Top 6 Strategies for Reducing Your Agency Labor Spend

1. Scale Your New Grad Strategy 

According to a 2022 report, the total number of RNs in the workforce decreased by more than 100,000 in 2021 alone. While some Baby Boomer and Gen X nurses left the profession, the population most impacted were nurses 35 years and younger.  

Health systems are experiencing the impact of this exodus in the form of continued high RN vacancy rates. Talent acquisition leaders across the country have shared with us that there simply are not enough experienced, or willing, RNs in their area to decrease their RN vacancy to pre-COVID levels. This has led most health systems to execute on a strategy to rebuild their core nursing staff by increasing their intake of new grad RNs.  

While this can be an effective approach, there are four challenges health systems are facing when implementing this strategy: 

1. Increased hiring competition for new grads 
2. Clinical readiness of new grad RNs 
3. Insufficient number of experienced RNs to precept new grads 
4. Concerns about retaining new grads once they are onboarded  

According to a recent study, more than 40% of new nurses considered leaving the industry and more than half had issues adapting to their jobs. Providing an effective onboarding experience for new grads is imperative as it’s their first look at a career in the industry.  

A key piece of providing a quality onboarding experience is the preceptor. Precepting usually falls to experienced nurses who are good nurses but may not have the desire or skill to teach, or to novice nurses who are also new to the profession. In either case, these staff members are left to carry a full workload and train new grads, leading to burnout, incivility, and turnover among both groups. 

Several SimpliFi clients have found success scaling their intake of new RNs with the Confidence Accelerating Practice (CAP) program, which places qualified and dedicated preceptors within a hospital to direct the training of new RNs. The CAP program provides clients with RNs who have a proven track record precepting, giving health systems the capability to scale their new grad strategy.  

CAP has helped clients increase their new grad RN intake by as much as 50% annually while decreasing turnover among new grads and core staff. Health systems are reducing agency spend by taking this approach to rebuild their core staff.

2. Change Your Care Model 

Most Chief Nurse Executives we speak with have accepted that there are not enough acute care RNs to fill their Med Surg and Tele vacancies, and that there is not a short-term solution to sourcing more. Therefore, they have focused on changing the model for how they are delivering care. There are two strategies that have risen to the forefront when health systems are modifying their care teams: 

1. Adding LPNs/LVNs (back) on the care team  
2. Virtual nursing 

The Bureau of Labor Statistics (BLS) estimates that there are over 650,000 Licensed Practical Nurses (LPNs) and Licensed Vocational Nurses (LVNs) in the United States and that the number of individuals employed in this role will grow by 6% over the next decade. While health system demand for LPNs and LVNs has increased sharply over the past 12-18 months, the country’s capacity for attracting and educating these clinicians has not kept pace, making this a more challenging care model modification to implement. Even with the addition of LPNs and LVNs back into the workforce, there are still not enough nurses to cover today’s nursing shortage. Because of this, many healthcare systems are turning to virtual nursing to bridge the gap. 

Virtual nurses can remove approximately 20 to 25% of the admin work that bedside nurses would typically have to cover. This work includes patient admission and discharge, identification of patient deterioration through oxygen saturation and vital sign management, and even wound care documentation. Several clients have introduced virtual nursing into their care model and have benefitted from this approach, with core staff embracing the additional resources. 

Because of the success and nursing satisfaction with this model, we have seen clients lean into virtual nursing as their preferred strategy while turning to another clinician population to fill the Med Surg and Tele vacancy: international RNs.  

3. Leverage International Talent 

Nursing shortages are not new and, like the renewed interest in care team models, what was old is new again as health systems move to sponsor international RNs. With the hope of securing experienced RNs from overseas to fill full-time staff vacancies, we also see considerable challenges in deploying an international talent strategy that need to be understood and overcome.  

First, the positives. Most international RNs are deployed through staffing agencies, though the hourly rates are less than travel nurses because living and travel subsidies are not included. In this arrangement, international RNs are contracted on three-year assignments. Sponsoring health systems to encourage international RNs to put down roots in their community and to stay on as employees following their contract expiration, which they frequently do. So, the positives are clear: an experienced clinician, working at a rate less than a traveler, who is committed for three years and often converts to an employee when the contract term expires.  

