.png)
How did the American healthcare system become dependent on middlemen? And why is it that this temporary healthcare labor market, valued at $20.5 billion USD in 2022, is projected to reach $34.7 billion USD by 2030? This is a market where further growth, actually forecasts a looming crisis for health systems, healthcare providers and patients.
Today, many hospitals and health systems find themselves trapped in a vicious cycle of stopgap staffing, inability to properly budget for these operational expenses, and clinical burnout. The contract labor space in healthcare–across nursing, pharmacy, respiratory therapy, physicians, and beyond–has shifted from emergency backfill to a de facto staffing strategy.
In the immediate aftermath of the COVID-19 pandemic, the surge in travel nurses and utilization of these agencies made headlines. Nurses were quitting their permanent positions to take large payouts being advertised by travel agencies, and many were feeling taken advantage of. Why make $45 an hour (avg for BSNs/RNs in NYC) when you could join an agency and earn $60-75 an hour? The incentive to go per diem is a 66.6% increase in pay.
But, what flew under the radar was a broader system shift: hospitals, pharmacies, and ambulatory care centers alike began relying more heavily on staffing agencies to plug operational holes. As permanent providers left, temps came in. The crisis compounding exponentially.
According to Kaufman Hall, total hospital labor expenses increased by over 20% between 2019 and 2022. This was largely driven by premium labor costs. In some systems, agency staff accounted for 30-40% of shift rosters.
While the nursing numbers dominate most discussions, this isn’t a nurse specific crisis. Pharmacist vacancies have skyrocketed. Behavioral health facilities are hemorrhaging licensed social workers. Radiology, lab, and respiratory therapy teams are operating with skeleton crews. What began as a pandemic-induced shock has calcified into a chronic condition.
The Real Cost of Stopgap Labor
From the outside looking in, contracted clinical labor seems like a rational response to these shortages. It fills the shifts, keeps the doors open, and keeps patient care moving. But the hidden costs are substantial:
- Price Arbitrage: Agency rates often include anywhere from a 30-100% markup. For pharmacists, that might mean paying $120 an hour for work that permanent staff perform at $68 an hour. For nurses, weekly agency pay can exceed $5,500– even as permanently employed hospital staff earn half that.
- Conversion Penalties: Traditional staffing agency models routinely impose steep conversion fees–often 20-30% of annual salary– if the facility tries to hire a contract worker full-time. This disincentivizes integration and creates a churn model where continuity becomes impossible.
- Productivity Drag: Temporary staff often lack familiarity with the facilities systems, protocols, and team norms. This leads to slower throughput, higher error rates, poor patient outcomes, and reduced patient satisfaction scores. It also contributes to the burnout and fatigue among permanent clinicians to pick up slack from floaters when they need to train them up to speed for what might be one shift.
- Workforce Instability: As I mentioned earlier in this piece, full-time staff resent the pay disparity and leave, which further drives reliance on contract labor.
- New Budget, who’s this? Premium labor isn’t always forecastable. As reliance grows, so does volatility in the labor budget, undermining fiscal planning and strategic hiring efforts.
How We Got Here
When cool air meets hot air, and thunderstorms are present, the conditions are perfect for a tornado. Living in Texas, we know this is a frequent occurrence every spring. It’s always Texas springtime in the healthcare systems when it comes to their workforce.
A look at the perfect storm conditions:
- Underinvestment in Workforce Operations: Most health systems still use outdated scheduling platforms that offer little or no predictive intelligence. Maybe it was built for physicians, or for nurses, but it leaves other departments relying on manual scheduling and gaps due to fragmentation. The schedulers (oftentimes clinician leads themselves) are overworked, and not focused on trends in staffing.
- Siloed Credentialing and Onboarding: Each provider type has its own process, usually manual and time-consuming. In high-turnover environments, these bottlenecks slow down the onboarding of permanent staff. This makes agency hires more appealing by comparison as a quick fix.
- Lack of Internal Flexibility: Most organizations lack the internal infrastructure (e.g., dynamic float pools, AI-based SAAS marketplaces vs. traditional agencies) that flex up and down with demand and are integrated with their scheduling platforms. So when needs spike, they have no choice but to outsource.
TLDR; An EF5 is ripping through the US healthcare systems workforce with no end in sight.
It’s Time for Structural Rebuilding
Reducing reliance on agencies isn’t about banning their use outright but, a shift is necessary. Newer AI-native scheduling tools, AI-native agency replacements, integrations between both– these types of products need to be in high demand. For rural markets and niche specialities, it’s a life or death situation. Existing traditional temp agencies can be used as a pressure valve but not the backbone of the labor model. To completely shift the balance, systems must re-architect the way staffing hospitals work.
- Centralize and Automate Scheduling Infrastructure
- Ad hoc scheduling that is spread across Excel, Kronos, Qgenda, and half-functional HRIS systems makes it impossible to optimize labor. AI-powered platforms can forecast demand, preempt gaps, and fill shifts with internal staff and internal flex pools before external options are even considered. This type of scheduling infrastructure is currently being built and must be adopted quickly, and uniformly across departments to reduce the fragmentation that exists in the market today.
- Operationalize Float Pools and Shift Marketplaces
- Health systems should treat per diem pools like internal marketplaces, not just static lists. Empowering providers to pick up shifts across facilities with clear role-matching, real-time credential checking, and OTE / PTO considerations reduce time-to-fill and restores autonomy.
- Automate Credentialing and Onboarding
- Credentialing shouldn’t take weeks. There shouldn’t be a myriad of human resources labor and administrators working on this. With structured data and integrations across licensing boards, payer systems, and internal HR; credentialing status should be verifiable in real time. Just like TSA PreCheck but for clinical work. This makes ramping internal hires faster than going through agencies.
- Reclaim Clinicians and Admins Time for Strategic Hiring
- Clinical leaders shouldn’t be in a constant state of chaos, and clinicians time should be spent 100% on servicing patients. We must automate the low-leverage tasks like finding coverage, coordinating, logging into internal systems to find PTO requests, and typing up schedules. It gives them back the bandwidth to entirely focus on patient care and outcomes, recruiting, retention, and mentorship. These are the actual levers that keep staff in place.
- Rebuild Trust with the Workforce
- When permanent clinicians see travel workers earning double while doing less, retention continues to decrease. Burnout increases. Resentment builds. We need transparent compensation structures, flexible scheduling, and clear paths to internal mobility. These are essential to rebuilding morale but a key driver in reducing burnout and turnover as well. Happy clinicians, healthy patients. See where I’m going with this?
Healthcare systems and hospitals didn’t mean to become an agency-first industry. But now, the bill is due; in dollars, turnover, and patient outcomes.
Breaking our current cycle will require breaking the system. It requires unsexy operational investment, a tolerance for short-term pain, innovative leaders willing to rethink workforce challenges and ready to take a leap of faith on AI-native products being integrated into their workflows. If we don’t do this, the alternative is worse. It’s a future full of growing operational and human capital expenses, with bloated labor models that fail providers and patients alike.
There is nothing temporary about this crisis and it’s time we stop treating it this way. There’s no agency for us to rely on; the bill is due. We must act with urgency.