Nursing Homes Forced to Hire More Costly Outside Staff

COVID has wreaked havoc on the nursing home industry’s staffing.

Prior to COVID, only one in five nursing homes had to hire some of their workers from outside agencies to fill in as caregivers for their patients. Today, nearly half are using agency staff, who are providing more and more hours of the direct care that these high-need patients require, according to research in the March issue of the journal Health Affairs.

Hiring agency staff is more expensive than employing people in-house, and the growing use of them has created numerous problems for nursing homes and potentially their patients, who lose out when their caregivers are temporary workers unfamiliar with their needs.

Staff shortages had already been an issue but things got much worse during the pandemic.

Workers left the industry for a couple of important reasons. Nursing home employees had extremely high death rates from the virus. The strong job market that started in the second year of COVID offered safer employment opportunities – in the retail industry, fast food, hotels, Amazon.com – to nursing home aides, who do very difficult work for very low pay.

Outside agencies cost more because the administrative costs and profit margins are on top of the agency’s cost of employing the nurse or aide. Thanks to the shortage of workers during the pandemic, agency workers have become much more expensive than hiring someone directly. The situation with nurses is the most extreme example. Registered nurses hired out by agencies were, prior to the pandemic, already costing nursing homes over $17 more per hour than in-house registered nurses. But by 2022, the difference had surged to almost $24 per hour, Health Affairs finds in the analysis of data from the federal Centers for Medicare and Medicaid Services.

The cost gaps also widened for licensed practical nurses and nurse’s aides, the industry’s work horses, who help residents with everything from showers and changing sheets to delivering their meals or wheeling them to the dining room. All agency staff combined now cost 50 percent to 60 percent more per hour than direct employees, according to the study.

Higher labor costs affect patients. When nursing homes have to pay more for each employee, they hire fewer of them, jeopardizing the quality of care.

In-house staff get to know the residents and have a better sense of how to help them, while agency staff who come and go may not. Outsiders are also less familiar with the facility’s own employees, its layout or protocols. Research has also shown that direct employees report being unhappy with working alongside agency workers, who they know are getting paid more for doing the same jobs.

The researchers said one of the reasons for this financial bind is that most patients are funded by Medicare and Medicaid, which fix their rates for reimbursing nursing homes for care. This gives the nursing homes less room to increase their revenue to cover the higher-priced staff, in contrast to, say, a retailer or restaurant that can try to raise prices when their labor costs rise. Despite the limitation on nursing homes, they have been able to raise their pay. But the agencies have raised theirs more.

The aging baby boom population, longer life spans, high turnover among nurse’s aides, staff shortages throughout the medical industry – all these are contributing to a crisis of care. Add rising costs and lower staffing levels at nursing homes to the list.

Squared Away writer Kim Blanton invites you to follow us @SquaredAwayBC on X, formerly known as Twitter. To stay current on our blog, join our free email list. You’ll receive just one email each week – with links to the two new posts for that week – when you sign up here.  This blog is supported by the Center for Retirement Research at Boston College.