Navigating the Healthcare Workforce Crisis: A Call for Innovation in Workforce Optimization
The U.S. healthcare system faces severe workforce management challenges, with organizations spending over 50% of their budgets on labor costs while still struggling with staffing shortages, burnout, and inefficient resource allocation despite existing solutions. To address these persistent issues, the market needs healthcare-specific, integrated workforce optimization platforms that leverage predictive analytics rather than simply digitizing manual processes.
Executive Summary
Workforce management in the U.S. healthcare system is broken.
Labor costs, the largest driver of operating expenses for healthcare organizations, often account for more than 50% of their budgets.
Yet, despite this significant investment, healthcare organizations are grappling with unprecedented labor shortages, high turnover, burnout, and inefficient resource allocation—challenges that are further compounded as care delivery shifts toward ambulatory settings.
While numerous workforce management solutions have emerged, persistent pain points remain unsolved. Interview data reveals that even organizations satisfied with their current tools face issues such as slow credentialing, manual scheduling processes, and difficulty flexing staff across multiple locations.
For workforce optimization solutions to succeed, they must be healthcare-specific, integrate seamlessly with existing systems, and deliver measurable ROI across multiple dimensions. The real market opportunity lies in moving beyond digital replicas of manual processes to predictive, data-driven platforms capable of managing the complexity of modern healthcare.
We believe there is tremendous potential to innovate in this space and are eager to connect with founders passionate about tackling these challenges.
State of the Workforce Market
The COVID-19 pandemic unearthed systemic problems surrounding workforce management and optimization, and we heard it loud and clear from our health system partners. We consistently encountered the same refrain: the existing tools and processes for workforce management are insufficient. The pandemic didn't just strain resources; it exposed inefficiencies that could no longer be ignored.
It became clear that workforce management was a top priority for health system executives, so we set out to better understand the current state market environment and discovered a situation that was more grim than we had anticipated. To gain deeper insights, we conducted interviews with health system executives across different roles and organizations. Read on for the insights we gathered from those conversations, paired with our industry research.
Labor Shortage, Burnout, and Attrition
The labor market in healthcare is in turmoil, with several factors exacerbating the crisis:
Physician Shortage: The Association of American Medical Colleges predicts a shortage of up to 122,000 physicians by 2032.
Nursing Deficit: The American Nurses Association projects the need for 200,000 new nurses annually to meet demand and replace retiring nurses. Over 50% of all RNs are over the age of 50.
Aging Population: The over-65 population is expected to grow by 48% by 2032, increasing the demand for healthcare services.
High Burnout Rates: In 2022, 40% of physicians reported being burnt out, and up to 49% of nurses expressed the same. Nearly half of these individuals are considering leaving healthcare entirely.
Turnover Costs: Turnover among high-priority roles is 25% year-over-year, with an expected replacement cost of 1.5 times the salary.
Healthcare executives are feeling the pain. One health system executive mentioned during an interview, "It's tough to incentivize workers to join healthcare organizations right now. The increased retirement among physicians isn't helping either."
Shift to Ambulatory Care and Associated Complexities
Adding to the complexities, healthcare organizations are becoming increasingly dispersed. Health systems are shifting towards outpatient settings, with ambulatory care services now constituting over 50% of healthcare revenue. In fact, non-hospital provider segments accounted for almost 65% of 2022 profit pools.
Employment in outpatient care centers is projected to grow by 35% by 2030. Of the projected 3.4 million new healthcare jobs by 2028, more than half will be in ambulatory care services, while only 350,000 will be in hospitals. Health systems are diversifying their mix of care assets—acquiring physician practices, ambulatory surgery centers (ASCs), skilled nursing facilities (SNFs), urgent care clinics, and more.
While this shift offers opportunities for efficiency and patient convenience, it introduces new challenges in workforce management. Each setting has unique staffing needs, regulatory requirements, and operational workflows. Existing tools, primarily designed for inpatient hospital settings, often lack the flexibility to adapt to these varied environments.
Existing Solutions
With a situation this dire, we suspected there were many companies already solving key problems across the workforce continuum. We identified and mapped them below (non-exhaustive):
Overalls, Vivid Health, and Baton are Redesign Health portfolio companies
Supply: Companies focusing on modernizing the identification and recruitment of full-time healthcare workers, as well as building marketplaces to provide flexible, on-demand labor solutions that fill part-time needs and offer additional coverage.
Preparation: Companies providing innovative upskilling, training, and credentialing tools to ensure healthcare workers remain competent, compliant, and quickly onboarded, helping organizations optimize their workforce readiness.
Optimization: Companies delivering advanced tools for scheduling, workforce management, and productivity analysis, enabling healthcare organizations to better align staffing with patient demand and improve operational efficiency.
Burnout Prevention: Companies addressing clinician well-being through solutions that automate administrative tasks, reduce workplace burdens, and enhance employee retention to maintain a healthy and engaged workforce.
The Buyer’s Perspective
Despite the proliferation of workforce management solutions, it's evident that significant challenges remain unresolved. This doesn't diminish the progress these companies are making or the value they provide; rather, it highlights a deeper layer of complexity that we needed to explore. From our interviews with health system executives, several core pain points emerged:
Pain Points
Despite these significant pain points, many buyers reported moderate satisfaction with their current suite of workforce management tools. This paradox suggests that while existing tools may address certain aspects, they fall short in providing comprehensive solutions to the multifaceted challenges health systems face. Buyers have made it clear that whatever new tools do emerge, will need to have the following qualities to be truly useful:
Healthcare-Specific Design: The platform must be purpose-built for healthcare, accommodating the industry's unique workflows and compliance requirements. Surprisingly, some organizations still use generic tools designed for other industries, like restaurant scheduling software, which are ill-suited to healthcare's complexities.
