BANGALORE (Reuters) – Healthcare staffing companies, which have had a strong run over the past few quarters, will continue to benefit from the persisting shortage of travel nurses and physicians, positioning them to outpace the growth of the entire staffing industry in 2008 and 2009.
With current staff aging and replacements hard to come by, the healthcare staffing industry is facing a shortage of travel nurses and physicians. Analysts predict the shortage will get more acute in the coming years.
“An aging population and advances in medical technology should drive demand, while supply may be constrained as caregivers age with few replacements coming through the pipeline. This should bode well for healthcare staffing supplier stocks,” BMO Capital Markets analyst Jeffrey Silber said.
According to a report by the U.S. Bureau of Labor Statistics, the median age of physicians and surgeons was 45.8 years in 2007 and that of a registered nurse was 45 years.
Shares of companies like Cross Country Healthcare Inc and AMN Healthcare that provide travel-nurse and temporary-physician staffing fell to their lows earlier this year as investors feared that growth in the sector would slow due to the ailing economy but have bounced back sharply since then.
Cross Country and AMN Healthcare have been consistently posting strong results over the past year as the shortage of travel nurses, employed by hospitals for a period ranging from four to 13 weeks, has led to a rise in billed rates, boosting profit margins.
Growth in travel nursing, forecast to be the slowest-growing healthcare segment, is being further hampered by the weak economy as most nurses prefer the security of a full-time job to the temporary assignments that might not be regular.
The travel-nursing segment is expected to grow about 3.5 percent in 2008 and 2009, flat with the 2007 levels, according to analyst Silber. It grew 8 percent in 2006.
Apart from the aging population of nurses, a lower enrolment rate and lesser faculty in nursing schools are also fueling the shortage in the industry, leading to an increase in billing rates.
Hospitals will have to pay more when the shortage gets worse, Stifel Nicolaus analyst James Janesky said. He sees price increases ranging from 3 percent to 5 percent “for the foreseeable future.”
The requirement is for specialized nurses working odd hours for the money hospitals are willing to pay them, he said.
Travel-nurse staffing companies are also benefiting from the weak housing market with housing costs, one of their biggest expenses, falling and in turn nudging profit margins higher.
“The one thing that would help (the shortage) is if we get immigration reform in the U.S. that opens up to bring more nurses in from outside the country,” said Barry Asin and Tony Gregoire of the Staffing Industry Analysts. However, they do not see it happening till 2009.
Analyst Silber estimates travel-nurse staffing revenue of $2.5 billion in 2008, accounting for 21 percent of total healthcare staffing revenue.
DOCTORS TO THE RESCUE
Companies are also seeing their revenue grow as the shortage of temporary physicians deepens.
“Doctors are revenue generators, so customers always want to find a replacement,” Suntrust Robinson Humphrey analyst Tobey Sommer said.
Fewer people willing to work in smaller cities or rural areas, an increasingly aging population of doctors and regulations limiting the number of hours a resident doctor can work are creating a need for temporary physicians or Locum Tenens.
The temporary-physician staffing segment is tipped to be the fastest growing in healthcare staffing. With a current penetration rate of only 0.3 percent, there is ample space for the segment to grow.
Analyst Silber estimates temporary-physician staffing to have a growth rate of 17.5 percent for 2008 and 16 percent for 2009.
Companies like Cross Country, which previously got about 70 percent of its revenue from travel nursing, are planning to expand into Locum Tenens through acquisitions.
“When times are tough, you look to get your costs out and revenue up, you are looking for more physicians and trying to use less nurses,” Cross Country CEO Joseph Boshart said.
(Editing by Deepak Kannan)