Nurse Wage Pressures to Tighten Senior Living Margins

The senior living industry is currently facing its fair share of wage-related hurdles, from minimum wage hikes to overtime regulations. Soon, senior living margins may be further tightened by nursing industry wage pressures.

Specifically, a rise in registered nurse salaries could soon pressure the operations costs of some senior living companies and nonprofit hospitals, according to Fitch Ratings.

In certain markets, there’s an emerging pressure on nurses’ wages and greater nurse agency expense, especially for specialized services like ICU and surgical nurses.

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“This is really something we began to hear more from our acute care borrowers toward the end of last year,” Fitch Ratings Senior Director Jim LeBuhn told Senior Housing News. “It’s something we’re hearing anecdotally.”

Acute care providers didn’t have too much trouble controlling labor costs during the down economy over the past few years, LeBuhn noted. “But as the economy’s gotten better, there’s more pressure on wages, combined with Medicaid expansion in certain states and increased hospital volumes, which has created more demand for nurses out there.”

The wage pressure is being felt in metropolitan regions with expanding populations, low unemployment rates and numerous health care providers, Fitch Ratings said in a press release, adding that the wage pressures may impact health care providers in more isolated markets with a smaller number of nurses and nurse assistants.

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“I think we’re concerned that as the economy continues to get better, this is something that is going to pressure margins, particularly on the acute care side,” LeBuhn said.

Though the number of registered nurses rose by 11% between 2011 and 2015, the emphasis on wellness, post-acute services and the growth in outpatient services has boosted the overall demand for nurses and nurse assistants at an accelerated rate, Fitch Ratings explained.

The demand for nurses is anticipated to remain high, Fitch said, especially as baby boomers get older and require additional health care. Consequently, the use of health care extenders, including nurses, will keep growing. 

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Additionally, a large number of nurses are expected to retire soon, as approximately 50% are older than 50 years old, Fitch said, citing data from the American Nurses Association.

“As the demand for nurses goes up across the whole health care sector—whether its in senior living or acute care—how do you attract them?” LeBuhn asked. “Wages and benefits.”

The growing competition for nurses and the associated wage, agency and turnover costs is already impacting certain markets, Fitch said.

So far, this increasing pressure has had a small effect on hospital operating performance. However, if these trends were to continue and increase across the sector, hospital ratings and operating performance could be hit in the long run.

Additionally, growing health care consumerism could result in lower revenues, and the expansion of value-based/risk-based contracting could continue the shift from payors—especially Medicare—to providers.

“However, we expect ratings to be stable in the short term as the sector’s improving liquidity and leverage positions provide a solid financial cushion to absorb potential operating volatility,” Fitch Ratings concluded in its release.

Written by Mary Kate Nelson

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