Contract Nurse Agencies Are Making Big Money in the Age of COVID-19. Are They ‘Exploiting’ the Pandemic?

In the 40 years that Jennie Kahn has worked as a registered nurse, the last two have been by far the most grueling.

A lot of that is due to COVID-19, which transformed health care facilities, including Thomas Health’s hospital system in Charleston, West Virginia, where Kahn works, into triage centers and forced nurses to take on an extraordinary amount of personal risk and heartache. It’s no mystery why some 18% of health care workers quit their jobs between Feb 2020 and Sept 2021, according to a Morning Consult poll.

But another reason these past two years have been so punishing, Kahn says, is that hospital nursing staffs have been subject to extraordinary churn as thousands of nurses have quit their staff positions to become contract travel nurses, where the pay is often two to four times higher. This rapid turnover has triggered a costly feedback loop: hospital administrators, facing shortages in staff nurses, spend a mint hiring contract nurses, which makes them less able or willing to increase their staff nurses’ pay. So more staff nurses quit to become contract nurses, thus further lowering nurse supply and driving demand for contract nurses. “It is a vicious cycle,” says Kahn, the hospital system’s chief nursing officer.

Meanwhile, contract nursing agencies have increased their prices. The advertised pay rate for travel nurses has surged 67% from January 2020 to January 2022, according to Prolucent Health, a workforce management tool for healthcare companies, while some staffing agencies such as AMN Healthcare, told TIME that pay rates for travel nurses at facilities they work with rose by 164% from the fourth quarter of 2019 to the fourth quarter of 2021. Some of these agencies’ profit margins top 20%.

Some hospital administrators, many of which saw their facilities’ profits shrivel during COVID, say they’ve reached a crisis point and are calling on Congress and the Biden Administration to step in. They argue that contract nursing agencies are exploiting circumstances resulting from COVID-19 to pad their own pockets. The agencies say their prices are merely a reflection of growing demand. Nurses, meanwhile, argue that hospital administrators, who are somehow finding a way to pay premium rates for contract nurses, could have avoided the mass nurse exodus by paying their staff nurses better and improving working conditions from the start, and that a fragmented nursing force with quick turnover is bad for patients’ health.

The solution is not straight-forward. Health care facilities, desperate to keep nurses on staff, may have to improve salaries and working conditions, but at many facilities, that’s easier said than done. At long-term care centers, bottom lines are dictated by Medicare and Medicaid reimbursement, and at many small and medium-sized hospitals, the cost of personal protective equipment and patient loads have fluctuated dramatically since March 2020.

“This is not anything that any health system can sustain for a long period of time,” says Kahn. “If the rates do not decrease or if travel nursing is not reduced somewhat, hospital systems are going to have to find alternative ways to provide patient care.”

An explosion of temporary staffing

Travel nurses have been around for decades and became more widespread in the 1980s, as nursing shortages grew, but it’s really the pandemic that changed the landscape of the profession. In some healthcare settings, contract nurses are now almost as prevalent as staff nurses.

Jeffrey Tieman, president and CEO of Vermont Association of Hospitals and Health Systems (VAHHS), says that prior to COVID-19, his system used travel nurses “as a stop gap”; now he says they’re “in every department of the hospital every day of the week.” The same is true of Thomas Health, Kahn says. When she first became the hospital system’s chief nursing officer in 2019, the acute care team didn’t rely on traveling nurses at all; these days, about 40% of her acute care nurses are on temporary contracts.

The financial fallout of this trend for hospitals’ and nursing homes is staggering. Due largely to the increase in contract nurses, Thomas Health is now roughly 100% over its previous staffing budget, the hospital system tells TIME. Between Fiscal Years 2020 and 2021, VAHHS’s outlay for contract nurses increased $29 million, or 35%, the group says. “As the pandemic picked up and dragged on, the need for nurses intensified when the supply of nurses diminished,” Tieman says.

Depending on contract nurses also creates logistical problems, says Deb Snell, a registered nurse and the president of the Vermont Federation of Nurses & Health Professionals. “It is difficult when you have new people coming in every 12-13 weeks, and orienting them to your floor, making sure they know where equipment is, where meds are, who to call for a problem,” she says. “It’s constant turnover.”

Struggling to fill empty roles and way over budget on staffing, VAHHS reached out to Vermont Congressman Peter Welch for help coming up with a solution, and on Jan. 24, Welch and Morgan Griffith of Virginia wrote a letter to the White House, cosigned by nearly 200 other members of Congress. The letter urges the Biden Administration to investigate the extent to which contract nursing agencies are exploiting the pandemic to drive their profits by engaging in anticompetitive activity. “We are writing because of our concerns that certain nurse-staffing agencies are taking advantage of these difficult circumstances to increase their profits at the expense of patients and the hospitals that treat them,” the letter says.

