Healthcare Staffing Growth Assessment: Industry Research Report

Healthcare Staffing Growth Assessment

Published Date: September 2007

Published By: Staffing Industry Analysts, Inc.

Page Count: 113

Order Code: R745-5

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Healthcare staffing is a segment of unusual character.

Its pattern of growth is out of sync with the rest of the industry and out of sync with the overall economy as well. At a minimum, its historical growth cycle seems to substantially lag that of the economy, and indeed it may even be of a countercyclical nature, performing better in times of weak economic growth than strong. (Its two best years so far were during the dot-com bust of 2001-2002).

It is purchased only reluctantly by buyers who each year swear off its future use, complaining that temporary healthcare worker quality is unacceptably low and prices for such workers are unacceptably high, but who nonetheless year after year purchase more.

Of all the segments of staffing, it would seem to have the greatest long-term prospects - given the arithmetic of an aging population, weak expansion of the supply of healthcare workers, and the coming skills shortage that must inevitably flow from it. And yet, the number of staffing firms in this business appears to be flat to declining, with the few firms at the top gaining increasing market share, a characteristic more frequently associated with a shrinking market than an expanding one. This last point at least admits a degree of explanation.

Increasing Diversification
Healthcare staffing firms are merging to become more diversified, offering not just nurses or doctors or allied professionals, but some combination of these or all. That makes sense. Healthcare facilities need these professionals in combination; maximum sales effect is therefore likely to be achieved by selling them together.

Healthcare staffing firms are advised to take this a step further. Forty percent of staff in healthcare facilities is non-healthcare skilled - administrative, IT, maintenance, etc. Buyers are also in the market for contingent office/clerical and IT skills in particular. The segment-wise insular pattern of healthcare staffing might be its biggest missed opportunity. Few of the top healthcare staffing firms are currently significant players in office/clerical or IT.

What Healthcare Staffing Is
Historically, healthcare staffing meant, in large part, nurse and nurse aide staffing. Accordingly, these are the largest and most highly temporary help penetrated occupations in healthcare, together comprising $7.5 billion of the $10.6 billion healthcare staffing market, nearly three-quarters of the whole. LPNs are the most highly penetrated healthcare occupation, at 4.1%, more than double the penetration rate of temporary workers generally.

Being the more mature part of healthcare temporary staffing, nursing is also, in aggregate, and over a long time period, slower growing. Locum tenens (the placing of temporary physicians) and allied/other is where the greatest percentage wise expansion is underway - with growth rates in the mid- to low-teens - and we forecast that rapid expansion to continue.

Best Bet for New Entrants
New entrants should consider the healthcare staffing landscape carefully before setting foot on it. Locum tenens, a high margin segment with spectacular historical and forecast growth, is offered by fewer than 100 firms, possibly half that many. You need to know something about doctoring to operate successfully in that space; indeed locum tenens firms frequently employ and/or are operated by physicians. The per diem nursing segment would seem the easiest entry point. It is well-established and highly-penetrated, but growth rates here are very low and the biggest player has been cutting branches, not the best sign. Travel nursing, by contrast, is experiencing a near mini-boom after years of contraction, but it is dominated by national businesses with formidable recruiting capabilities. Going toe to toe with them would seem to require significant capital, at least, or a very strong niche approach. That leaves the allied/other segment.

We believe allied/other to be the entry point where newly formed healthcare staffing firms may find the safest footing. Smaller firms do succeed here - indeed dominate this space - and we forecast strong growth both in the shortrun and long-run. Of the top ten fastest growing occupations, as forecasted by the Bureau of Labor Statistics, and across all industries, five are in allied/other.

Reason for Optimism
There was a period, in 2003-2005, when the healthcare staffing segment seemed to lose traction. While other segments were prospering, healthcare had stalled. It was said that healthcare staffing buyers had finally put their collective foot down about hiring high-priced temporary workers, that they had reevaluated the practice of hiring temporaries and decided to curtail it. The buyers seemed to believe that line and many staffing firms did too. And yet, here we are are in 2007 with buyers just as negative about temporary workers as ever - to this day such buyers are the most negatively biased against contingent workers of all segments - and yet they are buying more than ever and we project growth rates accelerating over the near term.

Historical inevitability might seem too heavy a term to apply to something as practical as healthcare temporary staffing, but it's a rare thing for people who are so unhappy with a product to buy $10.6 billion of it and counting. The logic of the current and coming skills shortage would seem to overwhelm buyer objections. In a market like this, where unemployment rates for registered nurses are 0.9% and falling, despite all efforts to expand supply, perhaps a large role for supplemental outsourced recruiting is essential, even historically inevitable. Few segments have that advantage.

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