- Inflation significantly impacts nurses’ daily lives; it may be driven by a disruption in the supply chain and an influx of money through government loans.
- Roughly 50% of healthcare funding funnels through government agencies, such as Medicare and Medicaid, which unilaterally decides on reimbursement.
- Hospitals are facing nursing shortages, supply shortages, and a growing gap between charges and reimbursements that threatens the industry.
- Hospitals must begin working across all fronts to protect their ability to provide quality patient care.
Everyone is likely feeling the pinch from rapidly rising inflation, including healthcare workers. Nurses are an integral part of providing care to patients and families. But as inflation rises, it impacts how they can offer care.
Well before the pandemic, experts predicted a growing nursing shortage, driven in part by a large population of baby boomer healthcare workers who were quickly approaching retirement. During the pandemic, nurse retention became an issue as more nurses left the field than anticipated, causing staff shortages to increase rapidly.
The combination of a shortage of healthcare providers and an inflated economy has hit the nursing profession and healthcare industry particularly hard. Review these four details about the current economy that could affect healthcare.
The Impact of Inflation on Daily Life
As you consider how inflation has impacted the healthcare industry, it’s also important to look closer to home. We can all see the end result of inflation at the grocery store, gas pump, and within utility prices.
The cost of housing and healthcare is also rising dramatically. The salary you made two years ago isn’t going as far as it once did. Many are digging into their savings to put food on the table. Others are taking out loans to pay off their debt.
The definition of inflation is a reduction in purchasing power of the U.S. dollar. For example, the same cup of coffee that cost $.65 in 1975 costs $2.30 in 2022. But what makes the prices rise?
One reason inflation has occurred in past years was the overproduction of money. As the government prints and loans more money, it devalues the currency and results in inflation. Another cause is when consumer demand increases, it can outstrip the supply of goods.
Experts believe these are the two biggest reasons for the 8.6% rise in consumer goods experienced in 2022. A combination of supply chain interruptions during the pandemic leading to a reduction in available goods and an increase of the money supply by the government has resulted in rising inflation.
Why Healthcare Isn’t a ‘Normal’ Industry
Healthcare costs are not impacted in the same way as other goods and services by supply and demand. According to Forbes, government spending controls roughly 50% of healthcare funding through Medicare, Medicaid, and the Children’s Health Insurance Program.
What makes public funding different is the ability of agencies to decide how much they will reimburse hospitals and healthcare providers for services. The Balanced Budget Act of 1997 represented some of the largest reductions in Medicare and Medicaid spending.
In 2018, reimbursement was approximately 90% of the charged costs. When half the revenue comes from agencies that don’t pay full charge, providers are forced to pass the charges on to the private sector.
The gap between private and public reimbursement was already widening, and experts believe that a major inflationary cycle, such as the one in 2022, will cause the gap to widen further. This puts a strain on the healthcare industry when they are not reimbursed for their expenditures.
The consequences could be felt by consumers, including nurses and other healthcare workers. Private insurance companies may have greater power, which will lead to limited provider networks and access to healthcare.
Inflation and the Healthcare Industry
Inflation has been a grueling challenge for the healthcare industry. Staffing shortages have a significant impact on hospital reimbursement. Short staffing can also impact the quality of care provided and patient outcomes.
However, the industry, driven largely by the Centers for Medicare & Medicaid Services (CMS), is moving toward an outcome- or value-based reimbursement. Under this model, the industry is not reimbursed for the volume of services provided but on the quality of care and patient outcomes.
In 2019, approximately 38% of reimbursement flowed through a value-based model. The CMS is pushing for onboarding into the system, with a goal of full participation by 2024. The movement toward outcome-based reimbursement is occurring simultaneously as staffing shortages are expected in nursing and medicine.
Hospitals are also facing inflationary costs in purchasing goods and services. Dee Donatelli, RN, is the senior director of spend management at symplr. She says the cost of commodity items is increasing, forcing hospitals to consider less expensive alternatives with potentially lower quality.
“From a supply perspective, the availability of necessary medical supplies remains challenging amid inflation and ongoing supply chain disruptions. As hospitals are forced to cut costs, supplies are often targeted and can result in overutilization or lack of standardization in use,” she says.
Donatelli also says that nurses are faced with supplies being out of stock becoming a more common issue, affecting patient care and outcomes. Rachel Norton, RN, is a clinical support manager where she advocates for healthcare workers. She is also seeing the challenges hospitals are facing with supplies.