Days later, the American Hospital Association and the American Health Care Association/National Center for Assisted Living, the major nursing home trade group, threw their support behind Welch and Griffith, calling on the Administration to help prevent the travel agencies “from exploiting our organizations’ desperate need for health care personnel.”

Travel nurses, meanwhile, were incensed. On social media and message boards, they begged supporters to call their members of Congress to defend them and their pay schedules. “Wait, what? They want to cap travel nurse pay but they won’t cap CEO and executive pay? Well… I guess they know who their true masters are, and it sure as hell ain’t the voters,” wrote one Reddit user.

“It’s just because they can get away with it”

Welch says capping contract nurses’ take-home pay was never the intention of his letter. “I never have and never would propose a cap on nursing pay,” he says. “Nurses are the frontline, and they’re overworked, they’re underpaid, and they legitimately point out how the executives get fat salaries while they have to do all this work.”

Instead, he says, one big reason for the financial burden on hospitals is the fees that nurse staffing agencies charge to assign travel nurses to health care settings that need them. Proculent Health, the workforce management tool used by healthcare companies, estimates that hospitals and other healthcare facilities are billed an additional 28% to 32% above the wages the agencies pay contract nurses.

Welch argues these agencies may be exploiting the pandemic’s circumstances at the expense of hospitals, health centers, and the patients who seek care at them. “The fee that the agency charges is not related to any additional work they do, or any value added,” Welch tells TIME. “It’s just because they can get away with it.”

AMN Healthcare Services reported its gross profits were $434 million in the fourth quarter of 2021, up 109% from a year prior, according to an annual earnings report. Its net income, which takes into account all business related expenses and taxes it had to pay, was $116 million, an 1100% increase. Another healthcare staffing agency, Cross Country Healthcare, saw its revenue increase 93% between the third quarters of 2020 and 2021. It also reached $1 billion in annual revenue for the first time in the company’s history in 2021.

In recent months, private equity firms have begun acquiring contract healthcare staff agencies at a rapid clip, signaling to Welch that investors believe there is even more money to be made off the travel nurse industry in years to come—which would put hospitals under even greater strain. One of the largest healthcare staffing agencies, Medical Solutions, was purchased by two private investment firms in August. Favorite Healthcare, another large staffing group, was bought by a private equity-owned staffing firm in January.

“Three of the 10 largest staffing agencies—and probably more—were purchased by private equity right around the time that the pandemic began,” Welch says.

Staffing agencies argue that the higher prices health care facilities are paying are driven primarily by the higher wages the agencies pay nurses to meet the demand. In 2020, 75% of revenue nurse staffing agencies made went to wages and the costs of employing nurses, including payroll taxes, worker’s compensation and unemployment insurance payments, and other benefits, says Toby Malara, vice president of government relations for the American Staffing Association (ASA), a trade group for the staffing industry. He adds that most of the association’s nurse staffing agencies have seen their profits remain “relatively stable” during the pandemic.

Nurses worry about pay cuts — for good reason

Many nurses are worried that heightened government scrutiny will result in lower take-home pay for them — and that anxiety is not necessarily unfounded. Some states already cap nurse pay under certain situations, or are considering legislative action to do so. Minnesota, for example, caps contract nurses who work in nursing homes. The most that an RN can earn per hour during non-holidays is $62.36, according to documentation provided by the state’s Department of Health. Massachusetts caps pay for RNs at hospitals around $120 per hour. At nursing home facilities, the state caps an RN’s pay around $79 per hour, the state’s Executive Office of Health and Human Services says.

Other states including Kansas, Ohio, Oregon, Illinois and Pennsylvania are now considering legislation to cap nurse pay in some cases. Pennsylvania state Rep. Timothy Bonner has introduced a bill to establish maximum rates for employees of travel nursing agencies in his state that would be no higher than 150% of the average statewide pay rate for similar jobs. “[Staffing] agencies have seized on the pandemic and the critical need for workers,” he wrote in a letter to his statehouse colleagues, according to the Lewistown Sentinel, “and have raised their hourly rates to 100 percent, 200 percent or even 400 percent above the current median wage rate.”

The White House referred TIME’s questions about how regulatory action against the contract nursing industry would work to the Federal Trade Commission, which did not return a request for comment.

