Key Takeaways
- The temporary health care staffing industry experienced significant pressure in 2023-2024, as health systems sought to minimize their reliance on temporary staffing after bearing extremely high prices during and following the pandemic.
- Revenues and margins of most of the temporary health care staffing companies we rate have declined sharply, especially for Ingenovis Health Inc. and Medical Solutions Parent Holdings Inc., given their outsized focus on temporary nurses, where the boom-and-bust cycle has been most severe and is still unfolding. A significant increase in interest rates exacerbated the situation and led S&P Global Ratings to downgrade several staffing companies in 2024.
- Notwithstanding near-term pressures, we believe providers will eventually revert to a mix of permanent and temporary staff that optimizes cost efficiencies, supporting more stable demand for temporary staffing.
- Given a continuing decline in demand, we expect these challenges to persist at least through the first half of 2025. However, we see the potential for this to stabilize in the latter half of 2025 or in 2026, as the decline in bill rates has slowed.
The temporary health care staffing industry in the U.S., which aims to address short-term capacity needs at health systems, due to turnover, temporary leave, strikes, or during public health emergencies or peak demand, has been volatile over the past few years, with a boom-bust cycle, especially in the travel nurse staffing segment. As a result, we downgraded several companies in 2024. We see further uncertainty in 2025 though we expect more favorable prospects longer term. In table 1 we summarize some key elements of the health care staffing industry (see the appendix for more background on the industry).
Table 1
| Temporary health care staffing industry segments | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Nurse staffing | Per diem nurse staffing | Allied health staffing | Locum tenens | |||||||
| Description | Placement of registered nurses in temporary assignments | Nurses are employed on need-basis for shorter duration working irregular hours | Placement of other health care professionals including speech and physical therapists, diagnostic imaging technicians, medical lab, and other | Temporary placement of physicians, nurse practitioners, advanced physician practitioners, and physician assistants | ||||||
| Duration | 13 weeks | Hourly | Varies by assignment | Varies based on need | ||||||
| % of overall staffing market | ~45% | 15%-20% | 15%-20% | 15%-20% | ||||||
| Estimated average hourly bill rates (range over last 5 years) | $85-$95 ($80-$160) | N.A. | $50-$70 ($40 - $70) | $250-$270 ($240-$270) | ||||||
| Demand trends | Softer demand even after declines in 2023 and 2024, following a boom in prior years | Demand contracted in 2024, expected to pick up in 2025 | Mixed demand trends vary by occupation | Modest growth in demand trends | ||||||
| N/A/--Not available. Source: S&P Global Ratings. | ||||||||||
The Pandemic-Driven Industry Boom Reversed In 2023-2024 To Varying Degrees
Travel nurse demand continues to drop while bill rates moderate. During the COVID-19 pandemic, strong demand for health care workers, especially nurses at health systems, combined with burn-out greatly exacerbated the nurse shortage in the U.S. This led to a sharp rise in demand, bill-rates (amount charged to providers), and pay-rates (amounts paid to nurses) for temporary nurses. This phenomenon brought back some nurses who had left the industry but also prompted many enterprising nurses to leave their permanent positions for highly lucrative temporary opportunities, further fueling the shortage and volume of temporary assignments. Indeed, Staffing Industry Analysts (SIA) estimates that the total market for health care staffing increased to a peak of $47 billion in 2022 from $6.5 billion in 2019.
The cycle turned, however, in 2023 and 2024, as health systems that bore the financial burden of the elevated utilization and high bill rates began a crusade of reducing utilization of temporary staff, especially temporary nurses. This led to a significant drop in demand, to below pre-pandemic levels, and to a steep drop in bill rates (that are now only about 15%-20% above pre-pandemic rates on a nominal basis) over the course of the last two years. Staffing companies' financial performance has, in turn, significantly deteriorated, with the most pronounced declines at those concentrated on temporary nurses.
Health systems used various tactics to recruit and fill their shifts with internally employed nurses, including recruiting direct from nursing colleges, offering higher pay packages to permanent nurses, increasing sign-on, referral, and retention bonuses, and hiring non-clinical staff to reduce the administrative burden of the nurses to ease capacity, reduce burnout, and improve retention. They also used more per diem nurses and overtime, to reduce the reliance on travel nurses.
