There are many ways to address the healthcare staffing crisis, but I will focus on the importance of fostering healthy competition among temporary labor sources. As industries mature, major players tend to scale up and control market share with better products at a lower cost. But in healthcare staffing, this scale could ultimately lead to unintended impacts on cost and quality of care.
The state of healthcare staffing today
Let’s level-set the structure of the typical healthcare workforce. The bedrock of the workforce consists of permanent staff employed by each facility. When permanent staff cannot fill the schedule, that same organization’s internal PRN (per diem) or regional float staff fills in the gaps. And if PRN and float still aren’t enough, third-party staffing agencies step in.
Agencies play an essential role in the staffing crisis by supplying supplemental healthcare workers to facilities that desperately need them. In an effort to meet required staffing ratios and keep their facilities operating at full capacity, administrators and care directors have little choice but to rely on this large and growing pool of on-demand talent. It brings much-needed flexibility to their staffing model and allows them to maximize revenue.
Fueled by the COVID-19 pandemic, tech-enabled agencies (a.k.a. “labor marketplaces”) have rapidly gained market share. By applying technology to repeatable processes, including order intake, recruiting, credentialing, and scheduling, they can move faster and operate more efficiently. But as they continue to scale, they are pushing out smaller, local agencies. While there are benefits to their value proposition - a one-stop shop, a large pool of talent to fill all of your open shifts, a simple software interface, etc. - there are pitfalls to this approach that may not be good for healthcare in the long run.
These large tech-enabled staffing agencies will catalyze rapid industry consolidation if this trend continues. This will leave fewer options for facilities needing flex staff. With a lack of competition, prices will likely go up without any pressure to increase quality or value. Further, the existing nurses and caregivers in full-time positions will likely be motivated to leave their current employer for higher pay and a perception of lower accountability in these nurse networks. A one-stop shop sounds good and might even be possible, but is it best for healthcare?
At Kevala, we believe that local agencies play an essential role in the long-term success of the staffing market. These local agencies maintain deep relationships with both their clients and their staff. They generate insights from these relationships, allowing them to deliver service that technology cannot. In the aggregate, they offer full national coverage across every healthcare specialty and every geography giving them significantly more scale than all of the tech-enabled staffing agencies combined. It’s not “either/or” – it’s “all of the above” - tech and traditional agencies working side-by-side to fill shifts efficiently and effectively. Healthcare needs flexibility and choice when it comes to its talent supply chain.
Consider Amazon, the world’s largest online retailer. They started out by sourcing and selling books and then added a number of other products that we have come to love. But to deliver upon their mission - low prices, best selection, exceptional service - they could not do it all alone. They partnered with hundreds of thousands of small businesses to bring greater choice and value to the consumer, all through a unified customer experience.
Healthcare has a similar choice to make. In order to fill 100% of last-minute shifts, with high-quality staff, across all departments and geographies, and with the required level of service and support, it is unlikely that a single tech-enabled staffing agency will be able to do so on its own. And even if one could, it’s unlikely that the bill rates would be tolerable. Collaboration and cooperation among agencies of all sizes will be required to meet the staffing needs of the healthcare industry.
Reminder: healthcare is a people business
Scaling is something that the healthcare industry and its supply chain can and should do, but not at the expense of its overarching purpose: delivering high-quality and affordable care. There are many opportunities to drive efficiency and effectiveness through technology – recruitment automation, intelligent scheduling, credential management, and employee self-service, to name a few. But fundamentally, frontline care delivery is a people business. People are “snowflakes” in terms of their unique skills, behaviors, wants, and needs. They often need a level of care and attention that automation and scale do not readily support.
These aspects of healthcare can only be addressed through human relationships and connections. Better care, quality, and cost-effective work result from a good relationship between the agency and the facility. And between an agency and its staff. Remember that over fifty percent of the healthcare industry’s cost structure is labor. Healthcare is, in fact, a people business.
Can smaller, more relationship-driven agencies deliver the same value as a large tech-enabled agency/marketplace? If given the opportunity to compete on a level playing field, I believe they can.
