Staffing, cost issues make for uncertain prognosis for Arkansas health care providers

The COVID-19 pandemic has put extreme stress on our health care workforce, resulting in burnout, exhaustion and trauma, and leading many workers to exit the industry. Critical staffing shortages during the pandemic have changed the dynamic of workforce supply and demand. Hospitals and clinics in Arkansas that previously faced only local competition are now having to compete with hospitals and clinics in other states to attract and retain staff.

Recruitment and retention are familiar challenges for Arkansas’ health care leaders, particularly those in rural areas. COVID-19 arrived in the context of considerable existing health workforce shortages and maldistribution. It also arrived at a time when the industry was undergoing substantial change, switching to heavy use of temporary or agency labor through physician staffing and travel nursing companies — a switch that carries the risk of those companies rapidly increasing the prices that hospitals and clinics must pay to maintain staffing critical to essential services.

Nearly 3,500 health care providers in Arkansas have received a total of $1.11 billion in monetary relief through Congressional action, temporarily offsetting ballooning costs for staffing. Labor expenses are unlikely to return to pre-pandemic levels, however, and these costs, coupled with increasing drug and medical supply expenses, are fueling concerns about long-term financial challenges for health care providers.

There are two obvious ways to pour water on this fire — reduce expenses or increase revenue. On the expense side, states and the federal government could more heavily regulate staffing agencies and travel nursing companies, limiting the fees they are able to collect and their ability to unreasonably increase payment rates for contract staff. As some industry advocates have learned, though, this can be a politically tricky path. Earlier this year, a letter to the White House signed by nearly 200 members of Congress caused an uproar when it was interpreted by many to call for capping travel nurse pay. Instead, the letter was actually a call for federal officials to investigate whether staffing agencies’ pricing practices were in violation of antitrust and consumer protection laws.

On the revenue side, providers could seek increased payment rates from public and private payers, but this path has its own pitfalls. In negotiations with private insurers, providers could certainly show ample evidence of increased costs to justify rate increases. However, it is unlikely that insurers would increase rates sufficiently to offset providers’ increased costs.

This is true for at least two reasons. First, increases in provider payment rates drive increases in premiums, and private insurers are incentivized to keep premiums affordable and attractive to customers. Second, private insurance represents only a portion of revenue for most providers. For most providers, a large portion of their revenue — albeit at considerably lower payment rates — comes from Medicare and Medicaid.

Rate adjustments by these public programs can take years. In fact, the Medicaid payment rate of $850 per day for a hospital stay has been the same for more than two decades. Prior to a 2019 executive order by the governor requiring rate review “no less frequently than every four years,” there was no schedule or standardized process for rate review. On the Medicare side, physicians will actually see a decrease of about 4% in payments next year under a proposed federal rule. The Medicare hospital payment method is based in part on a wage index from hospital cost reports in geographic regions, pitting hospitals in lower-cost states like Arkansas against those in higher-cost states like Massachusetts. This compounds challenges for hospitals in rural states that already struggle to pay competitive wages. Although the Centers for Medicare and Medicaid Services has announced a 3.2% increase in inpatient payment rates for hospitals in fiscal year 2023, hospitals say that adjustment is woefully inadequate to account for recent and future inflationary pressures.

The pathway to a solution is not clear. On the one hand, the emerging presence of middleman staffing agencies and travel nurse companies is strongly influencing the market for workers. On the other hand, public payers are boxed in by antiquated processes and methods that hamper their ability to keep pace with rapidly changing market forces.

One thing is clear, though. Failing to recognize or ignoring the urgency of this issue could result in hospitals and clinic leaders making tough decisions that are within their control — cutting staff or services — which could lead to diminished access and quality for patients like you.

Editor’s note: Craig Wilson, J.D., M.P.A., is the director of health policy for the Arkansas Center for Health Improvement, an independent, nonpartisan health policy center in Little Rock. The opinions expressed are those of the author.