Hospitals Face Financial Pressures as Costs of Caring Continue to Surge

Hospitals hold an extraordinary place in our society by offering comfort and caring to all who walk through their doors, regardless of ability to pay.

While the commitment to serve, treat and heal never wavers, hospitals continue to face cost pressures that have increased throughout the past few years.

The AHA’s new Costs of Caring report highlights how hospitals and health systems continue to experience significant financial pressures that challenge their ability to provide 24/7 care for patients and communities. Simply put, the costs of providing care often outstrip levels of reimbursement … by a lot.

During the pandemic and in the years following, baseline costs have escalated dramatically in a number of essential areas, including workforce, drug and medication expenses, and administrative costs, to name but a few. These factors are creating headwinds and obstacles that threaten access to care for millions of Americans.

A closer look at the data reveals:

• Hospitals’ labor costs, which on average account for 60% of a hospital’s budget, increased by more than $42.5 billion between 2021 and 2023.
• Economy-wide inflation grew by 12.4% during that period, more than double the 5.2% growth in Medicare reimbursement for hospital inpatient care. This makes it harder for hospitals to maintain access to care and invest in cutting-edge treatment and technology.
• Significant underpayment by all payers was the norm for several essential and complex health care services. For example, payments for inpatient behavioral health services were on average 34% below costs, and in the outpatient setting, payments for burn and wound services were on average 43% below costs.
• Certain commercial health insurer practices like prior authorization and denials have only added to mounting administrative burden, while health insurance premiums grew twice as fast as hospital prices in 2023.

And if that wasn’t enough, these issues were exacerbated by the recent Change Healthcare cyberattack, forcing many hospitals and health systems to use diminishing cash reserves to maintain operations.

While some hospital and health system finances have experienced modest stabilization from historic lows in 2022, we are still far from where we need to be to meet the demand for care, invest in new and promising technologies and interventions, and stand ready for the next health care crisis.

That’s why we are continuing to call on Congress and the Administration to take action to strengthen hospitals and health systems and bolster access to care for all patients and communities. Among other priorities, we are advocating for rejecting funding cuts and extending key policies to ensure patients’ access to care; supporting and strengthening the health care workforce; holding commercial insurers accountable for practices that delay, deny and disrupt care; and bolstering support to enhance cybersecurity of hospitals and the entire health care sector.

No matter how big the challenges look — no matter how thick the fog is over the current political and policy landscape — we will answer the call to advance health in America.