Travel Nursing Pay: Why Has It Changed Over the Years?

[jejunebug]

Hi all, I've been stealthily reading allnurses for years, and I'm finally posting.

I have a question I can't seem to find an answer to: why is travel nursing today no longer as lucrative to the nurse as it used to be? How do agencies today get away with taking a bigger slice of the proverbial pie than they used to?

It is my understanding that bill rates for hospitals remain approximately the same today (adjusted for wage and cost of living inflation) as they were 10 years ago. From my limited understanding, in the 1990's and early 2000's, agencies would take somewhere between 15-25% of the bill rate (a fair profit margin), and the remainder would go to the healthcare worker (RN, therapist, etc.). At some point during the economic downturn, things began to change. Today, agencies seem to be taking between 50-60%. A hypothetical bill rate for an RN might be $80. The agency takes between 50-60%, leaving an effective pay rate of $30-$40 per hour for the RN. This is taking into account base pay, per diems, housing and meal stipends, etc.

A 50-60% profit margin for the agency just doesn't ring fair to me. I'm obviously missing something, because with the amount of competition in the market (over 400 travel nursing agencies), if an agency could make a profit taking a lower percentage of the bill rate, they would. And nurses would flock to that agency. Or at least, I would run to that agency.

I'm sure this is an incredibly complex question that really doesn't have an answer. But I'd deeply appreciate your insights!

[meanmaryjean, DNP, RN]

Economics 101: Supply and Demand

It is that simple!

And 'fair' has nothing to do with it.

[NedRN]

10 years ago, the average gross profit margin of an agency was 22% of the bill rate ($60 is a much closer estimate than $80 of typical bill rates then and now). Gross profit margin here means everything that is not to the direct benefit of the traveler. Thus traveler compensation then averaged 78% of the bill rate. That includes items that are easy to see like hourly, per diem, housing; and some that are less obvious like health insurance and the employer share of payroll taxes (FICA, unemployment, and workers comp add about 10% to the taxable compensation).

All non-direct traveler expenses have to be met out of the 22% gross profit margin. This includes marketing (to find travelers, including referral bonuses) and includes website costs and maintenance, office rent, utilities, JC certification, QA on travelers, recruiter pay, pay to contract specialists who develop new hospital business, benefits personnel, housing personnel, accountants, payroll, and lawyers. Anything left over is net profit which will either develop new business, or be paid to the owners and shareholders of the agency. Whew!

This is a brutally competitive industry. It is true that the "barriers to entry" are low making it easy for new agency startups, it is very competitive. Many agencies did not survive the recession and went out of business or were acquired, a process that is still very active. The reason is how competitive the industry is, 300 to 400 agencies and vendor managers are competing for 6,000 facility's business with a low of a bill rate as possible. At the same time, they have to pay travelers a wage competitive with other agencies. Not fun at all. You get bill rates too low, and you cannot find quality travelers and lose your business either way. You shave your margin too close because you are paying too high, and the result is the same. A very difficult balancing act.

Small efficient agencies have some advantages over larger ones: usually their operating costs are lower and they can survive on a lower gross profit margin meaning they typically pay travelers more. Large agencies have monopolistic advantages, many more contracts and travelers mean they can bill more, and offer traveler more assignments and steady work. They have much higher intrinsic costs and require a higher gross profit margin.

In reality, gross profit margins can vary from as low as 15% (pretty hard for an agency to survive at that margin), to as much as 40% (from contract to contract). Much depends on supply and demand and there is usually a lag in matching them which can create or cost profits.

Gross profit margins have risen slightly and are currently an average (across all agencies) of 24%. This was reported just last month at the Healthcare Staffing Summit in Chicago (I wasn't there but I have spies). I would attribute this to increased costs over 10 years ago (think JC certification and additional QA), and increased business risk (bad economy and travelers who left to take staff jobs in the downturn).

Hopefully I did a good job with a real answer to your impossibly complex question! Your $30 to $40 number for traveler pay is a good guess and one that seems obvious (although it comes from a lower bill rate). I think of it a little differently, that the vast majority of travel assignments pay between $40 and $50 per hour in direct and indirect benefits to the traveler. If you use PanTravelers Calculator to calculate a total compensation number, this is what you will get (it includes the 10% hidden payroll taxes that are paid on behalf of the traveler). Mind you, this number cannot be compared to staff pay, but it is a very useful number for travelers to use in real life on the road. You will find that if you work backwards from this number, you will find that a gross profit margin of 24% will end up with a bill rate between $60 and $70 an hour in most cases.

[jejunebug]

So true, MMJ. My sister is an economist, so I hear those exact words echoing in my head all the time.

[jejunebug]

10 years ago, the average gross profit margin of an agency was 22% of the bill rate ($60 is a much closer estimate than $80 of typical bill rates then and now).

Gross profit margins have risen slightly and are currently an average (across all agencies) of 24%. This was reported just last month at the Healthcare Staffing Summit in Chicago (I wasn't there but I have spies).

Wow. Fascinating, Ned. Thanks so much for taking all that time to respond. I'll have to read your post a few more times to fully absorb it all.

I'm amazed that the average gross profit margin for agencies 10 years ago was 22%, and today has only risen by an average of 2% to 24%. I've spoken with many travel nurses who report greatly diminished returns today compared to 10 years ago - if the gross profit to the agency is roughly the same, this must be secondary to hospitals negotiating lower bill rates with agencies.

I've been using the PanTravelers Calculator, but have yet to use it backwards - I will do so to better understand the allocation. I read the Calculator Manual just now - now it's time to play with the numbers! Thanks again!

[NedRN]

No doubt the Calculator Manual is very helpful in advanced uses. I don't remember if reverse engineering the bill rate is in there. But here is the formula you would use. Do the calculation, input all the compensation. Now take the gross pay per hour (which in most cases will be between $40 and $50 an hour) and multiply by 1.25 (for a 20% gross profit margin) and also multiply by 1.43 (for a 30% gross margin) and that will give you the range of the presumptive bill rate.

If the results is over $70 an hour, either your input pay is too high, or your gross profit margin is too high. Usually - some exceptions. Same if under $60 an hour (except for the Midwest and South sometimes).

I can tell you that feelings about pay are very subjective. Before the recession, travelers were also saying they made much more five years before. They were demonstrably wrong. Pay today is very fragmented. On the high end sit several companies that almost always pay $40 an hour or more plus housing included (which is definitely pushing a $70 bill rate. There are many hospitals that are still sitting at rates from the middle of the recession at the bottom end, but things are getting very competitive in the specialties. Medsurg is bottom feeding and it probably won't get much better anytime soon.

One thing I didn't say in my already too long post is that because of competition, no one is charging a bill rate of $80 and still only paying a nurse $30 per hour. Not possible on both ends: if charging $80, another agency is going to come in and tell the hospital that we can provide the same quality of travelers for $70 an hour. This process goes on until the rate settles at a competitive amount. On the nurse end, there are not enough qualified specialty travelers and every agency has more assignments than they can fill. So if one agency at $80 is only offering $30, the next one to get this bill rate will offer $40, and guess which agency lands the qualified traveler and places them?

A previous poster summed it up nicely when she quoted the law of supply and demand. Unlike her, I am using it to refute your original post rather than supporting the idea that agencies are profiting unduly off by supplying travelers at excessive bill rates.