American hospitals saw expenses grow 7.5% in 2025, more than twice the rate of growth in hospital prices that year, according to the American Hospital Association’s annual “Costs of Caring” report.
The findings, which were drawn from industry benchmark data compiled by Strata Decision Technology, point to a system under mounting strain: Hospitals are treating more patients, those patients are getting sicker and the cost of supplies from drugs to disposable gloves is increasing quicker than reimbursements can keep up with.
“Rising costs for labor, supplies, drugs, and administrative burdens caused by corporate insurers, combined with caring for sicker patients, have created challenges for hospitals and health systems,” AHA President and CEO Rick Pollack said in a March 11 news release shared with Becker’s. “These strains are jeopardizing hospitals’ ability to provide around-the-clock care and services that patients and communities need.”
Here are four findings from the report:
1. Hospital drug expenses increased 13.6% in 2025, with spending on medical supplies up 9.9%. Academic medical centers also saw drug costs jump by 21.6% in the same period. The average new drug launch price in 2024 was more than $370,000, up 23% from 2023.
Workforce spending remains the largest hospital expense. Roughly 60% of total expenses went toward compensating physicians, nurses, specialists and other hospital workers. Workforce costs jumped 5.6% in 2025 from the previous year.
2. The AHA estimated that hospitals spent $43 billion in 2025 by attempting to collect payments owed to them for providing care, including nearly $18 billion on overturning denied claims. In 2024, Medicare Advantage plans made approximately 53 million prior authorization determinations, and providers appealed 11.5% of them, up from 7.5% in 2019.
The report said “administrative friction” can delay payment and increase bad debt, which jumped 10% in 2025.
3. Inpatient volumes rose 5.3% in 2025 and outpatient visits climbed 9.8% year over year. The AHA reported that hospital case-mix index, which measures patient sickness, increased around 5% from 2019 to 2024.
“A little over half of the growth in hospital expenses is explained by the fact that hospitals are caring for more patients who are sicker, while just under half reflects the higher cost of the people, medicines and materials required to care for them,” the report said.
4. Medicare reimbursed hospitals just 83 cents on the dollar in 2024, which resulted in more than $100 billion in underpayments. Additionally, 56.1% of hospital costs are tied to service lines where reimbursements fell short, or was less than, care delivery costs. Behavioral health held an all-payer payment-to-cost ratio of 74.5%.
“Despite hospitals facing higher labor and input costs, treating more patients with greater clinical complexity, and maintaining essential, always-on services that communities depend on, they have managed to keep price increases below the increases in their input costs, the report said. “However, this mismatch between expenses and revenue leaves hospitals increasingly at risk of being able to maintain the full spectrum of services on which communities rely.”
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