Hiring More Nurses Generates Revenue for Hospitals

Underfunding is driving an acute shortage of trained nurses in hospitals and care facilities in the United States. It is the worst such shortage in more than four decades. One estimate from the American Hospital Association puts the deficit north of one million. Meanwhile, a recent survey by recruitment specialist AMN Healthcare suggests that 900,000 more nurses will drop out of the workforce by 2027.

American nurses are quitting in droves, thanks to low pay and burnout as understaffing increases individual workload. This is bad news for patient outcomes. Nurses are estimated to have eight times more routine contact with patients than physicians. They shoulder the bulk of all responsibility in terms of diagnostic data collection, treatment plans, and clinical reporting. As a result, understaffing is linked to a slew of serious problems, among them increased wait times for patients in care, post-operative infections, readmission rates, and patient mortality—all of which are on the rise across the U.S.

Tackling this crisis is challenging because of how nursing services are reimbursed. Most hospitals operate a payment system where services are paid for separately. Physician services are billed as separate line items, making them a revenue generator for the hospitals that employ them. But under Medicare, nursing services are charged as part of a fixed room and board fee, meaning that hospitals charge the same fee regardless of how many nurses are employed in the patient’s care. In this model, nurses end up on the other side of hospitals’ balance sheets: a labor expense rather than a source of income.

For beleaguered administrators looking to sustain quality of care while minimizing costs (and maximizing profits), hiring and retaining nursing staff has arguably become something of a zero-sum game in the U.S.

The Hidden Costs of Nurse Understaffing

But might the balance sheet in fact be skewed in some way? Could there be potential financial losses attached to nurse understaffing that administrators should factor into their hiring and remuneration decisions?

Research by Goizueta Professors Diwas KC and Donald Lee, as well as recent Goizueta PhD graduates Hao Ding 24PhD (Auburn University) and Sokol Tushe 23PhD (Muma College of Business), would suggest there are. Their new peer-reviewed publication* finds that increasing a single nurse’s workload by just one patient creates a 17% service slowdown for all other patients under that nurse’s care. Looking at the data another way, having one additional nurse on duty during the busiest shift (typically between 7am and 7pm) speeds up emergency department work and frees up capacity to treat more patients such that hospitals could be looking at a major increase in revenue. The researchers calculate that this productivity gain could equate to a net increase of $470,000 per 10,000 patient visits—and savings to the tune of $160,000 in lost earnings for the same number of patients as wait times are reduced.

“A lot of the debate around nursing in the U.S. has focused on the loss of quality in care, which is hugely important,” says Diwas KC.

But looking at the crisis through a productivity lens means we’re also able to understand the very real economic value that nurses bring too: the revenue increases that come with capacity gains.

Diwas KC, Goizueta Foundation Term Professor of Information Systems & Operations Management

“Our findings challenge the predominant thinking around nursing as a cost,” adds Lee. “What we see is that investing in nursing staff more than pays for itself in downstream financial benefits for hospitals. It is effectively a win-win-win for patients, nurses, and healthcare providers.”

Nurse Load: the Biggest Impact on Productivity

To get to these findings, the researchers analyzed a high-resolution dataset on patient flow through a large U.S. teaching hospital. They looked at the real-time workloads of physicians and nurses working in the emergency department between April 2018 and March 2019, factoring in variables such as patient demographics and severity of complaint or illness. Tracking patients from admission to triage and on to treatment, the researchers were able to tease out the impact that the number of nurses and physicians on duty had on patient throughput. Using a novel machine learning technique developed at Goizueta by Lee, they were able to identify the effect of increasing or reducing the workforce. The contrast between physicians and nursing staff is stark, says Tushe.

“When you have fewer nurses on duty, capacity and patient throughput drops by an order of magnitude—far, far more than when reducing the number of doctors. Our results show that for every additional patient the nurse is responsible for, service speed falls by 17%. That compares to just 1.4% if you add one patient to the workload of an attending physician. In other words, nurses’ impact on productivity in the emergency department is more than eight times greater.”

Boosting Revenue Through Reduced Wait Times

Adding an additional nurse to the workforce, on the other hand, increases capacity appreciably. And as more patients are treated faster, hospitals can expect a concomitant uptick in revenue, says KC.

“It’s well documented that cutting down wait time equates to more patients treated and more income. Previous research shows that reducing service time by 15 minutes per 30,000 patient visits translates to $1.4 million in extra revenue for a hospital.”

In our study, we calculate that staffing one additional nurse in the 7am to 7pm emergency department shift reduces wait time by 23 minutes, so hospitals could be looking at an increase of $2.33 million per year.

Diwas KC

This far eclipses the costs associated with hiring one additional nurse, says Lee.

“According to 2022 U.S. Bureau of Labor Statistics, the average nursing salary in the U.S. is $83,000. Fringe benefits account for an additional 50% of the base salary. The total cost of adding one nurse during the 7am to 7pm shift is $310,000 (for 2.5 full-time employees). When you do the math, it is clear. The net hospital gain is $2 million for the hospital in our study. Or $470,000 per 10,000 patient visits.”

Incontrovertible Benefits to Hiring More Nurses

These findings should provide compelling food for thought both to healthcare administrators and U.S. policymakers. For too long, the latter have fixated on the upstream costs, without exploring the downstream benefits of nursing services, say the researchers. Their study, the first to quantify the economic value of nurses in the U.S., asks “better questions,” argues Tushe; exploiting newly available data and analytics to reveal incontrovertible financial benefits that attach to hiring—and compensating—more nurses in American hospitals.

We know that a lot of nurses are leaving the profession not just because of cuts and burnout, but also because of lower pay. We would say to administrators struggling to hire talented nurses to review current wage offers, because our analysis suggests that the economic surplus from hiring more nurses could be readily applied to retention pay rises also.

Sokol Tushe 23PhD, Muma College of Business

The Case for Mandated Ratios

For state-level decision makers, Lee has additional words of advice.

“In 2004, California mandated minimum nurse-to-patient ratios in hospitals. Since then, six more states have added some form of minimum ratio requirement. The evidence is that this has been beneficial to patient outcomes and nurse job satisfaction. Our research now adds an economic dimension to the list of benefits as well. Ipso facto, policymakers ought to consider wider adoption of minimum nurse-to-patient ratios.”

However, decision makers go about tackling the shortage of nurses in the U.S., they should go about it fast and soon, says KC.

“This is a healthcare crisis that is only set to become more acute in the near future. As our demographics shift and our population starts again out, demand for quality will increase. So too must the supply of care capacity. But what we are seeing is the nursing staffing situation in the U.S. moving in the opposite direction. All of this is manifesting in the emergency department. That’s where wait times are getting longer, mistakes are being made, and overworked nurses are quitting. It is creating a vicious cycle that needs to be broken.”

Diwas Diwas KC is a professor of information systems & operations management and Donald Lee is an associate professor of information systems & operations management. Both experts are available to speak about this important topic - simply click on either icon now to arrange an interview today.