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California's nurse staffing law hasn't been quite the boon the health care worker companies had expected
By Leslie Berestein
May 30, 2004
When California enacted mandatory nurse-to-patient ratios for hospitals in January, the companies that provide temporary nursing staff to hospitals were hoping the new law would give their industry a much-needed shot in the arm.
The health care staffing industry had suffered more than a year of slow demand, as hospitals tried to keep costs down in a weak economy by relying on existing staff. Some in the industry hoped that the ratio law, and similar ones under consideration in other states, would give hospitals no choice but to lean on staffing firms to fill nurse vacancies in a hurry.
So far, the hoped-for boost has fallen somewhat short of the expectations some staffing companies had at the beginning of the year.
The law has helped the industry stabilize and has even been a windfall for some, creating enough demand for one San Diego staffing company to add additional services.
Many companies that provide temporary long-term traveler nurses and short-term per diem nurses to hospitals are reporting only a moderate increase in business, as California hospitals find other ways to fill empty nursing slots.
"When the legislation came out, we were pretty positive about it," said Tim Stene, vice president of the nursing division for Kforce Professional Staffing, a Tampa, Fla.-based company with an office in San Diego that places per diem and traveler nurses around the country, including California. "We really kind of assumed it would create a greater demand for per diem staff. It has held true to some extent, but not to the extent that I expected."
Analysts say the health care staffing industry is slowly recovering from its lull. Part of this recovery is being fueled by a steadier economy, and part by increased demand for nurses in California because of the ratio law.
Large publicly traded companies that provide temporary nurse staffing report anecdotally that the California law has increased demand for their services. But most still are not nearly as profitable as they were a year ago.
San Diego's AMN Healthcare, a 20-year-old company that is a national leader in the long-term traveler nurse industry, recently reported a 63 percent drop in first-quarter profit. Its net income was $4.6 million in the first quarter, compared with $12.4 million a year ago.
AMN's competitors have not fared much better. Boca Raton, Fla.-based Medical Staffing Network, which provides per diem nursing staff, reported a 26 percent decrease in first-quarter revenue over the previous year.
Cross Country Healthcare, another Florida company and AMN's biggest competitor in traveler nurse staffing, did slightly better, reporting a 7 percent increase in first-quarter revenue. Its earnings per share decreased by about 30 percent during that time, and net income and cash flow were still lower than a year ago.
First-quarter volume for these companies appeared fairly stable relative to the fourth quarter of 2003. AMN chief executive Steve Francis said he thinks the ratio law is at least partly responsible.
"It started picking up when hospitals started to gear up for this nurse-to-patient ratio law," said Francis, who considers California his company's largest market. "The percentage of our orders from nurses is increasing in California more so than in the rest of the nation."
California lately has represented one-third of his company's overall business, up from what used to be roughly one-fourth, Francis said.
The ratio law, which took effect Jan. 1, sets maximum patient loads for nurses in different hospital units. While set nurse-to-patient ratios long have existed in critical areas such as intensive care, the law extended ratios throughout the hospital.
Now, for example, nurses in the emergency room may not attend more than four patients at a time, while those working on medical and post-operative surgical floors may attend no more than six.
While California is the first state to initiate hospital-wide ratios, about six other states are considering similar proposals, according to the California Nurses Association, the union that sponsored the ratio law. An Illinois legislator introduced a bill earlier this month that seeks to establish federal nurse-to-patient ratios.
Law requires certain ratios
A law that took effect in January requires certain nurse-to-patient ratios in all areas of California hospitals.
In the past, ratios were only in effect in critical-care areas, such as intensive care units and operating rooms.
The California Healthcare Association, which represents the hospital industry, contends that meeting the law "at all times," as specified, is too
difficult and costly, especially during break periods. But an industry lawsuit challenging this provision was thrown out last week by a Sacramento judge.
About half a dozen other states are considering similar legislation, according to the California Nurses Association, and an Illinois lawmaker
introduced a bill in Congress earlier this month to create federal nurse-to-patient ratios.
By mid-2003, many California hospitals began hiring drives in anticipation of the new requirements. It looked as if the law also would create enough demand to be a boon to staffing companies that provide temporary nursing staff, as hospitals struggled to fill vacant positions quickly in light of a shortage of available nurses for hire.
"Initially, when the law was announced, people got really excited," said Jeffrey Silber, an analyst with Harris Nesbitt Gerard who covers AMN and its chief competitors.
The ratio law met with resistance from California's hospital industry, which said it had to pour $422 million a year into meeting the requirements for this year alone. The industry filed a lawsuit in December in hopes of watering down the requirements. The lawsuit was thrown out last week by a Sacramento judge.
"Most hospitals were giving the indication that they were not going to comply," Silber said. "As it got closer to the (date), the expectations got tempered back a bit. A lot is relative to what your expectations were."
Given the staffing companies' lowered expectations, the demand has been a little better than many expected, Silber said.
Access Nurses, a 3-year-old San Diego company that until recently only placed long-term traveler nurses, realized after the law took effect that clients' demand for short-term nurses to fill shifts was stronger than they anticipated. They added a per diem staffing division.
