---
title: "Contract labor costs and hospital financial performance by surgical volume"
id: "plos-one-23-contract-labor-costs-and-financial-performance-at-high-and-low-surgical-volume"
canonical_url: "https://medichelpline.com/clinical-feed/plos-one-23-contract-labor-costs-and-financial-performance-at-high-and-low-surgical-volume"
content_type: "clinical_feed_article"
specialty: "General"
source_name: "PLOS ONE (Medicine)"
source_url: "https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0356994"
published_at: "2026-08-27T14:00:00.000Z"
evidence_level: "Journal Feed"
license: "CC-BY-NC-4.0 / Informational Use"
---
# Contract labor costs and hospital financial performance by surgical volume
## Provenance & Clinical Metadata
- **Canonical URL:** https://medichelpline.com/clinical-feed/plos-one-23-contract-labor-costs-and-financial-performance-at-high-and-low-surgical-volume
- **Specialty:** [General](https://medichelpline.com/clinical-feed/general.md)
- **Primary Source:** PLOS ONE (Medicine)
- **Source URL:** [Original Journal Publication](https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0356994)
- **Published At:** 2026-08-27T14:00:00.000Z
- **Evidence Rating:** Journal Feed
## Executive GIST (TL;DR)
- Rising labor costs are a primary driver of increasing hospital expenses in the U.S.; labor accounted for 56% of hospital expenses in 2024 and increased by $42.5 billion from 2021–2023 according to the study background. - The study evaluated associations between **contract labor costs** (direct patient care contracted labor as a percent of direct patient care labor cost) and hospital financial performance using merged NASHP, AHA, and RAND datasets for 2011–2023. - Primary financial outcomes were **operating margin**, **total margin**, and **financial distress** (modified Altman Z-score < 1.8). Operating margin = operating profit / operating revenue; total margin = net income / (net patient revenue + other income). - The analytic sample comprised 22,366 hospital-year observations from 2,914 hospitals after exclusions and trimming of extreme values. - Higher **contract labor costs** were associated with lower operating margins (coef −0.13; 95% CI −0.17 to −0.10; p < 0.001), lower total margins (coef −0.11; 95% CI −0.14 to −0.07; p < 0.001), and increased odds of **financial distress** (OR 1.01; 95% CI 1.00 to 1.02; p = 0.003). - **High surgical volume** hospitals (≥75th percentile annual surgical volume) had higher operating margins (coef 1.40; 95% CI 0.86 to 1.95; p < 0.001), higher total margins (coef 1.62; 95% CI 1.12 to 2.12; p < 0.001), and lower odds of financial distress (OR 0.77; 95% CI 0.64 to 0.94; p = 0.008) compared with low-volume hospitals. - Interaction tests between **contract labor costs** and **high-volume status** were not statistically significant for operating margin (coef −0.02; p = 0.605), total margin (coef −0.04; p = 0.179), or financial distress (OR 1.01; p = 0.303), indicating high surgical volume did not significantly modify the association. - The authors conclude that rising contract labor costs are linked to worse hospital profitability and that **high surgical volume may not protect hospitals** from the financial effects of increased contract labor spending. - Data sources included NASHP Hospital Cost Tool (public CMS cost reports), AHA annual survey, and RAND Hospital Data (HCRIS); some datasets require third-party access per data use agreements. - The study excluded critical access hospitals and trimmed financial extremes; financial distress was defined using a modified Altman Z-score with supporting details in the article's appendix.
