No one is declaring victory by any means, but executives at some of the country’s largest investor-owned hospital operators sound more upbeat than earlier this fall about the labor dynamics in their facilities.
Speaking to conferences hosted in recent weeks by investment banks Credit Suisse and Stephens, leaders of HCA Healthcare Inc., Tenet Healthcare Corp. and Community Health Systems Inc. said they have been able to better manage their usage of more expensive contract labor of late and are upbeat that greater investments in recruiting will soon begin to pay off in earnest.
“We would expect and want to see the labor market continue to improve,” HCA CFO Bill Rutherford said at Stephens’ gathering while noting that the Nashville-based company is not out of the woods when it comes to staffing. “There are still a lot of macro dynamics at play and we have to be responsive to the marketplace.”
Rutherford and HCA CEO Sam Hazen last month told analysts they were holding off on providing a preliminary 2023 profit forecast in part because of uncertainty on the labor front. Hazen also said he expected the company, which runs more than 180 hospitals, would continue to have to turn away some patients during the third quarter because of staff shortages. But Rutherford told attendees of the Stephens event the downward trend of contract labor costs and utilization – HCA spent 19 percent less on travel nurses and other contract workers in Q3 than it did in the previous three months – remains intact.
“Hopefully there’s more room in that as we go forward,” he added. “The way to continue to reduce utilization is increase recruitment and reduce our turnover. And some of the things we’ve done operationally are intended to do that.”
In the same boat is Dallas-based Tenet, which in the summer had to deal with a wave of COVID-caused staff absences that it needed to remedy in large part with contract workers. CEO Saum Sutaria said at the Credit Suisse confab that the impact of that spending is now fading.
“We’re finally shedding some of those 12-week-type of contracts,” he said. “I think we’ll enter the next couple of months with a lower total FTE count of contract labor.”
Sutaria did note, however, that wage rates for contract workers haven’t retreated much of late after falling during the second and third quarters from their early-year peaks.
CHS President and CFO Kevin Hammons told Credit Suisse conference attendees his team also expects steady progress in the fourth quarter (although CHS also traditionally spends more on contract labor over the winter as the populations of its key Florida markets temporarily swell) thanks in part to a strong hiring push late this summer and early in the fall. The company spent about $150 million on contract labor in Q2 and roughly $100 million in Q3 and Hammons said there are more gains to make.
“Historically, we ran an average of $30 million per quarter,” he said. “I don’t’ think it gets back to that. But if we get it down to $50, $60 million a quarter, I think it’s really no longer part of the story; we can manage through that. But I think it going to take a little while to get there.”
The near-term financial incentives for these companies to lower contract labor spending are large: Hammons said that 70 percent of his team’s expected spending cuts compared to recent quarters will flow through to EBITDA. With CHS on pace to spend around $520 million this year and posting adjusted EBITDA of about $1 billion in the first nine months of the year, such a bottom-line boost would be welcome.