How one health system is creatively pushing back against a labor squeeze
Before we dive in today, a quick plug: We recently launched "The Margin Initiative," a dedicated effort to support health system leadership via insight and analysis. This initiative includes a customizable analysis, access to our latest margin research, and a seat at our upcoming health system executive collaborative where we'll present our latest, future-focused research and provide a secure, closed space for confidential, non-competitive sharing. Seats are on a "first-in, best-dressed" basis. If you'd like to learn more, contact Elizabeth Grimes at elizabeth@unionhealthcareinsight.com
We’ve spent a fair bit of time noodling around in health system balance sheets lately. But if you follow healthcare closely, you probably don’t need me to tell you where a big chunk of the cost pressure sits: labor is putting a serious strain on margins. And it’s a tough one for executives to tackle, because people are at the core of what a health system does. Recently Union CEO Christopher Kerns and I sat down with Ben Gerber, Chief Strategy Officer at WVU Medicine. Ben gave us the “straight dope” on why this is happening, why health systems can’t just price their way out of it, and how WVU Medicine zeroed in on what’s driving rising labor cost and then pivoted to playing the long game to more sustainably address the challenge.
Neither present nor future market forces seem poised to provide labor cost relief.
Before we get rolling on what we heard in our discussion with Ben, a bit of background. In order to maintain staffing during COVID, the market quickly pivoted to travel nurses, typically via third party agencies. As almost everyone reading this will be aware, labor costs exploded during this time (roughly 5x the spend in the travel nurse category vs pre-pandemic levels) and it’s proven to be a difficult genie to put back in the bottle. At least some of that flow-on effect has persisted in the market. At the end of 2025, spending for U.S. travel nurses was about 60% higher than pre-pandemic levels, while nurse vacancy rates have flirted with 10% in recent years.
And the immediate cost pressures are only half the battle. Recent reports of nurses leaving the profession "in droves" due to ongoing burnout and safety concerns loom over the market—and a look ahead indicates unfavorable demographics are likely to exacerbate the ol' supply and demand effects. Consider that around 40% of active nurses are 55 or older and eyeing retirement, while 2 in 5 doctors are projected to be 65 or older within a decade and closing in on “pulling the pin”. When these folks transition to beach life, a smaller incoming generation means there won't be enough new grads coming through the turnstiles to backfill, setting up a “structural” (Side rant: I’m beginning to loathe this word, thanks to a plethora of A.I. generated LinkedIn posts that love "structural"...) supply cliff, rather than a temporary bump in the road.
Why 'pricing your way' out isn’t a bankable long-term approach
In many businesses, when core input costs jump 10%, you put your prices up 10% and pass the bill down the line. Healthcare has been no exception to this, with cross-subsidy mechanics being an integral piece of the margin equation. The industry relies on higher paying cases, such as commercial (surgical cases especially) to cover the costs of the public payers (i.e. Medicare and Medicaid). But now that strategy is reaching a breaking point, with many health systems finding themselves stuck between a rock and a hard place.
Why is that? Because payment rates aren't keeping up with higher labor costs. Over the past seven years, hospital wage rates have risen a smidge over 4% a year, while total hospital workforce expense jumped 5.6% in 2025. Over the same seven years, commercial insurance rates for hospitals have risen about 3.8% a year and the law requires Medicare’s annual hospital update to be set below forecasted input price growth (that's the ACA-mandated productivity adjustment for the IPPS/OPPS page-thumbers). So, the math ain’t mathin’ on the current trend line for health systems to sustainably absorb labor cost growth. And in any case, it's not like leaning harder on commercial rate updates is a viable option when employers are increasingly crying “uncle” as their own costs rise on the pain scale.
In Union’s 5-year health system margin modeling, cost growth contributes much of the cumulative drag that, left unchecked, has the potential to pull down today's relatively healthy system margins to something closer to zero (or perhaps below, depending on the starting point). The takeaways are 1.) Over-focusing on payment without meaningfully addressing cost growth is an incomplete approach and 2.) Sustainability will force health system leadership to look differently at what’s to the right of the “ - ” in the profitability equation (i.e. the costs).
How WVU Medicine is cutting the agency tether
A good number of the discussions we’ve had with health systems about labor costs often lead to a harsh reality check about the limits of the traditional labor shortage playbook. For example, bidding against the hospital down the road for the same pool of agency nurses might be effective in the short term, but comes back to bite you after it drives the price up for everyone, you included.
Ben Gerber and the executive team at West Virginia University (WVU) Medicine decided to call "time" on that game. Their philosophy centered around a home-grown approach that shifts the emphasis off short-term, premium-priced, constrained supply, with the goal of creating a more sustainable pipeline. WVU has settled on several approaches running in concert:
A hospital-based nursing diploma program: WVU set up a 2-year hospital-based nursing diploma program in Morgantown (the Center for Nursing Education) right on the clinical floor.
Tying tuition payment to retention 'stickiness': WVU will provide coverage for a student's educational cost. In return, the graduate signs a multi-year service commitment. The arrangement builds in a mutual win-win, and locks in a steady stream of staff who want to stay in the region.
An internal "traveler" pool targeting reduced agency labor: To reduce third-party agency use, WVU set up their own internal float pool across system hospitals. If a regional facility gets caught short, an internal WVU nurse floats in, keeping the work in-house and lowering the need for external agency fees
Expanding the model beyond nursing to other clinical roles: Having proven the concept with nurses, WVU are rolling the exact same diploma model out for Rad Techs, Surgical Techs, and other hard-to-fill clinical positions across all their regional hubs.
Mitigating labor cost growth requires health system leaders to firmly place both hands on the steering wheel
WVU quite smartly reconciled to the perspective that they couldn’t inflate, negotiate, or wish their way out of a labor shortfall. They recognized that bidding higher for a shrinking pool of agency workers is a mug's game. The only real way out is taking control of the supply chain themselves by building internal pipelines, backing trainees with real benefits, and making sure when people train in your system, they stick around. It’s not easy, and it definitely takes time, but it's a solid move towards sustainably, bending their own internal labor cost curve by actively intervening with the supply and demand forces in WVU's local market.
If you’d like to listen to the full discussion, you can check out our archived webinar here, via Becker's: https://www.beckershospitalreview.com/webinars/the-margin-crisis-reshaping-health-systems-wvu-medicines-chief-strategy-officer-weighs-in/
