Understanding the Healthcare Labor Challenges and How to Address Them

Healthcare organizations are up against unprecedented challenges, from a historical labor shortage to an increasingly aging workforce to worker strikes – and these issues are expected to continue. By 2030, it's estimated that there will be a shortage of 18 million qualified healthcare professionals.

Labor challenges need not be perpetual for all organizations – if proper and swift action is taken. By enacting the right policy changes and shifting mentalities in the right areas, healthcare organizations can address today’s labor shortages and future-proof their organizations. 

Given that labor costs account for about half of a hospital’s annual budget, healthcare organizations should understand what’s driving today’s labor dilemmas and then match appropriate solutions to alleviate stress on their profit margins (and their workers). 

Top Line Healthcare Labor Challenges 

Below are some of the most significant challenges for healthcare businesses today that organizations must grasp to overcome.    

• Labor shortage. As of writing this report, the Health Resources & Services Administration calculates that the United States needs more than 17,637 primary care practitioners, 13,354+ dental health practitioners, and 8,504+ mental health practitioners. The most significant shortages of practitioners are in states including California, Texas, Alaska, Missouri, and Florida.  
• Aging workforce. A study published in the Journal of Medical Regulation exploring the 2022 census of licensed physicians in the United States found that the number of licensed physicians over 60 years old has increased by 54% since the 2010 census. Interestingly, the study also found that male physicians average 54.3 years old, compared to female physicians, who average 47.8 years old. 
• Surging attrition. According to healthcare staffing agency AMN Healthcare's 2023 Survey of Registered Nurses, which surveyed 18,226 nurses around the country, only 15% of nurses employed in hospitals say they will “continue working as I am” in one year, and 30% of nurses say they are likely to leave their career due to the pandemic – up seven points since 2021. 
• Worker burnout. The AMN survey of nurses also found that four of five nurses say they experience a great deal or a lot of stress. Beyond nursing, another report from the CDC found that nearly half of all health workers reported often feeling burned out in 2022, increasing from 32% in 2018. 
• Growing labor costs. Estimates from McKinsey in 2022 predicted that clinical labor cost growth would outpace inflation. Since then, a 2024 PwC report affirms that shortages in the clinical workforce over the past few years are exacerbating inflationary pressures. The report also forecasts hospitals will face ongoing financial challenges and will likely pursue higher reimbursement from payers. 
• Continued worker strikes. One of the most talked about strikes this year was Kaiser Permanente, which involved more than 75,000 healthcare workers and reached a tentative agreement in October. While it was the most talked about strike, it was not the only one. As of this report, 37 healthcare worker strikes were recorded in 2023, and experts expect the trend to continue.  

How Did We Get Here?

The pandemic was a central turning point that exacerbated existing problems in healthcare and put an already burned-out workforce over the edge.

Most recently, the Wall Street Journal reported how, amid the height of the pandemic, roughly one in five healthcare professionals left their positions because of concerns about exhaustion, getting sick, or in search of better-paying positions, particularly within the fast-growing travel nurse industry. This resulted in a surge in labor costs, with hospital hourly wages experiencing an 8% annual increase in the fourth quarter of 2021.

Top Strategies to Address Healthcare Labor Challenges  

• Shift focus to permanent staff. Healthcare organizations have used staffing agencies to fill labor gaps in recent years, particularly during the pandemic. In many cases, this led to higher labor costs, and experts now suggest hospitals focus back on developing their permanent teams. Optimistically, Fitch Ratings, a credit rating agency, notes that “hospitals have begun to wean themselves off more expensive travel nursing staff and build their permanent staffing levels.” However, once this happens, healthcare organizations must take care of their permanent staff, as Deloitte reports that burnout led permanent staff to seek contract assignments to begin with. 
• Provide mental health support. Taking care of staff members – and their mental health – will be central to alleviating healthcare labor challenges now and in the future. According to The New England Journal of Medicine, over half of health workers report experiencing burnout. Concurrently, AMN's 2023 Survey of Registered Nurses shows that 86% of nurses believe creating a safer working environment would reduce their stress. Healthcare organizations should consider removing the mental health burden by offering more support, be it through increased access to therapy, expanded job flexibility, taking pulse surveys to uncover the root causes of stress, and/or promoting time off vs. overtime.  
• Consider salary increases. Many healthcare workers are rallying for salary increases, leading to some of the strikes mentioned earlier, like the one in Pittsburgh. Similarly, nearly nine in ten nurses (87%) believe higher salaries would reduce their stress levels. Some hospitals and health systems (26 between June 2021 and November 2023) have already agreed to raise workers’ pay. One overlooked benefit of incorporating this strategy is that short-term salary could lead to long-term savings by staving off attrition. (Research shows that turnover among primary care physicians could cost public and private payers up to $979 million yearly.)   
• Offer professional development. Healthcare workers are also increasingly eager to develop their skills, urging their organizations to offer more professional development opportunities — with Gen Z taking the lead. More than eight in ten clinicians (83%) also say training needs to be overhauled to keep pace with technological advancements. Some states have proactively enacted development programs and seen success, like one in Tennessee where the state Medicaid agency (TennCare) and Board of Regents partnered to develop a workforce development training program that “offers training in areas like cultural competency and patient-centered care and provides higher compensation for workers supporting TennCare’s long-term services and support programs.” 
• Enable digital solutions. Another solid strategy to address healthcare workers’ woes is providing better digital solutions to streamline their roles. One popular digital solution is, of course, telehealth, which research from the University of Illinois notes “improves patient outcomes, reduces healthcare costs, and increases access to care for underserved communities.” Other solutions of note include automation that helps healthcare workers process tasks like appointment scheduling, claims, and discharge instructions, as well as electronic medical records (EMR) that enable healthcare organizations to utilize an enormous amount of data better. Pre-appointment screenings are another digital solution that helps healthcare providers cut costs and save clinicians’ time.  
• Conduct succession planning. With an aging workforce, succession planning can be a proactive method to retain and nurture future talent. A thorough succession plan can help healthcare organizations alleviate concerns and be thoughtful about future needs. The American Hospital Association released a guide in 2022 for hospital and health system leaders on how to do this, including naming critical roles, identifying succession candidates, and ensuring succession plans are regularly reviewed to meet changing needs.   

Other Levers to Consider

Some healthcare organizations could benefit by considering further levers to control expenses suggested by Fitch Ratings, including: 

• Payor contract negotiations
• Supply chain efficiencies
• Eliminating/consolidating less profitable service lines
• Reducing average length of stay
• Exiting financially challenging markets  

The Takeaway

Forward-thinking healthcare organizations should consider the strategies above to alleviate the financial burden and labor shortage in their ecosystems. Each of the solutions hits on a central concern for today’s healthcare workers, and employing them can lessen the strain on employees and employers. 

But the most critical step, above all, is to at least take one to begin with. The longer organizations wait, the more these challenges can be exacerbated. Begin today to start alleviating labor challenges tomorrow.