Although we had anticipated a decline in both volumes and bill rates, the volume drop was more significant than we expected and shows only limited signs of stabilizing. Chart 1 shows the national average weekly travel nurse salaries, which highlights the persistent decline in pay-rates for nurses in 2023 and 2024.
Chart 1
The decline in bill rates for travel nurses took a toll on bill-pay spreads (the difference between the bill rate and pay rates) and constrained gross profit margins. The fixed nature of housing and travel stipends and certain operating costs, exacerbated the pressure on EBITDA margins. Although most of the companies we rate undertook cost-saving measures, their ability to offset the margin pressure was limited.
Locum tenens demand remains strong Providers generally hire locum tenens (locums) to fill the temporary absence of shortage of physicians or meet a transitory increase in patient demand. However, a steadily growing shortage of physicians has made relying solely on permanent staffing more difficult, especially in certain specialties. The Association of American Medical Colleges (AAMC) indicates there are about 1.0 million active physicians in the U.S. as of 2023, of which about 52,000 were locum tenens (including those working part time) which is almost double the number of locum tenens in 2015. Statistics show that more physicians are shifting to locum tenens as a midcareer move, in contrast to a decade ago when retired and semiretired doctors accounted for a majority of locum tenens assignments.
The AAMC estimates the physician shortage in the U.S. will increase to 86,000 physicians by 2036, due to population growth, an ageing population and the associated higher utilization of medical care in later years, and the outsized portion of the physician workforce that is nearing retirement age. As per data from BLS, physicians aged 65 or older and those between age 55 and 64 represent 20% and 22% of the clinical physician workforce, respectively, which will weigh on the supply in the coming years.
Demand for allied health professionals varies. The demand and bill rates for the allied health segment also spiked during the height of the pandemic amid rising demand for services and have since come back down. While bill rates for the allied health sector decreased during 2024 (compared to 2023), demand trends (volume) varied across different occupations in allied health. More specifically, imaging technicians, surgical technologists, speech therapists, and physical therapists remained in strong demand in 2024, while demand for respiratory technologists declined.
We Lowered Several Ratings In 2024 On Deteriorating Industry Conditions
Our ratings on the five companies with exposure to the travel nurse staffing segment had been stable from 2019-2022 despite a surge in bill rates and demand that led to an increase in EBITDA and cash flow and improving credit measures. This was because we assumed the favorable industry conditions were temporary. Further, four of these companies are controlled by private equity and we generally assume that deleveraging at private equity-owned companies is transient, given their comfort using high levels of debt leverage to enhance shareholder returns. We did however raised our ratings on publicly traded AMN Healthcare Services Inc. to 'BB+' from 'BB' in 2023, based on our expectation that credit measures would remain consistent with the higher rating, even after industry conditions normalized.
Despite that conservatism, we downgraded three staffing companies in 2024, each by one notch (see matrix graphic below). This reflected the steep and continued erosion in demand and drop in bill rates in addition to margin pressure (pay rates tend to move less and more slowly than bill rates and compounded by the fixed nature of certain costs) as well as a rise in interest rates.
Independent of these market dynamics, we lowered our ratings on Soliant Lower Intermediate LLC in 2024 to 'B' with a stable outlook from 'B+' due to an increase in debt leverage following a recapitalization in conjunction with it its acquisition by new private equity sponsors.
Chart 2
Chart 3
Chart 4
Turbulence In 2025 Offsets Favorable Prospects Over The Long Term
The number of open positions in the industry is often a useful indicator of near-term demand trends, and the Aya Index, (reported by industry leader, Aya Healthcare) indicates that open positions for travel nurses remained below prior-year levels over the last three months of 2024, indicating a continued decline in demand.
In contrast, according to data reported by the Bureau of Labor Statistics, job openings in the broader health care and social assistance sector remain high (see chart 5) which reflects the shortage of health care workers and substantial employee turnover. That said, the ratio of openings-to-hires, which has been above 2x since January 2021, has moderated over the last three months of 2024, indicating some slackening of demand within the context of a tight health care labor market.
