Staffing and cost issues create uncertain forecasts for healthcare providers in Arkansas

The COVID-19 pandemic has taken an extreme toll on our healthcare workers, leading to burnout, exhaustion and trauma, prompting many workers to leave the industry. Critical staffing shortages during the pandemic have altered the dynamics of labor supply and demand. Arkansas hospitals and clinics that previously faced only local competition now have to compete with hospitals and clinics in other states to attract and retain staff.

Recruitment and retention are well-known challenges for Arkansas’ health care workers, particularly those in rural areas. COVID-19 came against a backdrop of significant existing health care workforce shortages and maldistribution. It also came at a time when the industry was changing significantly, shifting to the heavy use of temporary or agency workers by medical staffing and travel health care companies – a shift that has risked those companies having to pay the prices that hospitals and clinics pay , increase rapidly to maintain staffing for essential services.

Nearly 3,500 health care providers in Arkansas have received a total of $1.11 billion in financial relief through congressional action, temporarily offsetting skyrocketing payroll costs. However, labor costs are unlikely to return to pre-pandemic levels, and these costs, along with rising spending on drugs and medical supplies, are raising concerns about long-term financial challenges for healthcare providers.

There are two obvious ways to add fuel to this fire – reduce expenses or increase income. On the cost side, states and the federal government could regulate staffing agencies and travel nursing companies more tightly, limiting the fees they can charge and their ability to unreasonably increase pay rates for contract workers. However, as some industry representatives have learned, this can be a politically tricky path. Earlier this year, a letter to the White House signed by nearly 200 members of Congress to the White House caused an uproar when it was interpreted by many to call for a cap on the pay of traveling nurses. Instead, the letter was actually a call for federal officials to investigate whether recruiting agencies’ pricing practices violated antitrust and consumer protection laws.

On the revenue side, providers could charge higher rates of reimbursement from public and private payers, but this path has its own pitfalls. In negotiations with private insurers, providers could certainly show evidence of increased costs in order to justify tariff increases. However, it is unlikely that insurers would raise rates enough to offset providers’ increased costs.

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

Tariff adjustments through 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 governor’s executive order mandating a review of interest rates “at least every four years,” there was no timeline or standardized process for reviewing interest rates. On the Medicare side, doctors will actually see payments drop about 4% over the next year under a proposed federal rule. The Medicare hospital payment method is based in part on a wage index from hospital expense reports in geographic regions, comparing hospitals in lower-cost states, such as Arkansas, with those in higher-cost states, such as Massachusetts. This exacerbates challenges for hospitals in rural states, which are already struggling to pay competitive wages. Though the Centers for Medicare and Medicaid Services announced a 3.2% increase in hospital inpatient payment rates for fiscal 2023, hospitals say the adjustment is woefully insufficient to reflect recent and future inflationary pressures.

The path to the solution is not clear. On the one hand, the increasing presence of recruitment agencies and nursing companies is strongly affecting the workforce market. On the other hand, public payers are constrained by outdated processes and methods that prevent them from keeping pace with rapidly changing market forces.

However, one thing is clear. Not recognizing or ignoring the urgency of this issue could result in hospitals and clinicians making difficult decisions within their control – downsizing staff or services – which could result in reduced access and quality for patients like you .

Editor’s note: Craig Wilson, JD, MPA, is 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.

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