The Charge for Health System Leadership: How Viable Partnerships Can Remediate Constraints in Healthcare

An Interview with Katie Leo, Client Relations Director at SG2

We are speaking with Katie Leo today, Senior Director of Client Relations at SG2. Sg2, a Vizient company, is the healthcare industry’s premier authority on healthcare trends, insights, and market analytics. Sg2’s expertise helps hospitals and health systems achieve sustainable growth and ensure ongoing market relevance.

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Good morning, Katie, and thank you so much for meeting with us. Can you share your thoughts about the current market conditions impacting hospitals today?

The COVID-19 pandemic undoubtedly accelerated macroeconomic changes directly affecting healthcare. For many hospital executives, 2022 marked a turning point, as they managed negative margins for the first time spanning an entire year. Significant inflationary factors continue to influence both operating and capital budgets, increasing debt in unpredictable markets. A combination of expense, volume, and revenue pressures led to unprecedented margin declines. And workforce disruptions are no longer considered episodic. Both the use of contract labor—and the related expense of that labor—skyrocketed. Even navigating one of these conditions is challenging for hospital leadership.

How do workforce constraints continue to challenge health-system margins and operations?

Travel nurse demand and bill rates are still elevated above pre-pandemic levels. Hospitals had a shortage of nursing staff before the pandemic, but it was managed. Then, for many, the pandemic prompted the question: Do I even want to be in healthcare?

What changes feel more permanent?

As an industry, we now know these trends are not a blip. They are systemic. We have overtasked our nurses. Safety issues have contributed to burnout.  We need to bolster our teams of unlicensed support by building diverse teams around core nursing staff in acute-care facilities. It seems daunting, but we can pull multiple levers by changing who does the work and by using technology to work more efficiently. This is an opportunity for leadership to reinvent the workforce. Simply put: We are going to have to do things differently.

Can we talk more about contract labor and its impact on margin?

Contract labor increased between 2019 and 2022—by as much as five-fold at the peaks of the pandemic. As the demand for contract labor increased, the associated wage rates followed. Wage rates for contract nurses were almost double those for staff nurses, and as the pandemic continued, the wage gap increased.

How does contract labor impact labor costs?

Contract labor costs have tremendous implications for the financial climate. We are paying far more for labor than three years ago. Under the partnership umbrella, core functions—such as environmental service, transport, and food and nutrition services—can be better managed. If you are a leader who can develop meaningful solutions to navigate the workforce, you can navigate the margin pressure. Cost and finance are top of mind, yes, but let’s acknowledge that while labor is tough, basic supply-and-demand economics are at play here.

How can hospital leadership best navigate these margin pressures?

Several levers are available to leaders. Outsourcing is one option. Tight labor, pharmacy constraints, and purchased services can be better managed. There are opportunities to standardize and streamline operations. The role of tech automation and AI are still largely unexplored. These advancements can solve workforce issues, but hospital administrators may seek partners to help with implementation.

Where does meeting the patient need fit in, as it relates to these workforce challenges?

Patient experience relates to a stable workforce. Hospitals are still focused on the experience; the focus did not wane—even during the pandemic. But there is often no bandwidth. Hospital staff have experienced an increase in safety and security concerns. There is a shift in how patients and their families interact with and participate in healthcare, and it impacts patient satisfaction scores. Those satisfaction scores, in turn, have significant revenue implications.

It sounds like the singular focus, realistically, is on finances, but how do you balance cost concerns with the hospital’s mission?

Hospitals are anchored in their missions, and they can balance this, but they have to be proactive and prioritize the mission. They need to consider: Are we measuring health equity as well as addressing it and the issues surrounding it? Programs, such as telehealth or those that work to solve food insecurities outside of the hospital walls, do make a difference.

What is the role of contract food and nutrition services inside the hospital, given market conditions? Managing food costs, particularly given inflation and potential shortages, remains a top priority. At the same time, training and retaining foodservice employees is important—and not just to ensure smooth operations that will drive customer satisfaction. It can also influence patient care. For example, our partners in the Vizient Performance Improvement Collaboratives Program have shown that experienced employees play a key role in well-managed food delivery, which is essential for diabetic patients who need to consider meal timing to obtain optimal glucose readings.

Sg2 integrates the intelligence, analytics, and consulting solutions your organization needs to achieve optimal market performance goals.  As part of Vizient Inc, the largest member-driven healthcare performance improvement company in the country, SG2 provides innovative clinical data-driven solutions, expertise, and collaborative opportunities to improve patient outcomes and lower costs.