## Clinical Analysis & Structured Key Points
Contract labor costs and financial performance at high and low surgical volume hospitals | PLOS One Browse Subject Areas ? Click through the PLOS taxonomy to find articles in your field. For more information about PLOS Subject Areas, click here . Article Authors Metrics Comments Media Coverage Peer Review Reader Comments Figures Figures Abstract Background Rising labor costs negatively impact hospitals’ financial stability. Poor hospital financial performance raises the probability of bankruptcy and closure, which limits patients’ access to critically important medical and surgical care. The objective of the study was to determine the association between contract labor costs and hospital financial performance and examine if this relationship is modified by surgical volume. Methods We used data from the National Academy for State Health Policy, the American Hospital Association, and the RAND Corporation to analyze general and financial characteristics of U.S. hospitals. The primary outcomes were hospital operating margin, total margin, and financial distress. Generalized estimating equations were used to identify associations between contract labor costs and financial performance. Results Our sample included 22,366 hospital-year observations from 2,914 hospitals. Higher contract labor costs were associated with lower operating margins (coefficient −0.13, 95% confidence interval (CI) −0.17 to −0.10; p < 0.001), lower total margins (coefficient −0.11, 95% CI −0.14 to −0.07; p < 0.001), and higher financial distress (odds ratio 1.01, 95% CI 1.00 to 1.02; p = 0.003). High surgical volume was associated with higher operating margins (coefficient 1.40, 95% CI 0.86 to 1.95; p < 0.001), higher total margins (coefficient 1.62, 95% CI 1.12 to 2.12; p < 0.001), and a lower risk of financial distress (OR 0.77, 95% CI 0.64 to 0.94; p = 0.008) compared to low surgical volume. The interaction term for contract labor costs and high-volume status was not statistically significant for operating margin (coefficient −0.02, 95% CI −0.08 to 0.05; p = 0.605), total margin (coefficient −0.04, 95% CI −0.09 to 0.02; p = 0.179), or financial distress (OR 1.01, 95% CI 0.99 to 1.03; p = 0.303). Conclusions Higher contract labor costs were associated with lower hospital profit margins. High surgical volume may not offer financial protection against the economic challenge of contract labor costs. Citation: Enumah SJ, Wu X, Cai X, Li Y (2026) Contract labor costs and financial performance at high and low surgical volume hospitals. PLoS One 21(8): e0356994. https://doi.org/10.1371/journal.pone.0356994 Editor: James P. Maloney, University of Colorado - Anschutz Medical Campus, UNITED STATES OF AMERICA Received: January 2, 2026; Accepted: August 11, 2026; Published: August 27, 2026 Copyright: © 2026 Enumah et al. This is an open access article distributed under the terms of the Creative Commons Attribution License , which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited. Data Availability: The American Hospital Association and RAND Corporation data cannot be publicly shared because of data use agreements. These data can be obtained by researchers through the same third-party channels. AHA: https://www.ahadata.com/ RAND: https://www.hospitaldatasets.org/datasets The National Academy for State Health Policy data is publicly available at: https://tool.nashp.org/ . Funding: The author(s) received no specific funding for this work. Competing interests: The authors have declared that no competing interests exist. Introduction Healthcare delivery in the United States remains expensive, and the costs associated with providing healthcare continue to rise [ 1 ]. In 2023, hospital care spending reached $1.5 trillion—approximately one-third of the annual national health care expenditure—and hospital spending as a percent of gross domestic product is expected to rise from 5.5% in 2023 to 6.0% in 2032 [ 2 ]. Hospital care remains costly, and increases in the prices of labor, supplies, drugs, and technology contribute to rising hospital care expenditures. Labor costs remain the largest contributor to hospital expenses. From 2021 to 2023, labor costs increased by $42.5 billion [ 3 ]. In 2024, labor costs accounted for $890 billion and represented 56% of overall hospital expenses [ 4 ]. Wages and benefits drive labor expenses, and staffing remains a critical problem facing hospital leadership [ 5 ]. Since the COVID-19 pandemic, hospitals and health systems have struggled with recruitment and retention, and the limited supply of labor has contributed to the increase in hospital expenses [ 6 ]. To address staff shortages, hospitals turned to contract labor—temporary staff—to fill the gaps in their workforce [ 7 ]. While rising contract labor costs remain a challenge for hospital leaders, the degree to which this expense affects financial performance is not well characterized. In addition, identifying a