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How Rising Labor Costs Are Squeezing Hospital Margins—And What CFOs Can Do About It

3 days ago2 min read

Surgery Management Improvement

Hospital CFOs are facing one of their toughest financial challenges yet: soaring labor costs. With wages rising, contract labor dependency increasing, and reimbursement rates lagging behind inflation, margins are under significant pressure.


The Reality:

  • Labor accounts for 50-60% of hospital operating costs.

  • The reliance on travel nurses and contract labor skyrocketed by 500% during the pandemic, and while it's decreasing, costs remain well above pre-pandemic levels.

  • Many hospitals operate on razor-thin margins (1-3%), leaving little room for error.


What can Hospital CFOs do to mitigate these financial risks while ensuring high-quality patient care?


✅ 1. Optimize Workforce Management

  • Leverage predictive analytics to forecast staffing needs and minimize costly overtime.

  • Invest in internal float pools to reduce contract labor dependency.

  • Improve employee engagement and career pathways to reduce turnover and retain top talent.


✅ 2. Rethink the Supply Chain

  • Implement AI-driven procurement strategies to identify cost-saving opportunities.

  • Standardize and consolidate vendors to increase negotiation leverage.

  • Reduce clinical variation by ensuring cost-effective utilization of supplies and implants.


✅ 3. Improve Revenue Cycle Efficiency

  • Strengthen denial management to recover lost revenue.

  • Automate prior authorizations and billing processes to reduce administrative burden.

  • Ensure accurate coding and documentation to maximize reimbursements.


✅ 4. Explore Alternative Revenue Streams

  • Invest in outpatient services and telehealth to increase revenue diversification.

  • Expand strategic partnerships to offer value-based care models that align financial incentives.

 
David Capone, DCCS Financial Advisory Services

"Rising labor costs aren't going away, but hospital CFOs who take a proactive, data-driven approach can preserve financial stability while maintaining quality patient care."


David Capone, DCCS Financial Advisory Services


👉 Let’s connect to discuss how we can support your hospital’s financial health.

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