Understaffed Nursing: The Hidden Costs and How to Fix It

Understaffing in nursing homes costs far more than most administrators realize.

You see the obvious expenses: rising overtime, hefty agency fees, regulatory fines. But beneath those visible costs are hidden financial damages that most facilities don’t track.

Running “lean” might seem like saving money. Evidence shows it actually increases costs and harms quality.

The Visible Costs

Overtime Premiums: The 50% Tax

Federal law requires time-and-a-half for hours over 40 per week. This adds a 50% premium to every extra hour. Nursing staff overtime can total hundreds of thousands annually for a mid-sized facility.

Agency “Surge” Rates: Paying 50-60% More

Temporary staffing agencies charge high markups. Recent research shows:

Agency staff cost 50-60% more per hour than in-house employees
By 2022, nearly 50% of nursing homes were using agency nurses
Contract labor spending jumped from $2.2B (2020) to $3.6B (2021) – a 64% increase

Compliance Penalties: $8,500-$10,000 Per Day

Understaffing can lead to care lapses deemed “immediate jeopardy.” CMS can levy civil monetary fines of $8,500-$10,000 per day for these violations.

The Hidden Costs That Kill Margins

Lower Star Ratings = Fewer Admissions

Nursing homes are rated 1 to 5 stars by CMS. Families research ratings before choosing facilities.

The impact:

Five-star facilities enjoy higher occupancy
One-star facilities face an uphill battle for admissions
Poor staffing leads to poor inspections and lower ratings
Low ratings mean beds stay empty, cutting revenue

Staff Burnout & Turnover: The $60K-$120K Drain

Understaffing pushes remaining staff to work harder and longer, creating a vicious cycle:

Understaffing → Burnout → Resignations → Worse Understaffing

The numbers:

Annual CNA turnover: 65-75%
Cost to replace one CNA: $3,000-$6,000
Lose 20 CNAs in a year: $60,000-$120,000 in turnover expenses

Quality Issues: The Cascading Effect

Overworked, stressed staff make mistakes. Research shows inadequate staffing is linked to higher rates of falls, medication errors, infections, and general quality issues, which may lead to citations

The Bottom Line

Nearly 45% of skilled nursing facilities operated at a loss in 2024. Chronic understaffing is a major contributor through:

Overtime premiums
Agency fees (50-60% markups)
Fines
Lost revenue from empty beds
Constant rehiring costs

Why Traditional Fixes Aren’t Working

“We’re trying to hire more staff”

The labor pool is shrinking. U.S. Bureau of Labor Statistics projects nursing assistant demand to grow ~5% through 2031, but supply isn’t keeping up. Projected deficit: 200,000 nurses per year through 2031.

“We raised wages to compete”

Competitors match your raises. Agencies bump their rates. Everyone’s costs rise, but the shortage remains. It’s an arms race with no winner.

“We’re using more agencies”

Agencies cost 50-60% more per hour. Some charged double or triple during the pandemic. Plus: inconsistent staff, administrative complexity, and unsustainable costs.

Traditional tactics aren’t solving the supply problem. Something different is needed.

A New Approach: The Priority Resource Pool

The Core Idea

Turn the agency staff already working in your building into your own internal float pool.

Why This Works

If your facility is 50% reliant on agency staffing, dozens of temp nurses and CNAs regularly work at your site. Many have been there for months and know your residents and routines.

The only difference: They’re paid by an agency (with markup) instead of by you.

How It Works

Identify High-Performers

Workers with 500+ hours at your facility who return regularly.

Make the Offer

- Same hourly rate (no pay cut)
- Priority scheduling
- Job stability
- Continued flexibility

Reduce the High Cost Markup

We manage the complexity of agency and temporary workforce operations at a lower cost, allowing you to keep the same trusted associates within one integrated system.

By converting temporary associates into a lower cost Priority Resource Pool, your organization reduces the high agency markup while maintaining flexibility, reliability, and continuity of care.

These associates remain employed through us, ensuring all administrative, payroll, and compliance responsibilities are covered. You retain the same proven people without the excessive markup or management burden.

Example:
Traditional agency: $45/hour (worker $30, agency markup $15)
Priority Pool model: $38/hour (worker $30, reduced markup $8)