relationship between modifiable factors (e.g., surgical volume) and contract labor costs remains understudied. To address these knowledge gaps, our study aimed to determine the association between contract labor costs and hospital financial performance and to identify if surgical volume moderates this relationship. We hypothesized that higher contract labor costs were associated with worse financial performance (lower financial margins and a higher risk of financial distress). In addition, we chose to explore the extent to which surgical volume may mitigate the financial challenges faced by hospitals. High-volume centers have high clinical demands and may need to hire temporary staff despite remarkably high labor price increases. As contract labor costs rise, high-volume surgical hospitals may be insensitive to prices and worse off compared to low-volume hospitals. However, high-volume hospitals hire contract labor to fuel profitable service lines, which include surgical care. Therefore, high-volume surgical hospitals may be somewhat shielded from the negative financial effect of rising contract labor costs as compared with low-volume hospitals. Given these possible financial implications of high surgical volume, we hypothesized that high surgical volume mitigates the negative association between contract labor costs and hospital financial performance. Therefore, the magnitude of the negative association between contract labor costs and hospital financial performance would be lower at high-volume hospitals compared to low-volume hospitals. Methods Data We used hospital information from the National Academy for State Health Policy (NASHP) Hospital Cost Tool, the American Hospital Association (AHA), and the RAND Hospital Data for years 2011–2023. The NASHP Hospital Cost Tool is a publicly available dataset based on the Centers for Medicare & Medicaid (CMS) Cost Reports, and the tool was designed to provide hospitals and policymakers with essential information about hospital costs [ 8 ]. The AHA conducts an annual survey of more than 6,000 U.S. hospitals and 400 health systems, and the AHA database includes information about hospital utilization, organization, workforce, finances, and services [ 9 ]. The RAND Hospital Data organizes the CMS cost reports from the Healthcare Provider Cost Reporting Information System (HCRIS), and the dataset provides general information about hospital characteristics and detailed financial information including revenues, expenses, assets, and liabilities [ 10 ]. Hospital data from these three sources were merged based on the Medicare Provider Identification Number. We included short-term general and specialty hospitals. We excluded critical access hospitals as they have a different reimbursement structure (see S1 Fig for inclusions and exclusions). Variables The main dependent variables were operating margin, total margin, and financial distress. Operating margin was defined as operating profit divided by operating revenue. Total margin was defined as net income divided by the sum of net patient revenue and all other income. Financial distress was defined based on the modified Altman Z-score, which captures multiple aspects of organizational financial performance including profitability, efficiency, liquidity, and leverage [ 11 ]. Previous literature identified that the modified Altman Z-score was effective in predicting U.S. hospital financial distress that resulted in bankruptcy [ 12 ]. We categorized a hospital as financially distressed if the modified Altman Z-score was less than 1.8 [ 12 – 15 ]. Full details regarding the modified Altman Z-score calculation are provided in the Supporting Information File (see S1 Appendix ). We removed observations with negative liabilities, assets, and expenses or those with missing values in key variables. To avoid the influence of extreme outliers, the values for operating margin, total margin, and the Altman Z-score were trimmed at the 1 st and 99 th percentiles. Our main independent variable was direct patient care contracted labor cost as a percentage of direct patient care labor cost (subsequently referred to as “contract labor costs”), and this was extracted from the NASHP dataset. Additionally, we extracted surgical volume from the AHA dataset. We defined high-volume hospitals (HVHs) as hospitals with a reported annual surgical volume at or above the 75 th percentile. We defined low-volume hospitals (LVHs) as hospitals whose surgical volume was below this threshold. Other independent variables included hospital characteristics. Rural hospitals were defined as those located in rural or micropolitan core based statistical areas (CBSAs) [ 16 ]. Teaching hospitals included both major and minor teaching hospitals. Hospital bed capacity was grouped into three categories: low (1–99), medium (100–299), and high (300 or more). Ownership included the categories of non-profit, for-profit, and government. For market competition, we calculated