How the U.S. Healthcare Reimbursement System Undervalues Nurses

The U.S. healthcare system is designed to reward providers and facilities based on the number of services they provide. From therapy to surgery and outpatient services, every item comes at a set price. The doctor orders a test or medication for the patient and the facility bills the patient’s insurance company accordingly.

But this pay-for-fee system isn’t set up to reward nurses for their contribution to the wellness process. Under the current payment model, doctors generate the revenue by ordering services for patients, while nurses are seen as labor costs. Nurses do not bill for the services they provide to support a doctor’s orders, such as checking up on patients, inserting IV lines, or teaching patients how to care for themselves.

“All of that work is invisible, except for maybe the supplies that I used,” says Matthew McHugh, professor of nursing at the University of Pennsylvania. “The invisibility of nursing work, the inability to put a value on it … is not in line with how any other kind of professional service would operate.”

This often puts added pressure on nurses, who are not seen as essential to the revenue generation process. Hospitals will often cut labor costs by reducing the number of nurses on staff to save money during times of crises, as we saw during the COVID-19 pandemic.

The industry’s failure to recognize or value the work that nurses do reduces the quality of care patients receive. When hospitals don’t invest in supplementary care services, patients don’t get the one-on-one attention that only comes with having a nurse.

“Until nurses are not an expensive labor cost for hospitals but are seen as revenue generators and as vanguards of quality, which they are, we’re going to keep having this problem,” said Betty Rambur, professor of nursing at the University of Rhode Island.

An Additional Expense

Nurses are not reimbursed for their work in the same way that a doctor’s work would be.

For example, if a patient shows up at the doctor’s office with a fever or shortness of breath, it’s up to the nurse to learn about their symptoms and run tests before the doctor enters the room. The nurse then uploads this information into the patient’s chart to give the doctor a picture of what’s going on. 

But instead of billing for individual services, nurses are generally paid a set rate for their time like traditional hourly employees. Nurses may only have 30 minutes or less to complete the intake process for each patient, leaving many providers racing against the clock.

“We’re not allowed to diagnose, and we’re not allowed to charge for our services,” said Andrea Riley, an ER nurse at Windham Community Hospital in Connecticut. “Corporations … don’t understand the physical work needed to carry out a doctor’s order.”

Studies show that having more nurses on staff increases the overall quality of care patients receive, but hospitals often have little financial incentive to increase nurse-patient ratios.

Under the Medicare billing system, nurses are listed under other “hospital services,” and facilities usually receive a flat rate based on the number of patients that get discharged. This doesn’t include all the extra work nurses have to do for patients with complex needs, such a dementia patient that could injure themselves or a patient on a ventilator.

Research from Yang Wang, a PhD candidate at Johns Hopkins School of Public Health, shows that when hospitals have excess revenue, they rarely spend it on improving patient care, such as hiring more nurses.

“The majority of the additional income was allocated primarily to services and programs that promoted hospital’s self-interest instead of patient benefit,” Wang wrote.

Experts agree that the current reimbursement system needs to change in order for companies to value nurses for the work they do. But changing the way hospitals charge for their services won’t be easy.

Tying hospital and provider reimbursement to patient outcomes could compel hospitals to change the way they value nurses.

“If we want to get at the heart of this,” said Rambur, “we should make sure the resources that go to hospitals are actually directed toward the people who do the work.”

For example, if a patient is less likely to be readmitted to the hospital because there were more nurses on staff, the facility deserves to be paid more. This would give facilities an added financial incentive to invest in adequate nursing levels.

“The broader and the more pervasive value-based reimbursement becomes, the more hospitals will be in position to improve outcomes and reduce costs,” says Olga Yakusheva, professor of nursing at the University of Michigan. “You have to invest in nursing because that’s where outcomes are coming from.”

Other proposals would require hospitals to spend a certain portion of their revenue on nursing staff.

Like all companies, hospitals have a vested interest in protecting their bottom lines. Changing the way hospitals get paid could encourage them to invest more in the people that do the work.


Steven Briggs is a healthcare writer for Scrubs Magazine, hailing from Brooklyn, NY. With both of his parents working in the healthcare industry, Steven writes about the various issues and concerns facing the industry today.