The Market for Nurses
The term nurse means different things to different people. By “nurse” we refer to both licensed nurses, such as RNs and licensed practical nurses (LPNs), and unlicensed nurses, such as nursing assistants. We focus primarily on the market for RNs.
Because most nurses are employees of health care institutions, the demand for their employment is derived from their employers, who employ nurses based on the demand and prices for their services, and the productivity and prices (wages, salaries, and benefits) of the nurses being hired. As reimbursement changed to prospective systems, and as managed care practices grew, the growth in demand for inpatient care slowed and the prices paid for care were constrained. As a consequence, hospital demand for licensed nurses fell in the 1990s, as reflected in lower staffing ratios (RNs or licensed nurses per acuity-adjusted patient day) and lower skill mix (RNs or licensed nurses as a proportion of total nurses) (Unruh & Fottler, 2006).
On the other hand, the demand for nurses in other areas such as ambulatory surgery centers and home care has grown. This growth slowed in home care after 1997, when the Balanced Budget Act (BBA) introduced a Prospective Payment System (PPS) for home care. With that, the demand for home care nurses plunged. In other areas, such as nursing homes and physicians’ offices, demand has been more stable.
After reports of surpluses of nurses (demand lower than supply) in hospitals in the mid-1990s, a shortage of RNs in hospitals reemerged in the late 1990s. At that time, public reimbursement improved and managed care pressures lessened. Admissions increased, and length of stay stabilized. In addition, the typical hospitalized patient was acutely ill. Suddenly, demand for nurses, particularly RNs, rose. Hospital vacancy rates peaked at 12% to 15% in 2001 (AHA, 2002). In 2007, hospital vacancy rates still stood at 8.1% (AHA, 2007).
The RN shortage that began in the late 1990s is considered to be structural rather than temporary. It is expected that the gap between RN supply and demand will grow: by 2020 the gap between supply and demand is projected to climb to 16% (Buerhaus et al., 2008). This structural shortage has several causes. On the demand side, population growth and an aging population exerts growing health care consumption pressure. Other factors affecting demand include levels of access afforded by public and private insurance, and the efficiency of health care delivery. On the supply side, factors include a large population of older RNs who are expected to retire soon; educational bottlenecks that restrict the growth of nursing supply; and difficult work environments that discourage entry into, and encourage withdrawal from, the profession.
In 2008, the RN shortage took an unexpected turn. A general economic crisis in the U.S., with high unemployment levels and reduced hospital utilization, is thought to have contributed to an increase in RN supply and a drop in hospital demand for RNs. Given the fact that supply increased and demand fell, the gap between supply and demand in hospitals may have narrowed considerably. It is generally agreed, however, that this adjustment is temporary and that the overall forces leading to a severe shortage within 10 years have not changed.
It was mentioned earlier that in a competitive market shortages would not occur. Why do we see shortages in the market for nurses? One economic theory is that the primary employers of nurses—hospitals—enjoy a monopsony over the hiring of nursing labor; they have market power in the buying of nursing labor, which they use to keep wages, benefits, and working conditions at lower-than-equilibrium levels. Even though employers would like to employ more nurses, the wages, benefits, and working conditions they offer do not attract people to their jobs. Raising wages alone may not be the answer to this problem, however, as long as working conditions remain difficult (Di Tommaso et al., 2009; Spetz & Given, 2003).
It may be that wages, benefits, and working conditions for nurses are at suboptimal levels because nursing care is not appropriately valued and priced. At the societal level, market economies have tended to downplay the value of “caring” services, as well as “women’s work,” both of which are the cultural and historical legacy of nursing (Nelson & Folbre, 2006). At the payer level, specific nursing services have generally not been included in reimbursement systems. Studies of the DRG payment system have shown that DRG values are not strongly associated with the intensity of nursing care for that category (Welton & Halloran, 2005). At the organizational level, health care facilities typically treat nursing care only as “expense” items in their budget, not as revenue-generating items. The price of nursing is wrapped into the room rate.
To receive adequate wages, benefits, and working conditions, these societal, financial, and organizational impediments to properly valuing and pricing nursing services need to be overcome. Ways to accomplish this include conducting and disseminating research on the following:
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