Federal and state governments should support initiatives to improve hospital payments and help them cope with increasing labor costs. As the two largest health care payers, these governments have a special obligation to ensure hospitals are adequately compensated for the care they provide. As referenced earlier in this report, hospitals are struggling financially because costs of care are increasing while payments are not keeping pace. Ironically, increasing labor costs due to the personnel shortage are contributing to a vicious cycle. Financially-strapped hospitals are forced to focus resources for solving staffing shortages on less effective short-term strategies, such as staffing agencies, rather than more effective long-term strategies, such as work redesign. Until hospitals are adequately paid for the cost of the health services they provide, they will not have the resources they need to address the personnel shortage.

The federal and state governments must support adequate payments for physicians as well. Struggling physician practices create strain on the entire health care system. Patients experience difficulties accessing care. Hospital emergency rooms overflow. The talent of highly skilled physicians is lost when they leave to practice in other areas of the country or leave practice altogether out of frustration.