the Herfindahl-Hirschman Index (HHI) based on hospital discharges [ 17 ]. The HHI was categorized as unconcentrated (0–1,499), moderately concentrated (1,500–2,499), or highly concentrated (2,500–10,000) [ 18 ]. Hospitals were categorized as members of a health system or independent. The wage index compares hospital workers’ mean hourly wage in each CBSA to the national mean wage [ 19 ]. The wage index captured differences in hospital wage rates among various labor markets. To account for different patient complexity across hospitals, we included case mix index, which represents the average relative diagnosis-related group weight of a hospital’s inpatient discharges [ 20 ]. A higher case mix index indicates that a hospital provides care for more complex and resource-intensive patients. Statistical analysis Descriptive statistics were generated for the sample of hospitals. We used t-tests, Wilcoxon rank sum tests, and chi-square tests to compare means, medians, and proportions between high-volume and low-volume hospitals. For 2011–2023, the unadjusted average hospital operating margins, total margins, contract labor costs, and proportions of hospitals experiencing financial distress were reported for high-volume hospitals and low-volume hospitals. To determine the independent associations between contract labor costs and financial performance, we fit three regression models. Given the hierarchical data structure with multiple hospital-year observations and given our interest in a population-average effect, we applied the generalized estimation equation (GEE) method to account for the within-hospital clustering effect [ 21 ]. Operating margin was modeled against contract labor costs in the GEE model, and the hospital covariates described above were included in the models. Given our interest in exploring annual surgical volume as a potential modifier, we included an interaction term of high-volume status and contract labor costs. The model also included year fixed effects, robust standard errors, and an exchangeable correlation structure to take into account the hospital clustering effect. We calculated the average adjusted predictions of the dependent variable at representative values of contract labor costs using the postestimation margins and marginsplot Stata commands. We estimated two additional GEEs with total margin and financial distress as dependent variables. For total margin, the identity link function was used. Given that financial distress is a binary variable, a logit link function and binomial distribution were used. Additional details regarding the model specification are included in the Supporting Information File ( S1 Appendix ). We performed sensitivity analyses with alternative cutoffs for defining high-volume hospitals and with separate time frames for 2011−2019 versus 2020−2023 given the potential influence of COVID-19. Statistical significance was defined as a two-tailed p value less than 0.05. For the three outcome measures in the regression analyses, a Bonferroni correction was applied, and significance was defined as a p value less than 0.017. Coefficients, 95% confidence intervals (CI), and p values were reported. This study did not involve human subjects. Data analysis was performed between August 2025 and November 2025 using Stata, Version 19 (StataCorp LLC, College Station, TX). The Strengthening the Reporting of Observational Studies in Epidemiology (STROBE) reporting guideline was used [ 22 ]. Results Our sample included 22,366 hospital-year observations from 2,914 unique hospitals. In 2017, the median contract labor cost was 3.2% (interquartile range (IQR) 1.5–6.1, Table 1 ). The median hospital operating margin and total margin were 3.6% (IQR −1.5–9.3) and 4.2 (IQR −0.6–9.6) respectively. Financial distress was identified in 17.9% of hospitals. In 2017, 23.3% of hospitals were rural, 59.4% were teaching, 42.3% had 100–299 beds, 70.5% were non-profit, 56.2% were in unconcentrated markets, and 71.3% were part of a health system. The median annual surgical volume was 6,441 (IQR 3,433–11,813). In 2017, HVHs were more commonly teaching hospitals (92.9% vs. 48.2%, p < 0.001), large bed size (77.3% vs. 12.9%, p < 0.001), non-profit (78.7% vs. 67.8%, p < 0.001), and members of a health system (77.5% vs. 69.2%, p = 0.001) compared to LVHs. The median annual surgical volume was 17,470 (IQR 14,023–24,202) at HVHs and 4,866 (IQR 2,843–7,424) at LVHs. The median contract labor costs were lower at HVHs compared to LVHs (2.8% vs 3.4%, p = 0.004). At HVHs, the median operating margin was higher than at LVHs (5.4% vs. 2.9%, p < 0.001), and the median total margin was higher (6.2% vs. 3.3%, p < 0.001) compared to LVHs. Download: PNG larger image TIFF original image Table 1. Hospital characteristics at high and low volume hospitals in 2017. https://doi.org/10.1371/journal.pone.0356994.t001 The unadjusted mean operating margins and total margins for HVHs and LVHs for the study period are