency prices.

“We have received anecdotal reports that the nurse staffing agencies are vastly inflating price, by two, three, or more times pre-pandemic rates, and then taking 40% or more of the amount being charged to the hospitals for themselves in profits,” the letter stated.