New Report Highlights Key Trends Affecting Hospital Financial Stability in 2025

America’s hospitals are facing a critical financial tipping point in 2025. The latest report from AHA™ (American Hospital Association) outlines the key trends undermining hospital financial health — from rising costs and chronic underpayments to systemic challenges like policy misalignment and supply chain disruptions.

Labor Costs Are Driving Hospital Expenses

Labor remains the single largest expense for hospitals, now accounting for 56% of total costs. Hospitals are paying premium wages to attract and retain skilled workers amid persistent staffing shortages. For example, RN salaries have increased over 26% faster than inflation in the last four years — a necessary measure, but one that strains budgets.

Medicare and Medicaid Reimbursements Lag Behind Rising Costs

In 2023, hospitals received just 83 cents from Medicare for every dollar spent. From 2022–2024, while inflation rose 14.1%, Medicare inpatient rates increased only 5.1%. The result? An estimated $130 billion in Medicare and Medicaid underpayments in 2023 alone.

Hospital Expenses Continue to Outpace Inflation

Despite some moderation, hospital costs remain elevated. In 2024, expenses grew 5.1% — well above the inflation rate of 2.9%. This ongoing cost pressure has led hospitals to delay capital reinvestments, reflected in the rising average age of infrastructure and equipment.

Chronic Disease and Increased Utilization Are Driving Demand

Hospital spending is increasingly driven by high-acuity, high-utilization cases. Emergency department visits for chronic conditions like heart failure and diabetes have surged, significantly increasing resource use and spending.

Medicare Advantage (MA) Plans Are Adding Financial Stress

• Longer Observation Stays: MA patients now remain under observation 37% longer than those under Traditional Medicare, often with no proportional reimbursement.
• Lower Reimbursement Rates: From 2019 to 2024, average MA reimbursement fell 8.8% on a cost basis, while length of stay grew.
• Discharge Delays: Due to prior authorization hurdles and narrow networks, post-acute care discharge delays are rising, further increasing costs for hospitals.

Administrative Burden Is Growing Rapidly

MA plans issued nearly 50 million prior authorizations in 2023 — a 40% jump from 2020. Hospitals spent $26 billion just managing insurance claims, a 23% year-over-year increase. Even when claims are approved (70% of denials were eventually paid), the time and cost required to overturn denials severely impact operations and care delivery.

Tariffs and Supply Chain Disruptions Are Raising Hospital Costs

New tariffs on medical devices and pharmaceuticals — combined with natural disasters and a fragile international supply chain — are compounding shortages and driving up costs. In 2024, the U.S. imported over $75 billion in essential medical devices. Hospitals are bracing for up to 15% cost increases due to tariffs and expect delays in equipment upgrades.

Conclusion: Policy Changes Are Urgently Needed

Hospitals are battling unsustainable cost pressures and underpayments, all while navigating outdated policies. To protect access to care and ensure long-term sustainability, the report urges policymakers to:

• Align reimbursement rates with actual care costs.
• Reduce care delays caused by prior authorizations.
• Rethink Medicare Advantage policies that shift financial risk to hospitals.
• Support hospital capital reinvestment and domestic supply chain resilience.

Key Takeaway

Hospitals are at a crossroads in 2025. Addressing these trends head-on is essential to preserving patient access, healthcare quality, and financial viability across America’s healthcare infrastructure.