Bidding wars: Why private practices are struggling to retain nursing staff

While the United States and global economies have largely recovered from the financial crises spurred by the COVID-19 pandemic, the aftereffects of the pandemic are still being felt. Despite supply chain snarls, the nation went on a post-lockdown buying spree, which depleted inventory levels and increased demand for products and services, which resulted in the highest jump in inflation rates in 40 years.

The economic forces that affected the country also impacted physicians and hospitals. Medical groups substantially recovered from the loss of revenue and increased costs in 2020; however, many of the problems that practices experienced in 2019 and 2020 are continuing, especially their ability to recruit and retain staff at a wage scale that competes with businesses inside and out of healthcare.

Evidence of this problem was noted in the October 2022 Data Mine article, “COVID-19 recovery: The long road back to normal,” which described the MGMA DataDive survey results for physician-owned multispecialty groups with primary and specialty care who experienced a 6.5% one-year increase in total support staff expense from $370,060 to $393,961 per full-time-equivalent (FTE) physician.¹

Drilling down, much of the increase in staff costs can be attributed to the increase in the cost of nursing staff. Figure 1 displays how the cost per FTE physician for registered nurses (RNs), licensed practical nurses (LPNs), and medical assistants (MAs) has changed over the past 10 years. The graph shows how physician-owned multispecialty groups with primary and specialty care experienced a substantial increase in RN and MA costs in the most recent year. 

Since total staff cost is a function of the number of staff members and their average compensation, Figure 2 shows the percent change in total cost along with the change in staffing levels. Examining the graph, it is apparent that the increase in cost of MAs is largely driven by an increase in the staffing level; however, while LPN costs have increased by 22% in the 10 years, their staffing level actually decreased 14%. Most importantly, physician-owned multispecialty groups with primary and specialty care saw their RN staffing cost per FTE physician surge by 65% despite only increasing their RN staffing levels by 7%.

While the MGMA DataDive Cost and Revenue records practice expenses revenue and staffing information, the MGMA DataDive Management and Staff Compensation publishes compensation and fringe benefit information for practice executives, managers, and staff members. Table 1 shows the median compensation paid by physician-owned and hospital-owned medical groups for their nursing staff during the three years of the COVID pandemic.  

While physician-owned medical groups experienced substantial increases in the total costs of nursing staff, in the context of national inflation, their annual compensation increase did not keep up with the cost of living. The table shows that nurses working in hospital-owned medical groups had much greater annual increases in median compensation than their private practice peers. More importantly, nurses in hospital-owned practices have substantially greater compensation than similar nurses in private practice. 

The differential in nursing compensation by group ownership in 2021 ranged from 4% for LPNs and 7% for MAs to a full 18% for RNs, whose median compensation in hospital-owned practices was $11,213 greater than RNs in physician-owned practice. 

The difference in median compensation for nursing staff indicates a potential problem for physician-owned medical groups. It is widely reported that many nurses left the profession during the pandemic due to overwork and burnout, and that there is a national shortage of RNs and only a slightly lessor shortfall in LPNs and MAs. Even though much of nursing turnover occurred in inpatient facilities, the effect is felt industrywide, as it is occurred alongside an increase in the demand for nurses due to the aging population and increased complexity of ambulatory care and inpatient services. 

Two recent MGMA Stat polls described the difficulty medical groups experienced recruiting and retaining nursing staff. In an Aug. 16, 2022, MGMA Stat poll, 40% of responding practices said that MAs had the highest turnover of all staff positions in the past year,² while 44% of respondents to an April 5, 2022, MGMA Stat poll noted that MAs were the most difficult position for them to recruit.³

Economists understand that the effect of high demand and scarcity of resources often results in a redistribution to the parts of the economy willing to pay the most. In effect, the national nursing shortage and the high demand for professional nurses could easily result in a “bidding war” among healthcare entities. For years, physician-owned practices were able to recruit and retain nurses with promises of a better working environment and regular scheduled hours. Unfortunately, if the pay differential continues to diverge, the “deep pockets” of hospital systems may well overcome the attraction of working in a private practice. 

Physician-owned practices are severely constrained in their ability to match the compensation levels offered by health systems. Essentially, as increased salary levels raise operating costs, a private physician practice either has to increase production or reduce the compensation of its owning physicians. In past years, new technology enabled productivity increases that kept pace with increased operating costs, but medical groups could be in a situation of diminishing increases in productivity.

Physician-owned practices are experiencing many problems, but most executives are not prepared for having to substantially increase staff compensation — but they may have to if they want to survive. In a bidding war, there will be only one winner — the one with the most money to spend.

Notes:

1. Gans D. “COVID-19 recovery: The long road back to normal.” MGMA Connection. October 2022. Available from: mgma.com/dm-oct22.
2. Jordan S. “Striking the right balance in budgeting medical practice support staff salaries for 2023.” MGMA. Aug. 17, 2022. Available from: mgma.com/stat-081622.
3. Harrop C. “Medical assistants remain elusive for practices navigating a staffing crisis.” MGMA. April 6, 2022. Available from: mgma.com/stat-040522.