Chart 5
Despite the continued drop in demand, especially within temporary nursing positions, bill rates show signs of stabilizing, declining just low-to-mid-single-digit area in 2024. We see that as an indication that the industry trough is likely near, with prospects for stabilization perhaps in the latter half of 2025 or in 2026. More specifically, our base case is for travel nurse revenue to contract by about 10%-15% in 2025 driven primarily by softer demand combined with flat or a low-single-digit percentage decline in bill rates.
Given that demand has declined to well below pre-pandemic levels, we expect at least a moderate bounce in demand and bill rates after it stabilizes. We believe demand for temporary nurses and other health care professionals will remain an important part of the health care labor market in order to address employee turnover, leaves, strikes, peak-demand, as well as to support staffing in rural markets that struggle to attract sufficient permanent employees. Moreover, with an aging U.S. population, we expect the demand for health care professionals to remain tight, despite occasional booms and busts in the temporary staffing industry.
In the meantime, given that the pressure is most acute in nurse staffing, we see the companies with higher exposure to nurse staffing namely, Ingenovis Health Inc. and Medical Solutions Parent Holdings Inc., as most vulnerable to potential rating pressure in 2025. These companies are dealing with more intense margin pressure and significantly higher leverage metrics. This is compounded by rising interest rates in recent years especially the companies that are sponsor-owned with relatively high levels of debt.
A Comparison Of The Five Rated Companies
The five health care staffing companies we rate have various distinctions (summarized in chart 5 and graphic below), but we view two of them, AMN and CHG Healthcare Services Inc., as having a distinctly stronger business profile than the others. AMN Healthcare Services Inc. is more diversified than its peers (see chart 6). It also has international nurse staffing services and offers its clients a range of workforce solutions technologies, such as language interpretation and other services. CHG's business has the distinct strength of a very strong and leading market position in the locum tenens market with market share of about 30%. We believe that market share both demonstrates and provides a unique competitive advantage.
Chart 6
Appendix 1
Business Model Of Health Care Staffing Companies
Temporary health care staffing companies primarily address short-term capacity needs at health systems, such as during peak demand, in specialty or geographic (often rural areas) where there are persistent shortages of health care staff, or to address turnover, temporary leave, strikes, or public health emergencies.
We believe the U.S. market for temporary health care staff is highly fragmented (with only one company having more than 10% market share, Aya Healthcare (not rated; with about 15% share), and that there are limited points of differentiation with only modest barriers to entry. This results in intense competition for staff and for contracts with providers. Indeed, margins (generally in the low-teens area, but now in the mid-single-digit percent range for some) are below average relative to other health care services companies.
A company's service offerings can also involve managed services programs (MSPs, which provide a broader range of tailored solutions, including recruiting, credentialing, and managing daily operations of temporary staffing) or vendor management systems (VMS, which only provide the software services to the health system), or provide technology-enabled workforce solutions to its clients.
Companies' gross profits are a function of volume as well as the bill-pay spread, which is the difference between bill rates (amount charged to providers) and pay rates (amount paid to the nurses). Pay rates tend to move less and more slowly than bill rates, so gross margins tend to decline in a weaker market.
That said, the business model benefits from limited fixed costs, capital expenditures (capex), and working capital, with wages as its biggest cost. Moreover, the staffing companies are paid by providers and are therefore not directly exposed to reimbursement risk (the risk of adverse change in government or commercial insurer reimbursement).
The companies we rate are mostly owned by private equity sponsors, which typically maintain high levels of adjusted leverage (above 5x) to enhance returns and prioritize rapid growth over debt reduction.
This report does not constitute a rating action.
| Primary Credit Analyst: | Richa Deval, Toronto + 1 (416) 507 2585; richa.deval@spglobal.com |
| Secondary Contact: | David A Kaplan, CFA, New York + 1 (212) 438 5649; david.a.kaplan@spglobal.com |
No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.spglobal.com/ratings (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.spglobal.com/usratingsfees.