How U.S. Hospitals Pay Nurses And Why It's An Issue

Nearly a third of Americans have skipped medical care to avoid the cost. That is no surprise. It is hard to predict what an ER visit or a trip to the doctor will run, because prices swing with where you live, what services you get, and what insurance you carry.

A big driver is the outdated fee-for-service (FFS) model many U.S. healthcare centers still use. Under FFS, every service a provider orders (tests, scans, surgeries, prescriptions) becomes revenue. More billable services means more profit, which pushes care toward higher prices and lower quality.

Patients are not the only ones squeezed. Nurses are too. "As a patient, 95 percent of the care you receive doesn't come from physicians, it's from nurses," says John Silver, PhD, cofounder of Nurses Transforming Healthcare and a practicing RN in Fort Lauderdale, Florida. But because the value of much nursing work (educating patients, providing emotional support) is hard to bill, hospitals treat RNs as a cost rather than an asset. "These facilities are driven by a profit margin," Silver says. "To the people up in the ivory towers, nurses are a labor expense."

Putting profit at the center of healthcare creates a conflict of interest: artificially high costs for patients, low pay for workers, and chronic staffing problems. Efforts to move hospitals off this model have not produced a real shift, and COVID-19 exposed how fragile the system already was.

How FFS Systems Affect Nurses

Under FFS, a hospital behaves like any business: maximize profit, cut cost. Physicians, who order procedures and write prescriptions, are treated as revenue generators. Nurses are treated as a line item. Kara Yates, an RN and cochair of the Washington State Nurses Association at Seattle Children's Hospital, describes employers shaving a little off nursing staff every shift to save money that adds up over time. Her association reached a tentative agreement only after 900 nurses picketed and bargained for months.

For-profit models err toward understaffing rather than spending more than necessary, even at the cost of nurse wellbeing and patient safety. The minimum recommended nurse-to-patient ratio is 1:3 in teaching hospitals and 1:5 in general hospitals, yet many facilities load nurses well past that because they know nurses will step up. Yates points to the self-sacrificing mindset many nurses bring to the job, which makes it easy for organizations to demand more with less instead of staffing properly.

Healthcare work cannot wait. You cannot push an unfinished patient to tomorrow. Every inpatient needs checking and treating repeatedly across a shift, so nurses run from patient to patient and skip breaks. The result is compromised care and burnout. Nurse burnout is not ordinary work stress. It comes from sustained, unsustainable pressure that produces cognitive and emotional symptoms and, over the long term, physical ones: musculoskeletal disorders, heart problems, metabolic conditions, and mental health effects. The pandemic did not create burnout. It worsened a problem that was already there.

How FFS Systems Affect Patients

Profit-centric systems mean high prices, but the bill may be the smallest concern. The U.S. spends far more on healthcare as a share of GDP than peers like Germany and the UK, yet scores worse on health outcomes than many European countries. "If you shortchange the process and overwork these nurses at the same time, what do you think the outcome is going to be?" Silver asks.

At worst, short staffing leads to preventable deaths. A 2020 University of Pennsylvania study linked higher nurse burnout scores to a higher likelihood of in-hospital mortality. The widely covered case of RaDonda Vaught, a nurse prosecuted for criminally negligent homicide after a fatal medication error, pushed the connection between burnout and patient harm into public view.

Errors are only one piece. More often, patient health suffers when the more profitable option wins. A physician may be nudged, openly or not, toward surgery over an alternative that is just as effective, less risky, and cheaper, because surgery pays more. Physicians see it: in a 2017 survey of more than 2,000 U.S. physicians, respondents estimated that 20 percent of medical care is unnecessary, and about seven in ten said peers are more likely to perform unnecessary procedures when they profit from them.

The same pattern shows up with chronic disease, where prescribing a drug can be favored over pushing lifestyle change. As Yates puts it, preventive care is far cheaper than treating a disease once it develops. But patients are often steered toward costlier care later because they did not get the right preventive care earlier. A 2019 study of meniscal and osteoarthritis tears found no significant difference in outcomes or pain between patients who had surgery and those who chose physical therapy. Both worked. Surgery costs $5,000 to $10,000 or more, against roughly $100 per PT session, carries more risk, takes months to recover from, and raises the odds of eventual joint replacement. This does not mean doctors set out to harm patients. They cannot force lifestyle changes or catch problems before symptoms appear. But in a system where outcomes come second to profit, the burden falls on patients to seek care and avoid preventable harm.

How FFS Systems Affect Hospitals

Understaffing has cost hospitals too. In recent years thousands of healthcare workers left their jobs over unreasonable expectations and unsafe conditions worsened by the pandemic. The average turnover cost for a bedside nurse runs about $46,000, and the average hospital lost $5 million to $9 million in a year to turnover alone. Roughly a third of nurses said they planned to leave the profession by the end of 2022, nearly half citing burnout. As Silver puts it, there is no way to deliver the quality of care nurses are trained for when expectations stay unrealistic.

Now that staffing hits the bottom line, hospitals are paying attention. In 2022 the American Hospital Association declared workforce challenges a national emergency and requested federal funding, pointing to COVID-19 and to higher labor costs from the scarcity of local RNs and the need to hire travel nurses. Hospitals cannot be blamed for the chaos in ICUs at the pandemic's onset, but their long reluctance to listen played a part. Nurses had warned about understaffing for decades, and many facilities ran their staff thin for years, leaving a shaky foundation when the pandemic hit.

Associations blame a "shortage of workers," but that is not the full story. Many licensed RNs are not working in the field because they will not work in understaffed facilities. As Yates says, attracting and keeping nurses comes down to working conditions and having the time to actually connect with patients and families. Edna Cortez, another WSNA cochair and RN at Seattle Children's, adds that nurses are the best PR a facility has. When a hospital becomes known for poor conditions, recruiting gets harder and turnover becomes a vicious circle. Many hospitals have operated in the red, funneling COVID relief money into travel nurses instead of fixing the policies underneath. It kept the doors open but solved nothing.

The Move to Value-Based Care

Workers, policy experts, and politicians have pushed for decades to replace or revise FFS with value-based models that center patient outcomes instead of profit. The 2010 Affordable Care Act included soft incentives toward other care models, but by 2019, nearly a decade later, only about 38 percent of healthcare spending ran through a non-FFS model.

The Centers for Medicare and Medicaid Services is pursuing value-based care, including a link between patient satisfaction scores and reimbursement: higher scores, higher rates. The catch is that low scores mean lower reimbursement, which can pressure a hospital to cut staff further and deepen the original problem. Incentives also reach only the doctors and patients CMS covers, and incentives are not mandates. "There is no simple solution and quick fix," says Lin Zhan, PhD, dean of UCLA's nursing school.

Proposed models include bundled payments, pay-for-performance, and a public utility model, all aimed at prioritizing quality and access over profit. Pay-for-performance rewards providers for cutting costs while hitting quality targets. Silver favors the public utility approach, the model the U.S. already uses for water, electricity, sewage, and sanitation: essential services delivered to communities with controlled prices and regulated processes, rather than millions of individual billable interactions.

For now, hospitals control how they operate, and most still treat healthcare as a commodity rather than an essential service. Shifting to quality-first care demands major changes from providers and reimbursement systems, all under pandemic-driven budget limits. Zhan stays optimistic: the shift from FFS to value-based care, she says, is already underway.