The greatest challenge has simply been supply and demand. In early 2022, health system executives realized the critical workforce shortage in nursing was not going away, and leveraging international talent was one of the first strategies initiated en masse. The staffing agencies that recruit and employ international RNs were not prepared to meet the level of demand. So, while many clients are enamored with the promise of international RNs for all of the reasons stated above, most health systems we have spoken with have been disappointed by the actual placements made in their facilities over the past 12 months.  

Historically, most health systems have contracted directly with one or two international staffing agencies. We have spoken with health systems that are locked into exclusivity with a single provider. With the change in the international recruitment space over the past 12-18 months, it is critical that health systems have a robust panel of engaged international staffing agencies recruiting on their behalf in order to achieve the scale necessary to fill care gaps and drive cost savings.  

Creating an aligned panel of international staffing partners is not a simple undertaking. Who are trustworthy suppliers? How do you manage multiple contracts and associated terms? How do you determine fair rates, track, house, and retrieve sophisticated compliance during a survey, and manage time, invoicing, billing, and communication with the agencies?  

These are the same root issues that challenged health systems when they began to use multiple travel nurse staffing companies 20 years ago, and it is the reason that Managed Service Providers (MSPs) emerged to act as a single point of contact between health systems and agencies. 

Deploying an international RN strategy can be an effective tool in a health system’s arsenal to reduce premium labor costs, but they need to engage multiple staffing firms that have candidates in varying stages of the pipeline from countries across the world. We are helping clients identify eligible partners to accomplish this while operating in an MSP-light model that enables us to take the administrative burden off our clients while allowing the direct communication needed with staffing partners to ensure a smooth transition to practice for international clinicians. 

4. Maximize Your Internal Team 

During our 2022 RED Labor Summit, there were a number of strategies shared related to maximizing the use of internal staff before filling a shift, or a travel assignment, with an agency worker. While in many cases it is hard to believe currently employed clinicians have the capacity to work more hours, we have seen time and again that current staff will opt into more shifts and assignments when those opportunities are served up to them through a frictionless technology. 

Marketplace apps that connect clinicians to work opportunities have attracted significant outside investment and gained rapid adoption since 2020, and the nurses in your health system have those apps on their smartphones. They are being actively courted to pick up shifts or assignments in places across town, and across the country, so it is imperative that you have a frictionless means to provide opportunities for them to explore additional opportunities and pick up shifts in their home system.   

There are two primary strategies we have seen health systems deploy to engage and maximize the utilization of their current staff: 

1. Build an internal agency 
2. Provide incentives for staff to pick up additional shifts 

In both of these strategies, technology can be a powerful enabler. In an effort to retain RNs and entice them to remain at their health system, the internal agency affords premium pay and flexibility while reducing the hourly cost.  

We have clients with robust internal agencies. We have integrated with our client’s internal agencies as the tier-one option for a contingent resource. In these cases, the pre-vetted pool of workers is loaded into the Vendor Management System (VMS), and whenever a requisition for a traveler is approved, the internal agency workers receive a 24- or 48-hour right-of-first-refusal to claim that assignment. The creation of an internal agency requires time and effort on many levels within a health system.  

Another strategy provides internal staff access to available shifts based on the clinician’s skillset and availability. Our partner’s app-based technology for surfacing shifts allows health systems to fill gaps in their schedule with internal employees. The simplicity of the technology enables clinicians to ramp up quickly and without training. Several hospitals have seen hundreds of incremental shifts claimed per month within 90 days from launching the technology. This same technology also gives systems the capability of measuring the incentives they are offering to pick up shifts and optimize their spending in that area.  

While several of the strategies health systems are pursuing have potentially longer pay-offs, we see maximizing the use of internal resources and engaging non-employee clinicians as two strategies that can show cost savings quickly.  

5. Engage Non-Employee Clinicians in Your Region 

Health systems’ median spending on travel nurses increased from 5% of their total nursing labor expense in January 2019 to 40% when Omnicron peaked in early 2022. While health systems needed travel nurses to step in and fill critical workforce shortages, executives wondered if they could address gaps by utilizing local-based resources instead. 

