During the pandemic, many hospitals faced "exorbitant" contract labor costs as they struggled with widespread staffing shortages, further exacerbating their financial troubles. Now, lawmakers in several states have proposed legislation to help combat high contract labor rates going forward, including wage caps and potential penalties for staffing agencies.

States propose new legislation to cap travel nurse costs

Widespread labor shortages during the pandemic led many hospitals and health systems to turn to staffing agencies to fill their workforce gaps, and as a result, contract labor expenses jumped significantly.

According to the  American Hospital Association, hourly rates charged by staffing agencies increased by 213% between January 2019 and January 2022. In December 2021, data from  Vivian Health  showed that the average weekly pay for travel nurses had reached $3,782, up from $1,896 in January 2020.

In response to these "exorbitant price increases," lawmakers in more than 10 states have proposed new legislation to either cap what healthcare staffing agencies can charge hospitals or penalize staffing agencies for price gouging tactics during emergency situations, Modern Healthcare reports.

In New York, a bill introduced in February would establish guidelines for healthcare staffing agencies. It includes a provision that prohibits them from charging more than 30% above what an organization would typically pay a staff employee with the same qualifications during a state of emergency.

In Missouri, a similar bill capping the rate staffing agencies could charge at 150% of the average wage rate from the past three years, plus taxes, was considered, but did not ultimately pass. Instead, legislators approved changes to staffing agency regulations, including new wage reporting requirements.

"During the pandemic there were staffing companies who were making a lot of promises and not necessarily delivering," said Dave Dillon, a spokesperson for the  Missouri Hospital Association, who noted that the group supported the bill as a way to address problems with staffing agencies, not nurses who were seeking higher wages. "It created an opportunity for both profiteering and for bad actors to be able to play in that space."

"All these agencies that were price gouging all they were doing was putting that money in their own pockets," said Michelle Hall, a hospital nursing leader who started her own staffing agency in 2021. "They weren't doing anything different or special for their nurses."

Other states are also considering potential penalties against staffing agencies for price gouging during emergencies. In Texas, a recently proposed bill would allow the state's attorney general to penalize staffing agencies up to $10,000 if they price gouge during public health disasters.

Staffing agencies respond

According to Toby Malara, VP of government relations at the American Staffing Association (ASA), staffing agencies don't actually make as much profit as providers believe they do. Typically, around 75% of an agency's pay rate is used to cover salaries, taxes, workers' compensation coverage, unemployment contributions, recruitment, and training and background checks.

Hospital leaders have, "without understanding how a staffing firm works," wrongly assumed that price gouging had occurred, Malara said. In fact, he noted that many of ASA's members reported lower profits during the pandemic.

"We try to sit down with the proponents of the bill and find out what they're really trying to accomplish," Malara said. "The hourly billing rate has dropped drastically since the beginning of 2022, when we were still in that pinch of omicron. We have seen bill rates drop as much as 30% across the country. I think the issue that the facilities are having is the pay rates and the bill rates are still above pre-pandemic levels."

According to Malara, he does not believe rate caps will be effective since they could limit nurses' pay and worsen staffing shortages in certain areas if travel nurses choose to look for contracts with higher wages elsewhere. Nurses may also be unwilling to return to their pre-pandemic wage levels.

"If the nurses aren't willing to go back to what they were being paid beforehand, then [providers'] prices aren't going to go back," Malara said.

In addition, Hannah Neprash, a healthcare economics professor at the  University of Minnesota, said that hospitals in states with caps on travel nurse wages or other restrictions on staffing agencies could have a more difficult time hiring travel nurses during a national health crisis compared to states without such limits.

In general, hospitals and health systems will likely continue to struggle with staffing issues and labor costs for the foreseeable future, even with potential new legislation in the works in many states.

"Whether legislation is the answer, I'm not sure," said Steve Filton, CFO at  Universal Health Services. "I'm a free market sort of person, so I always worry about the unintended consequences of the government trying to fix prices, whether it's pay for nurses or for anything else. But I certainly acknowledge that this is a continuing issue for the hospital industry." (Hudson, Modern Healthcare, 4/3; Sable-Smith, Kaiser Health News, 3/17)