More than 7,000 nurses in New York City are on strike after failing to agree on a new contract with the hospitals where they work, leading two hospital systems in the city to cancel elective surgeries, ask ambulances to divert patients to other hospitals, and bringing in traveling nurses to maintain operations.

The strike was very nearly a much bigger crisis: Nurses at eight other city hospitals reached a last-minute deal with their management. It is still perhaps the most high-profile example of the tension between hospital executives and their medical staff that has been magnified by the pandemic.

The past few years have made clear the degree to which American hospitals rely on nurses to handle a surge of patients in a public health crisis and the struggles of the same health system to appropriately value that nursing work. While the strike in NYC involves only four facilities, it’s a symptom of a structural failure in US health care: Hospitals do not have a strong financial incentive to invest in their nursing staffs.

Strikes by nurses and medical staff have occurred frequently in recent years. Eight of the 25 major work stoppages involving 1,000 workers or more that the US Labor Department tracked in 2022 were initiated by health care workers, the highest share of any single profession. There have been dozens of smaller walkouts by nurses in the past few years.

Labor shortages have left nurses overworked and insisting on more help in contract negotiations. There are more than 700 positions currently open at the three Montefiore hospitals in the Bronx where nurses are striking, the New York Times reported. The nurses have said that management’s current offers on compensation and, in particular, hiring more staff to relieve overburdened nurses are not sufficient.

Montefiore says it has offered to raise wages for existing workers and to hire about 150 new nursing positions. Mount Sinai, the other hospital where nurses are on strike, has 500 open positions, according to the Times. According to Hell Gate NYC, nurses at Montefiore have said they are responsible for as many as 35 different patients on their own on a given day.

The experts I’ve spoken with over the past few years generally agree that nurses are tremendously undervalued given the importance of their work in delivering quality health care. Research has found repeatedly that more nursing staff leads to patients reporting a better experience in the hospital and better health outcomes.

But the problem is, given the way health care in the US is typically paid for, hiring more nurses and making their work environment better doesn’t necessarily make good economic sense for these hospitals.

“There is a lot said about ‘greedy’ health systems,” Betty Rambur, professor of nursing at the University of Rhode Island, said. “But they are just responding to the financial incentives in the current reimbursement model.”

The structural flaw in US health care behind the NYC nurses strike

Nurses point to exorbitant executive compensation (which soared nationwide during the pandemic) and multimillion-dollar real estate deals to explain their decision to strike. They have a point: Hospitals behaving on pure altruism would spend more on clinical staff without their nurses needing to go on strike to force their hand.

Andres Kudacki/AP

But these hospitals are also responding to the financial incentives established in the ways the United States pays for health care. Slashing executive pay (Montefiore’s CEO makes $6 million a year) can only pay for so many new nursing positions. Canceling a $38 million land deal in White Plains would make more money available, but when revenue depends on the number of services that a hospital system provides, buying land and building new facilities does make fiscal sense. Those new outposts should be a permanent source of new revenue once they are built, staffed, and operational.

Therein lies the problem. Under the fee-for-service model that still dominates American health care, where every physician service can be billed by the hospital where they work, hospitals have every incentive to expand their services but little incentive to hire more nurses to support that work. From a hospital’s accounting perspective, nurses are entirely a cost. They do not generate any revenue directly, even though they are necessary to providing quality medical care.

A physician can perform exams and surgeries, order tests, and prescribe medication — all services that can be billed individually. A nurse’s work is essential to those services, as I reported last summer, but their labor is not accounted for directly. Instead, the cost of employing nurses is rolled up in the same “room charge” that covers the Jell-O a patient might receive in their room. No matter how many services a nurse performs and how vital they are to making sure patients have a good experience, they do not generate any additional revenue for their hospitals under the current fee-for-service system.

That means American hospitals have a strong financial motivation to keep their nursing staffs as trim as possible, which has contributed to the burnout and exhaustion nurses have reported over the past few years.

New York’s state government attempted to address staffing issues with a 2021 law that established new committees at all hospitals, populated by both nurses and management, that would set acceptable staffing levels for their patient care units.

However, as New York Focus and City & State jointly reported earlier this year, the committee process has often been derailed by disagreements between the two sides. Management at various facilities has ignored the input of nurses and imposed their own nurse-to-patient ratios. Nurses have complained to state regulators but enforcement actions have not yet been taken by an understaffed state health department, and it is unclear if they ever will be, the news outlets reported.

And even that plan did not change the underlying economics of most hospitals’ business models.

“What we forget is when hospitals put profits over patients, they are operating well within the system of economic carrots and sticks that we created for them, and within the system we created, hospitals are acting completely rationally as any other economic agent would,” Olga Yakusheva, a health care economist at the University of Michigan, said. “There is no economic incentive, right now, for hospitals to invest in adequate nurse staffing, pay nurses well, or provide a good working environment for nurses.”

Until the US gives hospitals good financial reasons to invest in their nursing staffs, these labor disputes are going to occur again and again. As much as we want our health system to be focused on quality health care, in America, health care is a business.

Good health care and profitable health care are not always the same thing. The failure to value nursing in the way we pay for medical services, which laid the groundwork for NYC’s nurses strike, is a stark example of that.