Hospitals and health systems are facing rising costs for labor, supplies, medications and infrastructure needed to deliver care, putting pressure on their ability to maintain services in communities nationwide, according to the American Hospital Association's annual Costs of Caring report.
"These strains are jeopardizing hospitals' ability to provide around-the-clock care and services that patients and communities need," said Rick Pollack, president and CEO of the American Hospital Association.
Workforce costs remain hospitals' largest expense, accounting for nearly two-thirds of total spending. Labor expenses rose roughly 5% from the previous year as hospitals continue competing for nurses, physicians, and other clinical staff. Meanwhile, patient care expenses climbed sharply as well, rising 7.5%, driven largely by higher input costs. Supply expenses increased 9.9%, while drug costs surged 13.6%, according to the report.
Hospitals are also treating more patients with complex conditions, which requires additional staffing, monitoring and specialized care. Between 2019 and 2024, approximately 36% of hospital expense growth was tied to treating a higher volume of patients, while roughly 19% reflected care for sicker, more complex cases.Rising administrative costs linked to commercial insurer requirements add further strain. In 2025, hospitals spent nearly $18 billion overturning claims denials alone, with total collection efforts estimated at $43 billion for care already delivered.
Prior authorization requirements, claims denials, repeated documentation requests and evolving billing rules require hospitals to maintain large billing, coding, utilization management and appeals teams, the report said. Clinicians are frequently pulled away from patient care to complete forms, participate in peer-to-peer reviews and provide documentation of medical necessity.
In 2024, the average hospital employed about 64 administrative and billing staff dedicated to these functions — roughly 6.5% of total hospital employment. The burden is particularly acute for patients with complex conditions and service lines prone to higher denial rates, often triggering multiple rounds of review and appeals.
Hospital leaders note that the growing administrative workload contributes to clinician burnout, compounding workforce challenges across the health care system.
Many hospital services operate at a financial loss, the study found. About 56% of costs are tied to service lines where reimbursement falls short of care delivery costs, including behavioral health, obstetrics, infectious disease treatment, and specialized burn and wound care. Despite these financial pressures, such services remain essential for communities, as many are available primarily through hospitals.
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