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Healthcare labor expenses are soaring with no ceiling in sight.
I think most can agree on that statement. In this two-part blog we will first take a data-driven look at why targeting labor cost containment exclusively in healthcare is more likely than not an insufficient approach. Second, we will discuss why renewed and intense focus on non-labor expense containment – primarily medical/surgical supplies – not only important, but imperative to the survival of many healthcare systems in the US.
To get started, let’s look at recent data from the U.S. Bureau of Labor Statistics (BLS) that illustrates – at a high level – what we all see in our day-to-day lives: that despite the Fed’s efforts to cool off an overheated economy, macroeconomic forces are driving wages and benefits ever higher across most industries.
We see in the seven-year line-chart above significant increases in private sector wages and salaries – and these aren’t even “fully-loaded” levels of compensation, i.e. they don’t include benefits. Although these increases have accelerated appreciably since 2021, it is clear that the curve has exhibited a net positive slope for many years. And yet…the data in the chart above is aggregated across multiple industries, so maybe it doesn’t hold for the healthcare sector?
Well, the BLS forecasts an annual median healthcare wage that exceeds 164% of the median annual wage for all occupations, so the data for the healthcare sector actually looks worse than what we see above!
What about demand for these jobs paying higher and higher compensation? No better news here. The BLS forecasts healthcare sector employment growth to be 260% greater than the average for all occupations over the next decade.
Put this information together and we have:
Explosive job demand
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Steep increases in compensation
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Unsustainable cost pressure on an already strained system
So…what can we do?
We can target non-labor expenses in healthcare. But, what are “non-labor expenses”? In my next post, we will zoom in, talk about some real numbers and think about the effect of a practical, focused approach to reduce these costs. I mean, we must, right?
Dr. McCarty is a practicing orthopedic surgeon in Minneapolis, MN, former team physician for the Minnesota Twins, Fuqua alum, healthcare leader and entrepreneur.