Contract labor costs and financial performance at high and low surgical volume hospitals

BACKGROUND: Rising labor costs negatively impact hospitals' financial stability. Poor hospital financial performance raises the probability of bankruptcy and closure, which limits patients' access to critically important medical and surgical care. The objective of the study was to determine the association between contract labor costs and hospital financial performance and examine if this relationship is modified by surgical volume. METHODS: We used data from the National Academy for State Health Policy, the American Hospital Association, and the RAND Corporation to analyze general and financial characteristics of U.S. hospitals. The primary outcomes were hospital operating margin, total margin, and financial distress. Generalized estimating equations were used to identify associations between contract labor costs and financial performance. RESULTS: Our sample included 22,366 hospital-year observations from 2,914 hospitals. Higher contract labor costs were associated with lower operating margins (coefficient -0.13, 95% confidence interval (CI) -0.17 to -0.10; p < 0.001), lower total margins (coefficient -0.11, 95% CI -0.14 to -0.07; p < 0.001), and higher financial distress (odds ratio 1.01, 95% CI 1.00 to 1.02; p = 0.003). High surgical volume was associated with higher operating margins (coefficient 1.40, 95% CI 0.86 to 1.95; p < 0.001), higher total margins (coefficient 1.62, 95% CI 1.12 to 2.12; p < 0.001), and a lower risk of financial distress (OR 0.77, 95% CI 0.64 to 0.94; p = 0.008) compared to low surgical volume. The interaction term for contract labor costs and high-volume status was not statistically significant for operating margin (coefficient -0.02, 95% CI -0.08 to 0.05; p = 0.605), total margin (coefficient -0.04, 95% CI -0.09 to 0.02; p = 0.179), or financial distress (OR 1.01, 95% CI 0.99 to 1.03; p = 0.303). CONCLUSIONS: Higher contract labor costs were associated with lower hospital profit margins. High surgical volume may not offer financial protection against the economic challenge of contract labor costs.