Nursing Shortage?

Nashville Post – July 2003

About three years ago, Wall Street healthcare analysts started to hear about a new challenge in the hospital industry – nurses increasingly in short supply. Since then, hundreds of articles have been written about the nursing shortage. Nurse staffing companies became the rage among investors. Unless you haven’t noticed, the nurse staffing “crisis” is no longer a crisis. In fact, investors may start wondering what the fuss was all about.

Just like most other trends (oil at $35 a barrel going to $100, gold at $700 an ounce going to $1,000), markets and companies tend to react to dislocations in supply or demand. Nothing is constant, and drawing straight lines into the future yields the wrong conclusion about 100% of the time. Either new supply is created, or companies learn how to reduce demand.

Nurse staffing is no different, and apparently the tide has turned. Bottom line: Nurse staffing companies will have trouble making Wall Street earning estimates and healthcare providers will have lower salary & benefit inflation than expected.

What changed?

The original problem was caused by many factors. Over the past twenty years, the nursing profession has dramatically changed. Nurses found they were spending more time on administration than in patient care. Most people who choose nursing as a profession truly want to help patients. My experience is that nurses tend to be compassionate, caring and are advocates for the patients they serve. Modern medicine, however, involves mountains of paper, mountains of regulations and under the Clinton administration, nurses began to become concerned that a mistake would be deemed to be a criminal act. My personal view is that nurses were under-appreciated, and became just one more ingredient in a hospital’s recipe, rather than part of the medical team focused on a high quality of patient care. In some cases, work rules demanded that nurses pull double shifts, often without prior notice. Who would want to join a profession that is under-appreciated, burdened with mountains of paper and where everyone at work is continually under scrutiny for fraud and could be sued or charged with a crime? As a result, nurses retired, or moved into the home healthcare, or hospice industry, or became traveling nurses that were paid more and had more flexible schedules and work rules than their old job. At the same time that baby boomers started to increase demand for healthcare services, nurses left the profession and a shortage developed.

Healthcare providers started to act to solve the long-term problem. After all, why pay a temp staffing company double the rate of a full time nurse unless there is no other alternative? One of the biggest costs in healthcare is the training of new employees and the loss of productivity caused by turnover. We believe the industry has begun to change: nurse pay has been increased; technology is being used to reduce the administrative burden; flex staffing is used to increase staffing when patient volume increases; and work environments have been improved. In urban markets, international nurses have been imported to increase supply. The soft economy has also, we think, had a significant impact. Working as a temp nurse probably is less attractive in a soft economy as job security and a steady paycheck becomes more important. Net result: hospitals and nursing homes are using less temporary nurses. Everyone in the industry is focused on reducing or eliminating dependence upon temp agency nurses. Such a focus can’t be good for the nurse staffing industry.

The publicly traded companies are just starting to discuss this new trend. Cross Country, Medical Staffing Network and AMN Healthcare have revised estimates and/or missed analyst expectations. RehabCare Group reported that its supplemental staffing revenue in the first quarter dropped 23%. Cross Country’s CEO has been quoted as saying, “I can’t tell you whether the turnaround in the business is two quarters out or two years out.” Needless to say, the stocks are trading at a fraction of last year’s price.

Is the nurse shortage over? Not likely. Increased staffing requirements in states such as California and the new labor agreement between Tenet Healthcare and two labor unions will continue to exert pressure on staffing requirements. But focused efforts on the part of healthcare providers and the current weak economic environment have combined to give healthcare providers some relief, and some nurse staffing companies’ heartburn. Who benefits? Nashville based hospital companies, including HCA, Inc., Iasis Healthcare, Vanguard Health Systems, Community Health Systems, LifePoint Hospitals and Province Healthcare.

Jeffrey C. Villwock is a Managing Partner at Caymus Partners LLC, an investment banking firm focused on middle market healthcare companies. Jeff has been an advisor to Nashville based Province Healthcare, Iasis Healthcare, Surgis, Inc., and HealthMont. Caymus Partners is providing the fairness opinion on HealthMont’s sale to SunLink Health Systems. Mr. Villwock and/or Caymus Partners owns stock in Province Healthcare, Iasis Healthcare and Surgis, Inc.