By Todd Walrath

As the new presidential administration reshapes federal policy, the future of healthcare is once again in flux. Our leaders are making government smaller through budget cuts and hospitals will need to adapt quickly as funding sources disappear in this calendar year. The latest proposals in Congress, including potential cuts to Medicaid, put stress on an already challenged economic system. Most of the cost of healthcare is in the labor itself – more than 50% on average. Healthcare is nothing without the people who provide it. One of the biggest determinants of patient outcomes is the ratio of staff to patients.

How do hospitals reduce expenses without impacting care when their #1 cost item is labor?
Every new administration brings policy shifts, but the pace and scope of today’s changes are unlike anything we’ve seen in the past. The latest federal budget resolution proposes $1.5 trillion in mandatory cuts over the next decade, with Medicaid funding at risk. The American Hospital Association warns that even modest reductions could destabilize hospitals and restrict access to care. At the same time, Medicare reimbursement models, public health initiatives, and funding priorities are under review.

For the average hospital, which depends on $100–$200 million in Medicaid revenue, these cuts could lead to an annual shortfall of $8–$16 million, putting financial stability and patient care at risk.

How did we get here?
While it’s difficult to reduce the number of workers needed, there may be a way to reduce labor costs. In 2024, travel nursing accounted for more than $45B in labor expenses for hospitals and in 2023 it was as high as $60B. Travel nursing, while necessary during critical shortages and in rural areas with fewer health care professionals, has become embedded in the cost structure of most major hospital systems.

Travel MSPs (Managed Service Providers) are the factories keeping prices high and supply ready, making it difficult to break the cycle. With patient volumes constantly shifting, it’s difficult for hospitals to hire to peak demand. They would constantly be laying staff off during periods of reduced demand. Healthcare staffing agencies have stepped in to fill these gaps on a temporary basis.

A local employee nurse costs about $55/hour if you include benefits, workers’ comp, payroll taxes etc. A local agency nurse costs about $70 per hour. Travelers cost $95 per hour nationally and you are required to contract with them for 13 weeks at a time. This means that hospitals are overspending by about 26% ($25/hour). Multiply that by $45B and they are overspending by about $11B a year. During COVID it was as high as $15B in overspending!

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