Hospitals in the U.S. are facing growing money problems. Labor costs take up 56% of all hospital expenses. This increase is partly because there are not enough skilled healthcare workers, especially registered nurses. Their wages have gone up 26.6% over the past four years, more than the inflation rate. Hospitals need to pay more to keep their staff, but this puts a heavy load on their budgets.
Other hospital costs have also gone up. Overall expenses grew by 5.1% in 2024, higher than the general inflation rate of 2.9%. Problems in supply chains and more patients needing care, especially those with long-term illnesses, add to this increase. Hospitals often get paid less than what it costs to take care of patients by Medicare, Medicaid, and Medicare Advantage plans. This imbalance makes their financial situation harder.
One big worry in hospital finances today is new tariffs on medical devices and drugs. These tariffs could raise hospital costs by at least 15%. Hospitals already have tight budgets, so this jump is a challenge. These tariffs do more than just raise prices; they also add risk and uncertainty to supplies.
Hospitals in the U.S. depend heavily on imports for medical supplies. About 70% of medical devices and 90% of protective gear come from other countries, mostly China. Because hospital supply chains are so large and complicated, these tariffs and trade problems cause delays or shortages of needed items. Right now, hospitals deal with over 270 drug shortages every day.
For hospital leaders and supply managers, this means paying more for equipment, medicines, and protective gear. Hospitals have to watch their inventory carefully, cut waste, and try to find other suppliers. But there are not many manufacturers in the U.S., which makes changing suppliers hard.
Due to rising costs and less money from reimbursements, many hospitals have postponed investments in building upgrades and equipment. Because of this, hospital buildings and medical machines are getting older. The average age of hospital facilities and equipment has increased by more than 10% in two years.
Older buildings and machines cause problems. They can make it harder to meet modern healthcare standards. They may slow down work, lower patient safety, and cost more to maintain. Most importantly, old infrastructure limits the use of new technologies that can improve care.
Modern health tools like IT systems, telehealth devices, and new testing tools need up-to-date wiring, data setups, and space. Older hospitals often lack these features. This makes it harder to adopt newer tools.
Old buildings also make hospitals weaker during busy times or emergencies. Delays in fixing or upgrading facilities reduce their ability to handle events like pandemics or natural disasters.
Hospitals face big money problems because of how they are paid. Medicare pays hospitals only about 83 cents for every dollar spent on care. This caused hospitals to receive over $100 billion less than costs in 2023. Adding Medicaid payments, the total underpayment passed $130 billion.
Medicare Advantage (MA) plans also add financial strain. MA patients often stay longer in hospitals than those on Traditional Medicare, but payments from MA plans dropped by nearly 9%. MA plans only pay about half the cost for observation stays, which forces hospitals to cover the rest themselves.
These money problems make it hard for hospitals to pay staff and manage rising supply costs due to tariffs. They get less income for the care they give. Because of this, hospitals have less money to upgrade buildings or use new technology.
Hospitals also face bigger loads of paperwork and administrative work. Medicare Advantage plans had nearly 50 million prior authorizations in 2023, a 40% increase since 2020. Managing these claims takes a lot of staff time and money. Hospitals spent $26 billion on claims management in 2023, up 23% from the year before.
When staff work on paperwork, they have less time for patient care and new projects. This slows down hospital functions, delays patient discharge, and leads to crowding, mainly in inpatient units.
Patients on Medicare Advantage are more than twice as likely to have delays when leaving the hospital for other care facilities compared to those on Traditional Medicare. Requirements for prior authorization and limits on care networks are main causes of these delays. These delays make hospital stays longer and cost more.
Hospitals can become stronger against these problems by using Artificial Intelligence (AI) and automation. Hospitals that use AI tools for tasks like handling phone calls and answering common questions can reduce paperwork and run more smoothly.
For example, some AI systems can manage appointment scheduling, patient questions, and insurance checks. This helps reduce the pressure on human staff. Then, staff can focus on harder tasks like taking care of complex patient cases or managing supplies.
Automated systems also help with many prior authorizations and claims. AI tools can read authorization rules, find mistakes right away, and speed up approvals. This saves time and cuts costs related to denied claims.