Many nurses say arbitrary pay caps are unfair. The problem is not high pay, they say; it is that there aren’t enough nurses to do an increasingly challenging job for relatively low wages. And while the pandemic exacerbated nurse shortages nationwide, the problem long preceded COVID-19’s added pressures. “Things were already getting tight even prior to the pandemic,” says Snell in Vermont. “Nurses have known and seen this coming for a while. We just couldn’t get people to listen.”

Part of the issue is demographics. The median age of RNs in 2020 was 52, according to a recent survey from the National Council of State Boards of Nursing, and with baby boomers retiring, more nurses will need replacing. But there’s no lack of interest. Enrollment in baccalaureate and higher-degree nursing programs increased in 2020, according to the American Association of Colleges of Nursing, and nurse practitioner graduates have swelled in recent years too. Nursing schools could be training even more graduates, experts say, but the cost of nursing school can be a barrier for students, and schools are also experiencing a shortage of nursing instructors.

But the largest factor, according to nurses unions and professional groups, is how low the pay is compared to how difficult the work environment is. “There is no nursing shortage in the United States. There is a shortage of nurses who are willing to work in these conditions,” says Michelle Mahon, a registered nurse who is assistant director of nursing practice at National Nurses United (NNU), the largest nurses union in the country. “This is something that’s been created by health care employers over a very long period of time.”

NNU has frequently criticized hospitals for adopting what it says are policies of chronic understaffing in order to help their bottom line. High patient-to-nurse ratios deteriorated patient care and put nurses at increased risk of workplace injuries and infections before COVID-19, Mahon says. Then when the pandemic swept in, hospitals that had prioritized cutting costs were unprepared.

Health care doesn’t operate like a free market

While some nurse unions have been able to demand raises from large hospital systems during the pandemic, health facilities that see primarily patients who have government health insurance are often more limited in what they can pay. Nursing homes are overwhelmingly paid by Medicaid and Medicare, so they say the rates they can pay nursing staff are largely determined by how much the government programs reimburse per patient, and hospitals in low-income areas can face similar situations.

About 70% of the costs of operating a nursing home are related to labor, according to Clif Porter, senior vice president of government relations at AHCA/NCAL. But even as facilities have had to pay two to three times normal wages to hire temporary nurses during the pandemic, their reimbursement rates have not kept pace. “I can’t pass on inflation to my customer,” he says. “This creates a situation where our expenses exceed our revenue. It’s just that simple. And that’s just not sustainable.”

Porter says that he doesn’t want maximums for what nurses can make, but floats the idea of a cap on agency profits or regulations that stipulate how much of what a staffing agency charges it must pass on to its workers.

“If the legislation were to directly impact the [agency] overhead, we don’t believe that nurses salaries would be impacted,” says Ernest Grant, president of the American Nurses Association. But the ANA does not support any effort to lower nurse wages, and Grant added that the concern over price gouging has “become quite a distraction.”

Mahon agrees, saying the idea of investigating these staffing agencies will not solve the staffing crisis. Even if the health care facilities are not happy about the rates these staffing agencies are charging, she notes, they have found the money to pay them. “If there was serious reflection and introspection and desire to solve [the nursing shortage], it would be focused inward by this industry,” Mahon says.

More nurses, better treatment

Nurses groups’ say there are other solutions that could retain and attract a larger workforce. NNU would like to see minimum staffing ratios, enhanced workplace safety measures, and increased funding for nursing education, for example. The ANA has also promoted ideas including improving nurse hours and mental health support, adjusting the Centers for Medicare and Medicaid Services payment methods, and removing barriers that make it difficult for nurses to practice. “We really need to address it once and for all, and not just cap it off at this particular time,” Grant says.

Desperate to retain staff, Thomas Health, where Jennie Kahn works, has increased bonus pay, instituted recruitment bonuses, expanded its tuition repayment programs and started offering its staff free meals at hospital cafeterias.

The University of Vermont Medical Center, meanwhile, just agreed to raise its nurse’s wages by 20% over two years, with 10% being implemented now and an additional 5% coming in October 2022 and an additional 5% coming in October 2023.

Though Snell says the raises are a positive step toward retaining staff, she’s not certain it is sufficient to stop the bleeding. A study released in October by the American Nurses Foundation reports 21% of nurses nationwide said they planned to resign from their jobs within the next six months. Another 29% said they were considering leaving. University of Vermont Medical Center is not immune.

“We have a lot of nurses leaving our hospital to go travel,” she says. “I’m hoping the 10% right now will be enough to maybe keep some of them in place.”