Seamless Integration with Existing Systems: Connectivity with key information flows is essential—namely, Electronic Medical Records (EMRs), payroll systems, and Time & Attendance (T&A) systems. Integration reduces administrative burdens and enhances data accuracy.
Applicability Across Staff Roles: The solution should at least cover nurses and clinical ancillary staff (such as technicians, CNAs, MAs, phlebotomists), and ideally include advanced practitioners (NPs, PAs) and physicians for added value.
Predictive Analytics: Incorporating predictive analytics allows health systems to make more informed decisions by bringing together data from within and outside the org. This capability can help anticipate workforce needs and adjust in real time.
And these tools will need to deliver ROI across the following metrics:
Cost and Revenue-Related ROI: Reduction in contract labor and overtime expenses
Enhanced Operations and Productivity: Reduced time to filled role, lower turnover rates, reduction in under and over staffing, increased shifts on target, reduced last minute call-ins, and reduction in admin time spent on workforce related tasks
Improved Employee Culture and Reduced Burnout: Enhanced employee morale, reduction in burnout
Opportunities for Innovation
Our Thematic Near-Term Outlook
In the short term, we anticipate a surge in the adoption of innovative workforce optimization tools across both large health systems and smaller provider practices. Key trends include:
Shift from Reactive to Predictive Workforce Management: Organizations will move away from solutions that mimic pen and paper processes digitally. They will shift to solutions that tie together multiple data sources, align staffing needs directly with desired business outcomes, and reduce manual effort by managers.
Focus on Ambulatory Care: There's a significant opportunity in outpatient settings, which have been underserved by current WFM tools. Providers in these settings are seeking solutions that can handle diverse labor types and shift patterns.
Emphasis on Creating More Fungible Staff: Organizations will identify ways to better understand the skillset of their clinician base and find opportunities to upskill individuals, making them easier to shift around the system. In addition, they will seek out tools that enable easier creation and use of internal float pools.
However, there are challenges to consider. Integration complexities and the need for interoperability with existing systems can slow down adoption rates. Moreover, selling to outpatient organizations will be difficult due to their limited size and contract values.
In the Medium-to-Long Term
Looking ahead, we expect workforce optimization solutions to become integral components of healthcare operations. Anticipated developments include:
AI-enabled Workforce: Utilization of AI tools to increase the capacity of existing clinical staff, reducing the total staffing requirements for the system.
Advanced Predictive Analytics: Increased utilization of AI and machine learning to forecast hiring and staffing needs with high accuracy, allowing organizations to align labor resources with patient demand proactively.
Unified Platforms: Preference will shift toward comprehensive platforms that offer end-to-end solutions, reducing the need for multiple point solutions and simplifying vendor management.
Standardization Across Settings: Tools will evolve to accommodate the unique needs of various care settings, from hospitals to ambulatory centers, ensuring consistent productivity gains across the board.
Risks
While the opportunity is substantial, we've identified several key challenges where innovative founders can make a meaningful impact, and we’re particularly interested in hearing their perspectives on addressing these critical areas:
Risk Factor #1: Integration with Dominant Systems
The dominance of workforce tools like UKG poses a significant barrier to entry for new vendors. UKG’s planned launch of multiple workforce-related projects means organizations may prefer to wait for these integrated solutions rather than adopt third-party tools.
Key Question: Can new workforce optimization vendors demonstrate a compelling ROI that outweighs the convenience and safety of sticking with incumbent solutions?
Risk Factor #2: Complex and Lengthy Sales Cycles with Prolonged Implementation
The sales cycles in this industry are inherently complex and lengthy. Decision-making is either highly localized in smaller organizations or centralized in larger ones. In both scenarios, the company would often need to sell at the individual organizational level. Even after establishing an enterprise Master Service Agreement (MSA), building buy-in from individual facilities may require extensive efforts, such as roadshows and personalized demonstrations.
For smaller outpatient organizations, the sales cycle can span 3 to 6 months. Larger organizations may extend this period to 6 to 18 months, depending on their size and internal processes. Additionally, the rollout and implementation phases can be protracted, delaying revenue realization and return on investment (ROI) for both the vendor and the healthcare organization.
Key Question: Can a new vendor streamline their sales and implementation processes to demonstrate compelling ROI that accelerates adoption? Will success hinge on the ability to reduce sales cycle length and implementation time, or is there a viable approach focusing on organizations with shorter decision-making processes?
Risk Factor #3: High Degree of (Perceived) Competition in the Market
The market appears saturated with numerous competitors claiming to offer differentiated workforce management solutions. Despite the lack of a "gold standard" workforce platform specifically designed for the complexities of dispersed health systems, the sheer number of companies in the space can make it challenging to stand out. Convincing potential customers of the unique value proposition amid a crowded and noisy market landscape poses a significant hurdle.
Key Question: Can a company demonstrate compelling differentiation that outweighs the convenience of sticking with incumbent solutions?
Conclusion
The healthcare workforce crisis isn't just a challenge—it's an inflection point. The next generation of solutions won't just digitize existing processes—they'll fundamentally reimagine how healthcare organizations attract, deploy, and retain talent. We see an unprecedented opportunity to transform healthcare delivery from the ground up.
Are you a founder who is excited by this opportunity? We're looking for visionary individuals who are ready to reimagine workforce optimization from first principles. If you're passionate about solving complex challenges and ready to build something extraordinary at the formation stage, let's talk.
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