Healthcare Staffing Report: May 7, 2015

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Healthcare staffing segment growth estimate at 7%

It’s a good time to be in healthcare staffing. According to Staffing Industry Analysts’ latest Staffing Industry Growth Forecast, due to a confluence of positive factors, growth in healthcare staffing is projected to outpace growth of the overall staffing industry in both 2015 and 2016, with 7% growth in 2015 and 6% growth in 2016.

While the first half of 2014 proved to be particularly anemic (largely a result of a weak flu season in the beginning of the year, weather impacts, slower than anticipated ACA enrollment, and buyer uncertainty), demand for healthcare staffing spiked sharply throughout the second half of the year and has showed little sign of slowing down. This is welcome news, since as seen in Figure 1 below, healthcare staffing has lagged the broader staffing industry in terms of its recovery from the recessionary lows seen in 2009 and 2010.

Figure 1. Percentage of peak revenue 2007-2016(P), not inflation-adjusted

While our research has shown that the biggest predictor of growth for the overall staffing industry is growth in GDP, healthcare staffing is also affected by structural changes in the healthcare system itself. Thus, one predictor of healthcare staffing growth is the projected acceleration of National Health Expenditures (NHE) over the next five years, as seen in Figure 2. Factors contributing to this acceleration are the increasing numbers of newly insured (estimated at 9 million in 2014), an improving economy, and an aging population requiring more healthcare services1

Figure 2. Actual and projected US National Health Expenditures, 2000-2020

We also expect falling unemployment rates will boost the supply of temporary healthcare staff by making travel and per diem assignments more attractive to healthcare workers who feel they (and their spouses) are more financially secure. Evidence of this already exists in the record level of turnover seen recently in the healthcare and social assistance industry (see “The Return of Churn.”) Falling unemployment should also contribute to wage inflation.

Travel nursing

We project accelerating growth in travel nursing (to an upwardly revised forecast of 8% growth in 2014, 10% growth in 2015, and 8% again in 2016) due to declining unemployment which raises demand by increasing commercial admissions to hospitals. Furthermore, as hospitals continue to experience higher volumes due to ACA (through health exchanges and Medicaid expansion and outreach), and margin improvement as an increase in the insured reduces uninsured admissions, demand for nurse staffing will accelerate.

Per diem

We project 5% growth in per diem in both 2015 and 2016. The per diem market was helped by a more acute than anticipated flu season in early 2015, as well as by the economic drivers noted previously (ACA/improving economy). In addition, there were reports of particularly strong per diem nurse demand in California during 2014. Per diem nurse demand is closely tied to hospital census, and hospitals have been reporting improving trends in patient volumes as seen in Figure 3. While the outlook for the per diem market is positive, growth will be moderated by competition from hospitals’ own internal float pools.

Figure 3. Y/y change in same facility hospital admissions, 4Q13-4Q14

Locum tenens

While we project overall growth in locum tenens of 7% and 6% in 2015 and 2016 respectively, growth trends vary substantially among the various specialties within locum tenens. Hospitalist, emergency medicine, and primary care doctors were both large and fast growing specialties in 2014, while radiology and anesthesiology have been in decline for years. We continue to see strong growth in advanced practice (nurse practitioners/physician assistants) among firms who include such providers in their locum business, although these specialties only comprise about $0.2 billion.

A notable trend seen recently due to structural changes in the healthcare system is that physicians increasingly prefer hospital employment to private practice. According to some estimates, as seen in Figure 4, over half of US physicians are now employed by a hospital or integrated delivery system2, 3. The employed physician model is both a threat and an opportunity for locum firms. While hospitals prefer “permanent” employed physicians to temporary doctors and are successful in recruiting them, locum firms can sell more to hospitals than to private practices. Furthermore, employed doctors receive mandatory vacation time - a luxury not afforded to most physicians running their own practice. Vacation time creates coverage gaps for hospitals which in turn can create additional demand for locum tenens services. While the employed physician model is nothing new, its increasing prevalence may make it a more central driver of future growth in locum tenens.

Figure 4. Change in Physician Employment, 2012/2014

Allied

Similar to locum tenens, because of the many occupations that make up allied healthcare, growth trends vary substantially among allied providers. That said, after rebounding to 4% growth in 2014, we project solid growth of 7% in allied healthcare staffing in 2015 and again in 2016. This projection is due to the same drivers noted behind growth in travel nurse (ACA and improving economy) and the fact that 2015 marks the anniversary of revenue declines brought by therapy-related Medicare reimbursement changes that started in 2013. Those therapy-related declines primarily affected PT/OT staffing, two of the largest specialties in allied.

The biggest threat to these projections is the possibility of another recession occurring in either 2015 or 2016. Although the likelihood of a recession in the next two years remains low, the possibility cannot be dismissed. We are almost into our 6th year of economic expansion, while the average length of the last five economic expansions (dating back to 1980) is 5.9 years.

The full Staffing Industry Growth Forecast has further analyses, historical market sizes and growth rates.

1. Centers for Medicare and Medicaid Services

2. Physician’s Foundation 2014 Biennial Physician’s Survey

3. New England Journal of Medicine 2011; 364: 1790-1793