Hospitals will continue to feel financial constraints from the ongoing nursing shortage for the next three to four years, according to a new report.

Labor comprises more than half of most hospitals’ operating revenue, and that share will continue to rise as turnover among nurses remains high and not enough new nurses enter the workforce, according to a report from Moody’s Investors Service. Providers will have to spend more to recruit qualified employees while the nursing shortage persists through 2025, according to the Bureau of Labor Statistics.

The rapidly aging population and need for chronic disease management will drive nursing demand. Rural providers will also be acutely impacted because they cannot match the compensation offered by urban hospitals and are not located close to nursing schools, Moody’s said.

Hospitals’ average annual revenue growth of 5.7% between 2012 and 2016 exceeded salaries and benefits expense growth of 5.5%. But that did not include recruitment expense, which is higher in growing economies. Nurses are more willing to change jobs and providers must up the ante with better rates, bonuses and benefits to keep them on staff.

Recruiting a nurse in the home health sector used to cost $1,500 to $2,000 and he or she would produce about $100,000 in revenue, netting about a 10% margin. But in today’s competitive landscape, recruitment costs are closer to $5,000 and nurses are spending less time at a job, which narrows margins. And Medicare and Medicaid are reducing reimbursement levels.

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