"It was completely in response to the legislation," said Access Nurses chief executive Alan Braynin. "Toward the end of last year, demand really picked up from existing clients. It is almost as if they woke up realizing they were going to have to meet these staffing requirements."
Despite the lawsuit filed by the hospital industry, which sought to weaken a clause that stipulates the ratios must be met "at all times," the majority of the state's hospitals appear to be complying with the law, said Chuck Idelson, a spokesman for the California Nurses Association.
The union has been conducting compliance surveys among hospital nurses throughout the state.
To the chagrin of many in the temporary-nursing industry, much of the money that hospitals are spending on complying with the law is flowing into pockets other than theirs.
Many California hospitals have tried their best to avoid using temporary nurses, which they say cost much more than regular staff.
"It is expensive," said Susan Olsen-Nakada, chief nurse and operating officer for Sharp Coronado Hospital. "We rely on (temporary nurses) when we need to. It is not our preference."
Many hospitals have preferred to spend their money on permanent recruiting, even if it means offering bonuses and other incentives to attract from a relatively small pool of potential new hires.
Some hospital chains, including Sharp HealthCare, are offering hiring bonuses. Other hospitals are going a step further, such as Riverside Community Hospital, which has been offering nurses $12,000 toward closing costs on a new home.
Some have sent recruiters out of state or out of the country to scout for new hires. Palomar Pomerado Health has sent recruiters as far as Florida and the Philippines.
"Every effort is being made to use permanent staff and get permanent staff in here," said Tamara Hemmerly, a spokeswoman for the chain, which owns Palomar Medical Center in Escondido and Pomerado Hospital in Poway.
The two hospitals, where the nursing staff recently unionized, together have been hiring more than 200 nurses a month since January, Hemmerly said. About 80 vacancies remain, and the chain has budgeted $8.5 million for traveler nurses to help fill them.
UCSD Medical Center has budgeted about $8 million beginning next year for additional permanent and temporary hires to meet the requirements.
"We certainly do try to avoid using the temporary agencies because they gouge the hospitals, to be honest," said Mary Middleton, UCSD's director of patient care services. "But they do have very good nurses and we are very dependent on them when we have peak census."
Most local hospitals say they have a budget for temporary help when there are not enough permanent nurses to go around. But many also rely on less-expensive, more desirable alternatives such as overtime for existing staff. Others have been using in-house per diem nurses - contract freelancers who work for a higher rate than regular staff but forgo benefits.
"My take on what has been going on is that hospitals have been squeezing their current nursing work forces harder than they have in the past," said Barry Asin, chief analyst covering the health care staffing industry for Los Altos-based Staffing Industry Analysts. "If I'm able to get somebody to work overtime, I don't need to bring in a per diem nurse."
Some hospitals offer premium pay for nurses taking on extra shifts. Sharp HealthCare allows nurses to bid against each other online for extra shifts, with the shift going to the nurse bidding to work for least money.
"There is tons of overtime," said nurse Chris McGovern, president of the Sharp Professional Nurses Network, who said most nurses are not bidding but rather working overtime in their own units because of the demand.
The Sharp nurses union, which is engaged in a labor dispute with the chain, recently filed a complaint with the state Department of Health Services alleging the hospital chain is not meeting the nurse-to-patient ratio requirements. Sharp officials have denied the accusation.
Some California hospitals have gone so far as to close beds and curtail services because they say they can't come up with sufficient staff.
In a blind weekly survey of 300 hospitals around the state conducted by the California Healthcare Association, which represents the hospital industry, 34 percent of hospitals reported that between January and April they had taken beds out of service or closed units because they had insufficient nursing staff to meet the mandated ratios.
Forty-one percent of the hospitals surveyed blamed the ratio law for forcing them to divert ambulances elsewhere because they had insufficient staff.
Jan Emerson, a spokeswoman for the industry association, said the situation is not a matter of hospitals opting to cut corners rather than spend on staffing.
"It's not that they aren't spending the money; they can't find them," Emerson said. "Even with the temps, there is a limited number (of nurses)."
Some of these limits are self-imposed by hospitals only willing to pay a certain rate for temporary staff, said Braynin of Access Nurses. Often hospitals negotiate a set rate with a staffing agency, and won't pay more for temporary nurses unwilling to work for that amount, he said.
"It becomes an issue of competition," Braynin said. "At a certain price point, there are nurses. Getting too good of a contract sometimes backfires on a hospital. At lower rates, they run out of nurses willing to contract for that rate."
Most staffing companies are optimistic that demand for temporary nursing staff eventually will grow as nurse-to-patient ratio laws begin spreading around the country, especially now that the legal challenge to California's ratio requirements has failed in court.
Staffing companies anticipate that as time goes by and vacancies remain unfilled, there will continue to be a need for temporary nurses.
Some industry executives also predict that with demand growing and the economy loosening, more and better temporary assignments will lure some out-of-state nurses who had preferred to stay close to home in staff jobs back into the travel market.
Analyst Silber sees all of this potential demand as short-term.
"I think hospitals would rather hire these folks full time if they can," Silber said. "Over time, you might see some of these folks migrate into full-time positions. The kind of pop we got in travel demand, you may not see anymore."