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The way the United States pays for nurses is broken

Hospitals don’t profit off having good nurses. That’s a big problem.

By Dylan Scott

The pandemic made a long-simmering problem in hospitals impossible to ignore: We desperately depend on nurses to deliver quality health care, but the American health system does not properly value the work that they do — in the most literal sense.

Most US hospitals run under a fee-for- service system: They make money by billing for individual services. Doctors, in this universe, are a revenue generator. They order tests to be run, imaging to be taken, medication to be administered. They conduct surgeries and exams. The hospital can charge for each of those individual services, and patients see them on their bills.

Nurses are essential to each of those services. But because hospitals don’t bill insurers for the care that nurses provide to support a doctor’s orders, they end up on the other side of the balance sheet as a labor cost. Patients end up charged for nurses’ work in the same way they are for housekeeping or Jell-O, as part of the cost of a hospital room.

The work that they do—checking on patients, inserting an IV line, assessing patients for infections, teaching patients how to care for themselves—is not considered a billable service under the current fee-for-service payment model.

“All of that work is invisible, except for maybe the supplies that I used,” Matthew McHugh, professor of nurs- ing at the University of Pennsylvania, told me. “The invisibility of nursing work, the inability to put a value on it … is not in line with how any other kind of professional service would operate.”

This means hospital systems have an economic incentive to keep their nursing staff as small as possible. US hospitals, on average, employ fewer health care staff per capita compared to hospitals in other wealthy countries, most of which have universal health systems that do not rely upon fee-for-service reimbursement.

And when their finances become tight—such as when a global pandem- ic forces them to cancel moneymaking elective services—nursing and other labor costs are often targeted for cuts. That’s why US hospitals were furlough- ing nursing staff shortly before they became flooded by Covid-19 patients.

But this failure to value nurses af- fected the quality of care that patients received before the pandemic, and will outlast it unless hospitals and policy- makers decide to fix it. “Until nurses are not an expensive labor cost for hospitals but are seen as revenue generators and as vanguards of quality, which they are, we’re going to keep having this problem,” said Betty Rambur, professor of nursing at the University of Rhode Island….

Studies have consistently found a relationship between the number of nurses on a hospital’s staff and the quality of care that patients receive. Linda Aiken at the University of Pennsylvania and her colleagues have been studying this rela- tionship for 20 years. Studies published in 2003 and 2014 indicated that higher staffing levels would lead to fewer deaths. A 2019 study that focused on patients in cardiac arrest demonstrated a similar effect.

A more recent paper from Aiken’s team analyzing hospitals in four US states, published in 2021 in Nursing Outlook, backed up those prior studies. They set out to study whether the kind of education nurses received mattered for patient outcomes. They found that it didn’t—but the sheer number of nurses who were employed at the hospital did.

And yet this association between more nurses and higher quality of care doesn’t seem to drive how hospitals staff their facilities. In fact, Riley told me it was typical for hospitals to plan for nurses to pick up extra shifts rather than hire more nursing staff to make sure their units have adequate support.

The problem is, the way the U.S. health system pays for medical services generally doesn’t encourage hospitals to consider the link between nursing and care quality in staffing decisions….

Matthew D. McHugh PhD JD MPH RN CRNP FAAN, The Independence Chair for Nursing Education Professor of Nursing and Director of the Center for Health Outcomes and Policy Research (CHOPR), was quoted in a Jun 6, 2022 Vox story about how hospitals value nurses—and research from CHOPR was cited. What follows is an excerpt of that story.