An industrywide need met a solution in the form of platform-based nurse staffing apps that connect clinicians with work opportunities in their area. Dozens of companies were launched in this space prior to COVID with the intent to disrupt the traditional per diem nurse staffing market, which relied heavily on branch offices, local employees, and the telephone. A race to become the “Uber of nursing” was on, and over $1B of venture capital funding flooded into the space in order to accelerate these platforms’ readiness to meet the demands of the market. Many clinicians have become part of the gig economy and picked up shifts through these platforms, gaining more control over their schedules and supplementing their income. 

The financial benefits to health systems are simple: replace hours worked by a clinician from a travel agency with less expensive hours worked by a local clinician. Health systems are also hopeful that giving local non-employee RNs a positive experience may lead to full-time employment at some point.   

For health systems in regions with a total population of 200,000 or greater, building an external talent pool is a viable opportunity to offset some traveler expenses. This is also a strategy that can be deployed quickly. For example, we have the capability to stand up an external talent pool with the expectation that clinicians will be picking up shifts in six to eight weeks.   

As this strategy is becoming more prevalent, health systems are becoming increasingly discerning about the employment models their staffing platform providers utilize with clinicians. There are numerous examples of recent legal actions related to worker classification in this space. In an effort to fill labor gaps, reduce costs, and maintain their patient care mission, it is critical that health systems also understand the employment model of any staffing platform providers they engage.    

6. Proactive Management of Your Staffing Partner 

The vast majority of health systems have a Managed Service Provider (MSP) who serves as their single point of contact for procuring and managing agency labor. MSPs are responsible for representing health systems to staffing agencies – and their clinicians – by communicating open positions, bill rates, job requirements, and the parameters of an assignment. Because most health systems will need to continue to use some travel labor, it is important to consider how the proactive management of your staffing partner (MSP) can contribute to cost-cutting goals.  

Unfortunately, there are a number of practices some MSPs employ that put their own interests above those of health systems. We stand against common industry practices, including the following:  

• Charging travel rates for resources who live within a 50–60-mile radius of the hospital  
• Communicating an above-market bill rate to clients to “skim” additional profits  
• Holding staffing requests to achieve >70% internal fill with owned staffing agency 
• Exclusivity – forbidding clients to work with other providers to fill open positions  
• Health systems incurring a fee for converting a traveler to FTE after one assignment 
• Unfavorable termination clauses handcuffing clients into multi-year relationships 
• Representing multiple health systems in the same geography 

It is critical that health system executives understand each of these practices and that viable, ethical, alternative solutions exist for each. In many cases, alternative solutions also lead to cost savings for health systems.  

When it comes to the management of your staffing partner, one of the first places to start is understanding their model for fulfilling travel requisitions. There are two primary models for requisition fulfillment: master-vendor and vendor-neutral.  

Your MSP operates in a master-vendor model if they own a staffing firm and give priority to that firm in order to fill the majority of open requisitions. Master-vendor MSPs often hold requisitions for days in order to give their owned agency time to source a candidate and fill the role. Over 65% of health systems’ MSPs operate in this master-vendor model.  

Vendor-neutral MSPs release all open requisitions to aligned staffing partners simultaneously. This eliminates the hold period and reduces the time it takes to fill open positions. A vendor-neutral model engages numerous staffing agencies and reduces the risk of having your health system’s MSP services, plus the majority of your external workforce, centralized with a single provider.  

In today’s market, a vendor-neutral model can also lead to cost savings for clients. We conducted a bill rate study of the home and contiguous states for a statewide health system client and found that our vendor-neutral model delivered almost $3M in bill rate savings in CY2022. Staffing agencies want two things: a fair chance for their clinician to get the job and a quick response time. When delivering on both of those charters, staffing agencies will deliver staff at bill rates that outperform the market.     

A member of our Advisory Board once told us: “Nobody wants a travel nurse vending machine.” Health systems need a labor strategy partner who helps solve the heart-of-the-matter issues, including critical workforce shortages and escalating costs.  

We understand the traditional healthcare staffing model is broken and in response to this, we put together a menu of workforce strategies that are all offered independently and can be customized to meet the demands of your health system in order to reduce your reliance on travel labor. 

To get started, speak with a workforce consultant, so we can understand the unique drivers within your geography and health system and create a plan that helps you continue to deliver on your mission of excellent patient care in the years to come.