Using AI with older hospital buildings can work well because many AI tools are cloud-based and fit with current IT systems. This saves money because hospitals do not need to fully upgrade their buildings to use AI.
AI also improves patient experience by giving 24/7 access to hospital services through automated phone help. This lowers wait times and makes communication better. It is especially useful in big U.S. healthcare markets where many patients are served.
Hospital IT managers and leaders should think about using AI not only for medical care but also to make operations easier and costs lower. This helps deal with money problems from tariffs, old infrastructure, and payment shortfalls.
Hospitals today must handle many problems: rising labor and supply costs, less money from payers, and slow operations. Hospital leaders should think about ways to address these issues, such as:
The combined effects of tariffs on medical supplies, old hospital buildings, and payment challenges create a hard situation for U.S. hospitals. These factors raise costs, slow technology use, and make operations harder. Extra paperwork adds to the problem by taking staff away from patient care.
Technology, especially AI workflow automation, offers a way forward. Using these solutions can cut administrative work, improve patient communication, and help manage resources even in older hospitals.
Healthcare leaders need to understand how tariffs and aging infrastructure affect money and operations. Adding AI-based automation can help reduce rising costs and keep hospitals working to provide good care in a complex and expensive system.
Labor costs are the largest component of hospital expenses, accounting for 56% of total costs. Hospitals employ highly skilled workers who command competitive wages due to workforce shortages, leading to wage growth exceeding inflation by 26.6% for registered nurses over four years. This increased compensation is crucial for staffing but significantly strains hospital finances.
Medicare reimbursement rates are below inflation, covering only 83 cents per dollar spent in 2023. Underpayments from Medicare and Medicaid totaled $130 billion in 2023, increasing financial strain on hospitals. Lower reimbursements hinder hospitals’ ability to care for a large proportion of their patients who are Medicare or Medicaid beneficiaries.
Hospital expenses grew 5.1% in 2024, outpacing a 2.9% inflation rate. Key drivers include labor shortages, supply chain disruptions, and increased utilization and acuity among patients, especially those with chronic diseases. Delays in capital investments, such as equipment and facility upgrades, also contribute to rising costs and care challenges.
Chronic diseases like heart failure, type 2 diabetes, and acute renal failure drive higher hospital utilization and service intensity. Emergency visits for heart failure rose by 126.7% per capita between 2010 and 2019, increasing associated spending by 177.2%. These trends increase demand and escalate costs for hospitals.
MA plans extend observation stays longer than Traditional Medicare but reimburse hospitals at lower rates—often just 49% of costs. From 2019 to 2024, the average length of stay for MA patients increased while reimbursements declined by 8.8%. These factors shift financial burdens to hospitals and impair their financial health.
Discharge delays, often due to prior authorization and insufficient post-acute networks, have doubled for MA patients relative to Traditional Medicare. These delays increase inpatient lengths of stay, hospital crowding, higher costs, and obstruct patient transitions, placing additional strain on hospital resources and finances.
Administrative complexity is escalating, with nearly 50 million prior authorizations issued for MA plans in 2023—a 40% increase since 2020. Hospitals spent $26 billion managing claims in 2023, up 23% from the prior year. 70% of denied claims were paid only after costly reviews, diverting staff from clinical care and delaying treatment.
New tariffs on medical devices and pharmaceuticals risk raising hospital costs by at least 15%, exacerbating supply shortages and increasing procurement disruptions. Hospitals rely heavily on international imports, including 70% of medical devices and key protective equipment from China, making supply interruptions costly and potentially harmful to patient care.
Hospitals are delaying capital investments due to financial pressures, causing the average age of plant and medical infrastructure to rise by over 10% in two years. This delay jeopardizes care quality, limits adoption of new technologies, and threatens hospitals’ ability to meet evolving healthcare standards.
Policymakers should recognize real cost pressures such as labor shortages and increasing demand, update Medicare and MA payment policies to reflect actual care costs, address structural cost drivers like care delays and administrative burdens, and prioritize preserving hospital access to maintain high-quality patient care and community health.
Simbo is using AI agents to automate all phone related workflows. Connect now to know more.
Schedule AI Agents Demo Now© Since 2019, Simbo AI.
