How to Reduce Long-Term Care Staffing Agency Costs: A Data-Driven Approach

Agency staffing is the most expensive labor source available to long-term care operators: and for most multi-facility organizations, it has become the most normalized. When a shift opens and there is no internal fill, the agency call goes out.

When census spikes and schedules weren't built to flex, agencies absorb the overage. The problem is not the individual decision.

Each one makes sense in the moment. The problem is that without data, "in the moment" becomes the default: and the cost compounds faster than most operators realize until it shows up in a quarterly P&L that is already three months old.

The long-term care operators who have successfully reduced agency dependency share a common approach: they treat agency usage as a data problem before they treat it as a staffing problem.

The True Cost of Long-Term Care Agency Staffing

The direct cost of agency staffing is visible on every invoice: the hourly rate premium above what an internal employee costs.

For CNAs, the agency markup typically runs 30–50% above base wages.

For licensed nurses, premiums can reach 60–80%.

For per diem RNs during peak demand periods, rates can exceed 2x the internal equivalent.

But direct rate premiums capture only part of the cost. The full cost of agency dependency includes:

Care continuity costs. Agency staff do not know your residents, your protocols, or your building culture. Higher-acuity residents served by rotating agency personnel are at greater risk for missed cues, documentation gaps, and adverse events.

The cost of a preventable hospitalization or a survey citation triggered by care continuity failures is rarely attributed to agency spend: but the causal link is real.

Scheduling instability costs. Every shift covered by agency is a signal that the schedule was not built to absorb variability. That instability carries a multiplier: existing staff burn out faster when they work alongside agency personnel, turnover increases, and the cycle of agency dependency deepens.

Five-Star and PBJ exposure. Agency hours count against your Payroll-Based Journal staffing metrics. Facilities with high agency utilization relative to total hours risk Five-Star rating penalties that affect Medicare referral flow and competitive position.

Administrative overhead. The labor involved in making agency calls, negotiating rates, onboarding temporary staff, and tracking agency invoices against actual hours is real and often unmeasured.

The total cost of agency staffing, when all of these factors are counted, is typically 40–70% higher than the invoice rate alone suggests.

Why Most Long-Term Care Operators Struggle to Reduce Agency Use

The most common failure mode is this: leadership knows agency spend is too high. Finance sees it on the P&L.

Regional directors know which buildings are the worst offenders. But the root cause: the specific shifts, the specific coverage patterns, the specific departments where agency dependency is concentrated: is not visible in the reports available to them.

Monthly payroll summaries show total agency hours and total agency spend. What they do not show is:

Without this level of detail, the instruction to "reduce agency spend" lands on directors of nursing and regional managers who lack the data to know where to start.

A Data-Driven Framework for Reducing Agency Costs

Operators who have successfully reduced agency dependency typically follow a four-step approach:

Step 1: Quantify the Baseline by Building and Shift

- Which buildings account for the majority of your agency spend?

- Within those buildings, is agency usage concentrated in specific shifts or departments?

- How does agency utilization track against census changes?

Buildings with high agency use during a specific shift pattern often have a scheduling problem, not a staffing problem. The fix is not more agency relationships: it is a revised schedule built around a realistic patient day mix.

Step 2: Set Building-Level Targets Grounded in Your Data

System-wide targets ("reduce agency by 20%") rarely work because they distribute accountability too broadly. Building-level targets: set using historical data on what the building's staffing model could absorb with proper scheduling and part-time utilization: create accountability that directors of nursing can actually act on.

Step 3: Monitor in Real Time, Not Monthly

Monthly reports tell you what happened. Real-time data tells you what is happening: and gives you the window to intervene before a coverage gap becomes an agency call.

The operators who make the most progress on agency reduction track their scheduling coverage daily: which shifts have open slots, which departments are thin, and where overtime is being accumulated.

When that data is visible before the shift starts, a DON can fill an opening with an internal part-time employee. When it is only visible at month end, the agency bill is already printed.

Step 4: Measure Internal Capacity Utilization

Most organizations have more internal capacity than they use. Part-time employees who are available for additional hours but not being offered them.

Per diem staff who are scheduled inconsistently. Float pool personnel underutilized because the utilization data lives in a spreadsheet no one updates.

Real-time labor analytics surfaces this capacity so it can be deployed before the agency call goes out.

What One Operator Accomplished

The power of this approach is not theoretical.

"When I started here, almost every building was using agency. Now, because of Megadata, only one building still needs agency support. Out of 23 buildings."
Shulem Holtzman, Director of Labor Operations, Infinite Care

Twenty-two out of 23 buildings eliminated agency dependency. That result did not come from hiring more staff or changing vendors.

It came from having the data to identify where agency was being used, why, and what internal capacity existed to replace it.

Megadata's long-term care analytics platform gives multi-facility operators that same shift-level, building-level visibility.

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What to Look for in a Long-Term Care Staffing Analytics Platform

If your current reporting tools give you monthly agency summaries but not the shift-level, building-level, real-time visibility needed to act on the data above, the issue is not your staffing strategy: it is your data infrastructure.

Long-term care operators reducing agency costs effectively are typically working with platforms that provide:

For more on how Megadata's labor management analytics work, see the Labor Management platform overview.

Frequently Asked Questions

There is no single benchmark, as it depends on market conditions, union structures, and building census. However, operators running below 5% of total labor hours on agency are generally managing well.

Many who start the data-driven reduction process at 20–30% agency hours find they can reach sub-10% within 12–18 months with the right visibility tools and management accountability.

Census changes are the primary trigger for agency calls in most buildings. When census rises faster than the schedule can absorb, agency fills the gap.

When census drops and schedules are not adjusted, the overage comes out of overtime or agency continuation. Real-time census-to-staffing alignment is the most direct lever for reducing agency exposure driven by census volatility.

Done correctly, reducing agency dependency improves care quality. Agency staff are unfamiliar with residents and building protocols.

Replacing agency hours with consistent internal staff who know the residents reduces care continuity risk. The key is managing the transition: not simply cutting agency without building the internal capacity to replace those hours.

Agency staff come from a third-party staffing agency and are billed at a premium rate. Per diem staff are employees of the facility who work on-call or as-needed without a guaranteed schedule.

Per diem programs are generally 30–50% less expensive than agency and offer better care continuity. Building a strong per diem bench is one of the most effective long-term strategies for reducing agency dependency.

PBJ requires facilities to report all hours worked, including agency hours, to CMS. Agency hours factor into the staffing domain of the Five-Star Quality Rating System. High agency utilization relative to total hours can negatively affect staffing ratings, which affects Medicare referral flow.

Tracking agency hours against total hours in real time helps organizations manage their PBJ profile proactively.

The Bottom Line

Agency staffing is not an inevitable cost of operating in long-term care. It is a symptom of insufficient visibility into where coverage gaps will occur before they do.

The operators who have reduced agency dependency most dramatically: from near-universal use to single-building dependency: share one trait: they stopped managing labor with last month's data.

Real-time visibility into census, scheduling, and labor cost by building gives regional directors and directors of nursing the information they need to fill open shifts internally before the agency call goes out. That shift, replicated across buildings, is what moves the number.

See how Megadata's labor management analytics give multi-facility operators real-time control over staffing costs. Book a call.