“In particular, inflation has resulted in increased medical supply costs. We’ve seen hospitals recently focused on reducing costs, by freezing the incentives and bonuses paid to staff and auditing staffing costs,” she says.
As nurses struggle to make ends meet at home under the growing weight of inflation, they are lobbying for higher pay. The nursing staff at two hospitals in California, Stanford Health Care and the Lucile Packard Children’s Hospital in Palo Alto, voted to strike in April 2022.
These nurses demand better pay “that meets inflation,” increased staffing, and better mental health options for nurses. An impressive 93% of the unionized nurses voted to authorize the nurses’ strike.
Although hospitals have been profitable for several decades, they are now facing a critical crossroad. A perfect storm is developing where hospitals are caught between declining reimbursement, nursing shortages, disgruntled staff, medical supply challenges, and the impact each of these factors has on patient outcomes.
How Hospitals Can Mitigate the Impact of Inflation on Staff
Hospitals must begin working across all fronts to protect their ability to provide patient care. All healthcare workers, including nurses, must be a part of the solution. However, because nurses are the largest population in the healthcare workforce, they also may have the largest influence over change.
Karlene Kerfoot, Ph.D., the chief nursing officer at symplr, says that rising labor costs and supply expenses are straining hospital systems and leading to negative operating margins. She has found some hospitals are responding by helping their staff with family-friendly programs to help cover the cost of escalating daycare charges.
Allison Morin, RN, vice president of nursing informatics also at symplr, believes hospitals could employ technology options to help mitigate inflation’s impact on the nursing staff. Software that analyzes workforce management and supply chain can offer data-driven insights to help cut hospital costs.
Ultimately, hospitals must find ways to help blunt the impact of inflation on their staff using strategies that are not financially burdensome to the institution. Although increasing hourly pay is ideal, it isn’t always possible. Hospitals can consider other ways of improving benefits that impact the pocketbook without increasing taxes.
For example, hospitals can:
- Cut the cost of parking by charging only what is necessary to maintain the structure.
- They can offer in-house daycare options using pediatric-certified nursing assistants and unused hospital space.
- Larger institutions may negotiate discounts on public transit or discount gas cards.
Each of these strategies can put more money back in the staff’s pocket, which helps reduce the impact of inflation.
Now that you know what’s going on in the economy, find out how you as a nurse can successfully navigate it.
Meet Our Contributors
Dee Donatelli, RN, BSN, MBA
Dee Donatelli is the senior director of spend management at symplr, an experienced healthcare professional, and nationally recognized expert in healthcare value analysis. Having served the industry for over 40 years, Donatelli has advised the country’s leading healthcare organizations on cost reduction. As a registered nurse, Donatelli leads symplr’s efforts to enhance clinical integration at organizations in their value analysis processes and spend management.
Rachel Norton, RN
Rachel Norton has been a registered nurse since 2007 and has always worked in critical care, spending the first 12 years of her career based in Albany, New York, working for a level I trauma center. She also worked as a flight nurse for LifeNet of New York on various bases across the state and ultimately landed in Denver, Colorado, where she remains per diem in the ICU at The Medical Center of Aurora. As a clinical support manager at Vivian Health, a national hiring healthcare marketplace, she advocates for healthcare workers and works to help bridge the gap between employee and employer expectations.
Karlene Kerfoot, Ph.D., RN, FAAN
As the chief nursing officer at symplr, Karlene Kerfoot is responsible for integrating the science of patient care, staffing, and clinical informatics into symplr solutions. Before joining symplr in 2011, she was the corporate chief nursing and patient care officer at three of the largest U.S. healthcare systems. Previously she held positions in clinical practice, healthcare consulting, project management, and academic appointments in business administration and nursing. She holds a Ph.D. from the University of Illinois, Chicago, an MA and BSN from the University of Iowa, and has completed executive leadership programs at the Wharton School for Nurse Executives.
Allison Morin, MSN, RN-BC
As a board-certified clinical informatics nurse with more than 20 years of direct and operational healthcare IT experience, Allison Morin is a leader in strategic and operational nursing communication and technology-enabled care delivery. As the vice president of nursing informatics at symplr, she has led the development, deployment, re-engineering, optimization, and integration of clinical information systems, and is well-versed in ensuring continuous clinical regulatory readiness.
Page last reviewed July 15, 2022