displayed in Fig 1 and Fig 2 . The operating margin at HVHs and LVHs changed from 5.3% and 3.3% in 2011 to 4.7% and 2.1% in 2023. The total margin at HVHs and LVHs changed from 5.2% and 3.5% in 2011 to 6.0% and 3.0% in 2023. In each year from 2011 to 2023, the proportion of HVHs with financial distress was lower than the proportion of LVHs with financial distress ( S2 Fig ). From 2011 to 2023, contract labor costs increased from 2.6% to 10.5% in HVHs and from 3.7% to 10.1% in LVHs ( Fig 3 ). Download: PNG larger image TIFF original image Fig 1. Average operating margins by surgical volume, 2011–2023. The figure presents the unadjusted average operating margin in each year for high-volume and low-volume hospitals. https://doi.org/10.1371/journal.pone.0356994.g001 Download: PNG larger image TIFF original image Fig 2. Average total margins by surgical volume, 2011–2023. The figure presents the unadjusted average total margin in each year for high-volume and low-volume hospitals. https://doi.org/10.1371/journal.pone.0356994.g002 Download: PNG larger image TIFF original image Fig 3. Average contract labor costs by surgical volume, 2011–2023. The figure presents the unadjusted average contract labor costs in each year for high-volume and low-volume hospitals. Contract labor costs were expressed as a percentage and defined as the direct patient care contracted labor cost divided by direct patient care labor cost. https://doi.org/10.1371/journal.pone.0356994.g003 In the adjusted regression models, higher contract labor costs were associated with lower operating margins (coefficient −0.13, 95% CI −0.17 to −0.10; p < 0.001), lower total margins (coefficient −0.11, 95% CI −0.14 to −0.07; p < 0.001), and higher financial distress (odds ratio 1.01, 95% CI 1.00 to 1.02; p = 0.003; Table 2 ). High surgical volume was associated with higher operating margins (coefficient 1.40, 95% CI 0.86 to 1.95; p < 0.001), higher total margins (coefficient 1.62, 95% CI 1.12 to 2.12; p < 0.001), and a lower risk of financial distress (OR 0.77, 95% CI 0.64 to 0.93; p = 0.008) compared to low surgical volume. The interaction term of contract labor costs and high-volume status was not statistically significant for the models of operating margin (coefficient −0.02, 95% CI −0.08 to 0.05; p = 0.605), total margin (coefficient −0.04, 95% CI −0.09 to 0.02; p = 0.179), or financial distress (OR 1.01, 95% CI 0.99 to 1.03; p = 0.303). The regression-adjusted predicted operating and total margins for HVHs and LVHs declined as contract labor costs increased ( Fig 4 and Fig 5 ). In addition, the predicted probability of financial distress for HVHs and LVHs increased as contract labor costs increased ( Fig 6 ). On the sensitivity analyses with higher and lower surgical volume cutoffs, the findings were qualitatively similar ( S1 Table ). On the sensitivity analyses for before and after the start of the COVID-19 pandemic, our findings were qualitatively similar ( S2 Table ). The association between contract labor costs and operating margin was negative for both the 2011−2019 sample (coefficient −0.12, 95% CI −0.18 to −0.07; p < 0.001) and the 2020−2023 sample (coefficient −0.16, 95% CI −0.20 to −0.13; p < 0.001). Qualitatively similar findings were present for the total margin and financial distress models. Download: PNG larger image TIFF original image Table 2. Generalized estimating equation model results for associations between contract labor costs and operating margin, total margin, and financial distress. https://doi.org/10.1371/journal.pone.0356994.t002 Download: PNG larger image TIFF original image Fig 4. Operating margin and contract labor costs by surgical volume. Figure represents the predicted operating margin derived from the adjusted generalized estimating equation (GEE) models. Contract labor costs represent the direct patient care contracted labor costs as a percentage of direct patient care labor costs. https://doi.org/10.1371/journal.pone.0356994.g004 Download: PNG larger image TIFF original image Fig 5. Total margin and contract labor costs by surgical volume. Figure represents the predicted total margin derived from the adjusted generalized estimating equation (GEE) models. Contract labor costs represent the direct patient care contracted labor costs as a percentage of direct patient care labor costs. https://doi.org/10.1371/journal.pone.0356994.g005 Download: PNG larger image TIFF original image Fig 6. Financial distress and contract labor costs by surgical volume. The figure represents the predicted probability of financial distress based on generalized estimating equation (GEE) models, which control for rurality, teaching hospital status, bed size, ownership, system member, market concentration, wage index, and case mix index. Contract labor costs represent the direct patient care contracted labor costs as a percentage of direct patient care labor costs. https://doi.org/10.1
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