Travel Nursing: The Contract Cost Conundrum

Travel Nursing (Part 1): The Contract Cost Conundrum

Especially now, traveling medical professionals provide a critical part of the healthcare we receive today. Why is it that there are so many traveling nurses though? It seems like there would be a middle-ground to find a local professional and mitigate the costs associated with bringing one in from out-of-state.

Travel nursing contracts have associated costs that are seldom noticed and often outshined by the benefits.

For the nurse, it's a tempting offer. You get to travel around for a good amount of time, it's low-obligation and it's very competitive in pay.

For the agency, it's a tempting offer. You don't have to be filtered through an MSP you don't have a contract for locally, your caregiver gets a job placement and your client gets a caregiver onsite.

For the facility, what is the offer though? What are the implications of hiring a travel nurse instead of a per diem local nurse?

Picture this: a dozen nurses living in the greater Los Angeles area are approached with an opportunity to work a 13-week or even 26-week contract in Denver.

Many hospitals in the Denver area need assistance to fill current or upcoming nurse or practitioner shortages and these nurses can assure the necessary (and legally required) coverage. However, at the same time, a dozen nurses in the Denver area, (with similar specialties), are given an opportunity for 13-week or even 26-week contracts in Los Angeles. Again, these nurses are needed to provide coverage in understaffed departments. In this example, 24 nurses with similar skill sets have swapped locations to meet identical needs that already exist in their back yard. Each worker has incurred travel expenses, meals, incidentals, lodging and miscellaneous reimbursements for the assignment.

You really should consider all the facets of a travel contract pay package as well.

Typical traveler contracts include a fixed bill rate, guaranteed hours, and possible rate variations for overtime, callback, on-call, etc. Since most contracts are executed with a fixed bill rate, the true expenses associated with these placements are not itemized. Examples of non-itemized expenses include hourly pay rate, travel expense, lodging and any other amounts that may be reimbursable to the nurse. The assumption has long been that the hourly rate paid to the traveler is more than the hourly rate paid to their full-time counterparts in the hospital. It may be a surprise to find that hourly rates paid to these temporary nurses may be much less than their counterparts in the hospital. Does this explode the myth that travelers earn more than their full-time equivalents? The best answer to this question is “it’s complicated”. To better understand the math of travel assignment pay, it takes a deeper dive into how payments are analyzed.

The IRS provides guidelines for how much an individual may receive in the form of reimbursements for living away from home during an assignment. The guidelines for these payments can be found in the IRS publication found here: https://www.irs.gov/publications/p463   

Additionally, there are tables for the maximum amount of reimbursements that may be qualified for non-taxable status. These tables take into consideration each area of the country’s average expenses as well as the season of the year lodging may be incurred. These amounts can be reviewed via the following table:  https://www.gsa.gov/travel/plan-book/per-diem-rates  

The stage is set for a real-life example of the complexity of a travel contract.

This sets the stage for the negotiation with the nurse. In most cases, the question for the nurse is, “what is my true take-home pay”? This is where the calculations can become precarious. Let's assume that a nurse is in a 25% tax bracket. They receive two offers for working the same assignment. Offer #1 is for $30 an hour with *$10 an hour additional for lodging, meals, etc. Offer #2 is for only $20 an hour but with *$20 per hour for lodging, meals, etc.

*(weekly or monthly reimbursements divided by number of hours worked in that period) 

Which offer is better? If the nurse is in a 25% tax bracket, the actual cash in hand is as follows:

  1. Offer #1: $30 per hour wage plus a $10 per hour stipend. This provides take-home of ($30 less 25% tax) = $22.50 hourly plus a $10 stipend for cash in hand of $32.50 hourly

  2. Offer #2 $20 per hour wage plus a $20 per hour stipend. This provides take-home of ($20 less 25% tax) = $15.00 hourly plus a $20 stipend for cash in hand of $35.00 hourly

This reimbursement figure becomes a critical item of negotiation. As long as the stipend falls below the amount listed in the GSA table, it is eligible as a necessary expense that may be treated in a tax-free manner. It is common for a traveler to find accommodations that are significantly below the allowed stipend amounts and pocket the balance. However, using a reimbursement schedule would require all amounts in excess of the receipts to be taxed. 

The above math favors Example #2. 

Taken across the length of a 36 hour per week for 13-weeks, this contract would increase the cash in hand by $1,170 despite being paid an hourly wage $10 less than Example #1! 

Can you use these examples to estimate how much of the bill rate is used for stipends? Of course. This is massively important, but we will focus on that in a future installment. So, how do you do estimate this? You cannot start the calculations unless the traveler shares their hourly wage. With this figure, you can back into a close estimate of these other figures. 

Now that we grasp the conundrum, how do we estimate this for best value?

The largest healthcare staffing firms in the U.S. report the total cost of their workers is between 70% to 75% of the bill rate. We will use the higher figure of 75% for this example. That means that $75 of every $100 billed will be required for all costs associated with the nurse’s assignment. The other 25% is for profit, operations, and any non-labor costs. Included in the 75% are matching taxes and other employer required insurance or benefits. Now we know that $75 of every $100 is going to directly attributable to the cost of the worker. 

In the example above, we had 24 nurses on travel contracts in two different cities. Let’s assume that the bill rate for these nurses is $80. Using industry averages, it will cost the agency 75% of this total for each worker provided. 75% of $80 provides an estimated cost of $60 per hour per nurse for the agency. Suppose the nurse is being paid $25 per hour. We know the cost for that nurse to the agency is 75% of the bill rate, or (75% x $80) or $60, there is still $35 left that the agency is expending for that nurse. Since the agency will also have costs tied directly to payroll, such as Workers Comp., professional liability, and matching Medicare and social security burden, a safe estimate of these expenses would be 20% of the hourly rate, or $25 plus $5 for a total of $30. That now takes the direct hourly cost to the agency to $30. Since we know the total cost of the nurse to the agency per hour is $60, and $30 of that is directly tied to payroll, there is an additional $30 per hour that is being paid for transportation, lodging, etc.

For 24 nurses on a 13-week contract that would be (13 weeks x 36 hrs per week x $30 x 24 nurses) = $336,960. The results are as follows:

 

Total Billed to Client: $898,560 
Total Cost of Labor to Agency: $673,920
     Total Actual Payroll and Burden Paid by Agency:  $336,960
     Other Payments Made on Behalf of Worker (Travel,  etc.): $336,960 
Balance Left to Agency: _________________________________________ $224,640

24 nurses at 13 weeks at 36 hours per week at $80 per hour.

In this example, the non-wage amounts paid are equal to the amount of wages paid. In summary, the direct cost of a travel nurse is doubled as a result of the non-wage payments.

Why not keep the 12 nurses in Denver in Denver and the 12 nurses in Los Angeles, in Los Angeles?

Sounds like a great idea with significant cost savings. So why is it not happening? We will catch up and explain the reasons why with our next post.