Competition drives quality up and cost down
Competition is the foundation of capitalism. As we all learned in high school, the pursuit of the “American Dream” and Adam Smith’s “Invisible Hand” are a large part of what differentiates our country from others. A desire to improve and enrich one’s life leads to a drive for innovation and continual improvement that benefits everyone. Those who deliver greater value to their customer win. Those who fail to deliver that value lose. Competition catalyzes progress and must be fostered.
The healthcare staffing industry is no exception. Over 5,000 staffing agencies, ranging in size from “mom-and-pop” businesses to large publicly traded companies, service the healthcare industry with much-needed supplemental staff. The staffing industry is consolidating rapidly and will continue to consolidate. Those who deliver the best value to their customers will grow, and those who do not will close their doors or sell out. That’s a good thing, to a point.
Healthcare has set fairly clear expectations of its agency partners: high availability of staff, high quality of staff, cost-effectiveness, and quality service. To the extent that the agencies step up to compete for the business and work to improve and retain that business continually, one could assume that healthcare as a whole will make continual progress towards its well-known goals:
- Higher quality of care
- Lower cost of care
- Improved accessibility
As the pandemic has overrun our healthcare system for the past several years, the balance of power has favored agencies at the expense of the healthcare facility. Amid a staffing crisis, those who controlled a majority of the talent controlled the relationship. This resulted in record-high agency usage and bill rates that went largely unchecked and a drain of talent to these agencies that offered greater flexibility and higher pay. Healthcare systems had no choice but to choose between the lesser of two evils – reduce admissions and associated revenue (reduce demand) or bring in agency staff at up to 3x the cost of an internal employee (increase supply). As COVID subsides, times are changing.
The future of healthcare relies upon a healthy relationship between facilities and their agency suppliers - a unified, transparent, and efficient process whereby suppliers can compete on a level playing field. Those who drive the greatest value earn a bigger piece of the pie. Healthy competition will drive quality up and cost down.
Competition must be fostered
Healthcare systems must play a more substantial role in defining the ground rules to foster a competitive dynamic among agencies. Staffing reactively, without strategy or tactics, has resulted in negative profit margins and department/building closure. It’s time for healthcare administrators to deploy a process that fosters a healthy response from its agency supply chain. I’ll use a simple sporting analogy (yes, over-simplified) to make the point. What are the prerequisites to healthy competition in a soccer tournament? And what can we learn from them?
- A level playing field. All agencies should win or lose business based on their own merit – cost, quality, service, fill rate, etc. No preferential treatment or unfair advantage can be given to one or the other.
- A well-groomed playing field. The system needs to be built so agencies can operate as efficiently and effectively as possible, or they will go elsewhere.
- Rules of the game. Bill rates, process, service expectations, contractual language, payment terms, and payment process – should be defined by the healthcare facility. If the rules of the game are set by the agencies individually, chaos will continue.
- A scoreboard. Results should be tracked in real-time and published so schedulers can make better staffing decisions and agencies know where they stand relative to their competition. The best agencies are competitive by nature and will respond well to data.
As agencies compete, they will most certainly step up the pace of innovation. They will adopt tools to help them staff more efficiently, communicate and transact with greater transparency, solicit feedback on their performance, and measure their own progress. With a constant push to grow, their only choice is to improve every day.
The role of technology in fostering the talent supply chain
The workforce of tomorrow will be even more complex than it is today. It will blend a mix of internal, float, and agency staff. It will be designed to improve staffing resiliency and lower staffing costs while meeting worker demands for greater flexibility and control over their schedule.
Unfortunately, today’s systems are ill-equipped to manage this transition. Permanent staff schedules are disconnected from the agency workforce. Systems don’t easily support the “float” of staff across departments or locations. Schedulers rely on text, phone calls, and email to fill open shifts. Frontline caregivers from different labor pools have limited ways to communicate with each other while on duty. And unified workforce data is virtually nonexistent, making it impossible to measure or optimize.
Healthcare workforce schedules, time sheets, and credentials must be digitized and managed centrally in a single system of record, owned and controlled by the facility but open and accessible to all stakeholders, including agencies. The staffing industry needs to be seamlessly connected to these systems - via a simple portal or software integration - on ready stand-by to ensure that open shifts get filled with the best possible staff at the lowest possible cost. Analysts forecast that the healthcare staffing industry will continue to grow for the foreseeable future, but to unlock its greatest value, healthcare administrators need to take on the responsibility of centralized coordination and control.
