The TD Cowen Insight
Will the supply/demand equation for nurses improve over the next decade? COVID caused a significant disruption to the nursing labor force. Higher compensation and endless shortages constitute the prevailing outlook.
Our report focuses on registered nurses (RNs): what they do and their impact on labor dynamics. The consensus outlook is for an “endless and widening shortage.” We have a more optimistic view. We expect the labor market to react by boosting nursing supply.
Historical Supply and Demand Trends Among Registered Nurses
We take a deep dive into historical supply and demand trends among RNs to forecast what the next decade+ could look like. Labor costs make up most healthcare providers’ total expenses. RNs make up the largest proportion of the labor force within hospitals and are one of the largest employment categories in the U.S.
COVID’s Role in Disrupting the Health Care Labor Force
COVID disrupted the normalized trends in the healthcare labor force, particularly in clinical nursing. This disruption forces providers to pay upwards of 3x the historical rate for necessary supplemental and/or temporary labor.
Health Care Labor Market Has Begun to Stabilize
Despite temporary rates declining, recent “permanent” wage increases across the spectrum of full- and part-time nurses are above historical averages. News flow of “the great resignation” and the anticipated cliff of an aging workforce have at ponts dominated the headlines.
Conversely, public commentary from our healthcare provider coverage universe has trended more positively. Permanent labor unit cost increases in 2023 and beyond are expected to drift towards historical norms. As labor pressures have begun to stabilize, significant uncertainty about the true state of the healthcare labor market, particularly the available supply of nurses, physicians, and other support staff, remains a potentially significant catalyst.
Why the RN Workforce Supply Will Pace Demand
Ultimately, our contrarian conclusion is simple: While through 2035 the demand for nurses should continue to increase, the supply of available nurses is likely to at least keep pace with projected demand. Growth of the RN workforce will be driven by more attractive pay rates, continued industry demand and relatively low barriers to entry. Care model changes will be driven by increases in RN-to-LPN/CNA substitution and adoption of virtual support (e.g., virtual telemetry units) and increased usage of remote patient monitoring.
Value Based Care Brings New Opportunities for Nurses
As the federal government (via the Centers for Medicare and Medicaid Services) pushes healthcare providers towards increased adoption of value-based care and away from fee-for-service, we should continue to see a relative decline of excess utilization via reductions in avoidable emergency room visits and hospital admissions. This should be partially offset by an increase in preventative medicine and longitudinal (vs episodic) patient care.
While the increases in primary care patterns should bring about new avenues of opportunity for nurses (and increased demand), we believe the relative attractiveness of those positions for nurses vs. a more stressful and rigorous inpatient position should be a positive swing factor in the future supply/demand model.
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