Healthcare Staffing Report: Jan. 8, 2015

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No more nurse shortage? Surplus projected for 2025

One of the most groundbreaking findings in our recently released 2015 Healthcare Staffing Growth Assessment report has the potential to reshape the way you think about the future of healthcare staffing. In contrast to overwhelming rhetoric from policy makers and academics alike, the U.S. Health Resources and Services Administration (HRSA) now predicts an excess supply of nurses numbering 340,000 in the US by 2025.

But while an excess supply is projected nationally, there will be a distributional imbalance at the state level with 16 states projected to have shortfalls in their nursing supply. The projections for LPN/LVNs have a similar trajectory.

Since 2002 when the HRSA released its nurse supply and demand report predicting a shortage of more than 800,000 registered nurses by 2020, the conversation around the supply/demand of nurses in the US has almost ubiquitously been premised on the fact there will be a shortage that will only worsen as time goes on. The only debate centered on how severe the shortage will be and what actions should be taken.

When viewed through the lens of the healthcare staffing executive, the impact of a nursing shortage is considerably positive. While the financial results of healthcare staffing firms have been lackluster in recent years due to a recession that was especially harsh to healthcare staffing, in light of the nurse shortage projections, healthcare staffing firms’ long-term prospects have looked bright. This is especially true for those in the per diem nurse staffing and travel nurse staffing business, who would benefit the most from a prolonged nurse shortage, as a shortage of supply typically bodes well for staffing firms.

That said, it may be time for a new conversation. In a surprising about-face, the HRSA recently revised its projections and now predicts a nursing surplus of 340,000 nurses in excess of demand by 2025, a radically different projection than those made in years past. It has the potential to change the landscape of healthcare staffing if it turns out to be true.

This begs the question: why the about-face? Past nursing supply and demand projections were modeled using average nursing graduation levels of the time in which they were written. In 2002, for example, the year the administration predicted a shortage in excess of 800,000 RNs by 2020, the average number of new nurse graduates in the US was approximately 68,000 per year. Using those graduation levels, it was forecast the supply could not increase fast enough to keep up with demand for new nurses. The US would need 1.1 million new nursing jobs to meet demand for new nurses from 2002 through 2012 need to graduate 110,000 nurses a year to keep up with that demand, according to a 2007 paper by Linda Aiken, director of the University of Pennsylvania’s School of Nursing.

Notably, Aiken’s paper cites a table with historic nurse enrollment/graduation levels from 1958-2005 (figure 1), and viewing this table, one might have suspected at the time that graduation levels would have remained suspended at or near their then-current levels (as they had done for roughly the past 50 years). What actually happened is displayed in figure 2.

Figure 1 (click to enlarge)

Figure 2 (click to enlarge)

As is seen from the chart in figure 2, the number of new nurse graduates skyrocketed over the last decade, from 68,759 in 2001 (according to the National Council State Boards of Nursing) to more than 155,000 in 2013 — implying a compound annual growth rate over this time of more than 7 percent per year. It would appear policy makers and school systems have been listening to the rhetoric around the nursing shortage, and young adults entering college and other working professionals seeking a new career have heard about the relatively decent pay and low unemployment afforded RNs. The collective response appears to have been more than enough to meet demand (and then some), at least for now.

It is unlikely the high growth rate in the number of nursing graduates seen over the last 12 years will continue in the long run, due to the following factors:

  • Limited ability of nursing schools to increase their production capacity.
  • The economics of supply and demand — if the number of nursing graduates continued on its current trajectory, in five years the US would be graduating more than 215,000 nurses per year — almost double what Aiken noted would be a reasonable number to meet demand. By 2025, this number would be 325,000 per year, and more nurses would have graduated in the prior 12 years than are currently working today.

However, even at the current level of annual nursing graduates, which is what the HRSA used in its most recent projection of nursing supply and demand (the HRSA nursing projection model assumes graduation rates will remain fixed at their current levels, or 150,000 nurses per year), it is predicted there will be 340,000 more nurses than demand requires by 2025.

The message is clear: we may already be graduating more than enough nurses.

The full chart for the supply and demand projections from the HRSA can be seen in figure 3.

Figure 3 (click to enlarge)

One of the interesting things to note about the demand projection is the muted impact the Affordable Care Act is projected to have on demand for RNs. While “changing demographics” (i.e. an aging population with more health related needs) accounts for an increase in demand of 584,000 RNs by 2025, the ACA is only projected to increase demand for RNs by 28,000 during the same period. This is especially notable in light of the amount of media attention the ACA has been getting.

It is important for staffing executives to keep in mind that even though a national surplus is projected, there will still be regional shortages. Specifically, 16 states, primarily in the South and the West, will experience a shortage of nurses.

The HRSA study has several notable caveats, which are especially important for the leaders of healthcare staffing firms to consider when making strategic decisions regarding these future projections. First, the model assumes nursing graduation rates will remain constant (i.e. the US will continue to graduate 150,000 new nurses per year, every year). As is demonstrated from both figures, this is typically not the case. Nursing school enrollment historically has been highly cyclical, with wild swings in both directions during boom and bust periods. For a little more than a decade we have been on a record-breaking trajectory of unprecedented growth, yet it is possible that this trend could reverse, which would severely impact the HRSA’s projections.

Furthermore, the HRSA study admittedly excludes growth in nursing demand that may come from additional responsibilities shouldered by nurses due to the emergence of new healthcare delivery models. Commenting on these new models’ impact on RN demand, the HRSA states, “… emerging care delivery models, with a focus on managing health status and preventing acute health issues, will likely contribute to new growth in demand for nurses, e.g., nurses taking on new and/or expanded roles in preventive care and care coordination” (The Future of the Nursing Workforce: National and State Level Projections 2012-2025). Thus, the newly created demand for RNs via these emerging care models might be enough to offset the projected supply imbalance, although not enough information yet exists to quantify the impact of these new delivery models.

What is the takeaway for healthcare staffing firms in light of these new projections? We offer the following considerations for healthcare staffing leaders:

  • In the short run, staffing firms will benefit from pent up demand for healthcare services as millions of uninsured work their way through the healthcare system. The influx of new nurses will simply help hospitals alleviate long standing pain points. The second and third quarters of 2014 have already proven to have been especially strong for healthcare staffing firms, and we predict this trend is likely to continue for the next few years.
  • In the long run, staffing firms will need to find ways to become strategic partners. For example, AMN Healthcare has invested in workforce solutions through its acquisitions of Avantas, Medefis, Shiftwise, and Medfinders over the past few years.
  • Travel nurse staffing may be an especially opportune business to be involved with if the HRSA’s predictions are borne out, as alleviating the distributional imbalance from state to state could be a profitable opportunity. The HRSA study itself states, “Some of the projected declines in nurse supply in [states with a projected shortage] could be compensated for if nurses from states with an excess of RNs migrate to states with a deficit”. This is exactly the purview of staffing firms.

Both the 2015 Healthcare Staffing Growth Assessment and the government’s report of nurse projections can be accessed under premium content.