This is called the Peter Principle [0]. Unfortunately, the system is kinda unfixable. If we promote based on achievement in your last job, then at some point you can become unpromotable in your current job as you just aren't suited to it or some other reason. If we want to get rid of the Peter Principle, an inherent 'bug' in a merit based system, then you have to radically change how promotion is decided. Your front-line workers are victims of management that is affected by the sclerosis of the Peter Principle, and they themselves are as well as they are unpromotable and have 'failed' at the merit based system (namely, the internal politics of the Hospital).
Still, it sounds like management just wants to hire/fire at a whim, as it keeps wages down and there tends to be a glut of nurses out there that can be replaced. Again, this is a feature of supply/demand and the job market. Also, if you did raise wages based on 'merit', then you would get the front-line people trying to snipe each other over the money and promotion would become based on internal politics and 'he-said-she-said' stuff. It all comes down to the money.
Still, it sounds like management just wants to hire/fire at a whim, as it keeps wages down and there tends to be a glut of nurses out there that can be replaced. Again, this is a feature of supply/demand and the job market. Also, if you did raise wages based on 'merit', then you would get the front-line people trying to snipe each other over the money and promotion would become based on internal politics and 'he-said-she-said' stuff. It all comes down to the money.
[0] https://en.wikipedia.org/wiki/Peter_principle