The financial pressures on American hospitals in 2025 are high. According to the American Hospital Association (AHA), labor costs make up 56% of total hospital expenses. This includes pay for nurses, doctors, and other healthcare workers who care for patients. Registered nurse salaries have increased 26.6% faster than inflation over the last four years. While these wage increases help with staff shortages and support quality care, they also put pressure on hospital budgets.
Another financial problem comes from reimbursement rates. Medicare and Medicaid pay hospitals less than the cost of care. In 2023, Medicare paid only 83 cents for every dollar spent. Together, Medicare and Medicaid underpaid hospitals by over $130 billion that year. Medicare payments went up just 5.1% from 2022 to 2024, but inflation rose by 14.1%. This difference lowers the real income hospitals get from these government programs. Hospitals then have to cover these losses, making it harder to stay financially strong.
Chronic diseases like heart failure, type 2 diabetes, and acute kidney failure increase the demand for hospital care. Data from the Centers for Medicare & Medicaid Services (CMS) shows that emergency department visits for heart failure rose by 126.7% per person from 2010 to 2019. The related spending went up by 177.2%. Patients with these diseases need more frequent, complex, and longer hospital stays. This raises the use of resources like nursing time, medicines, and tests.
A study on heart failure patients shows that many also have atrial fibrillation (AF). Almost half (48.4%) of heart failure patients had AF at the start. These patients had more hospital readmissions, longer stays, and higher costs. On average, AF patients were readmitted 3.2 times in five years compared to 2.6 times for those without AF. Their hospital stays were about five days longer. The yearly healthcare cost for AF patients was $83,748, while it was $77,792 for those without AF.
The higher use of hospital resources is not just for heart failure patients. Many chronic diseases also require a lot of hospital care and add to operating costs.
Higher patient acuity means hospitals care for sicker patients who need more attention and complex treatment. This often makes hospital stays longer and requires more specialized staff, advanced tests, difficult medical procedures, and costly drugs. An aging population and rise in chronic illnesses contribute to this higher acuity and the need for more acute care.
More patients with high acuity increase labor costs. Hospitals rely on skilled workers such as registered nurses and specialized doctors who cannot be replaced by machines easily. Labor costs are the biggest expense, and they keep going up faster than inflation. This creates a financial challenge for hospitals.
Medicare Advantage (MA) plans cause specific financial problems for hospitals. MA patients spend 36.9% more time in observation stays in 2024 than Traditional Medicare patients and have longer inpatient stays. Yet, MA payment rates have dropped about 8.8% in recent years. Observation stays only get paid at 49% of the real hospital cost.
Planning for discharge is harder for MA patients because of more rules for prior authorization and fewer options for post-acute care providers. These delays double the length of hospital stays. Hospitals face more crowding and resource problems due to longer patient stays.
Hospitals also have more work because of insurance claim processes. Prior authorization requests rose by nearly 40% from 2020 to 2023. MA plans made almost 50 million such requests in 2023. Handling these claims cost hospitals $26 billion that year, up 23% from the previous year. About 70% of denied claims were eventually paid after long and costly appeals.
These tasks take time away from clinical staff and delay treatments, making hospital stays longer and increasing costs while lowering efficiency.
Hospitals depend heavily on global supply chains for medical equipment and medicines. About 70% of medical devices and 90% of medicine ingredients used in US hospitals come from abroad, mainly China and India. New tariffs and supply disruptions caused prices to rise by at least 15% recently.
Because of these costs, many healthcare facilities delay buying new equipment or improving their buildings. The average age of hospital buildings increased over 10% in two years. This hurts care quality and slows down using new technologies needed to meet healthcare needs.
Due to challenges from chronic disease, patient acuity, and administration, many hospitals are using technology to improve efficiency and lower costs.
Simbo AI is a company that offers front-office phone automation and AI answering services. These tools help reduce work for staff by handling patient communication and appointment scheduling. Automating calls lets staff focus on harder tasks, lowers patient wait times, and improves patient experience.
AI tools reduce the time staff spend on routine phone tasks such as scheduling appointments, prescription refills, and billing questions. This lowers labor costs, an important part of hospital spending.
AI can also help with prior authorizations and insurance communications. Automating these steps can cut delays in authorizations and claims, shortening discharge times for Medicare Advantage patients and reducing hospital crowding.
IT managers and hospital leaders in the US who use AI front-office tools can help reduce several cost issues noted by the American Hospital Association, such as:
These changes help control costs and let clinical staff spend more time on patient care, which can improve health for patients with chronic and complex conditions.
Caring for patients with chronic diseases needs teamwork among different specialties. This helps lower hospital readmissions and avoid using resources unnecessarily. Studies show patients with conditions like heart failure and atrial fibrillation have more hospital stays and longer visits. Care approaches that bring together cardiologists, primary care doctors, nurses, and social workers help patients move smoothly from hospital to home or other care.
Better communication and care coordination can also cut preventable emergency visits and hospital admissions caused by worsening chronic conditions. Medical practice leaders should think about using care pathways supported by AI tools. These tools can track patient health, watch vital signs from a distance, and alert doctors before problems get worse.
Hospital and medical practice leaders need to understand the financial and operational effects of chronic disease and higher patient acuity. They should:
By working on these areas, healthcare providers can better handle growing challenges and build a more stable system for offering quality patient care.
The healthcare system in the United States faces rising financial and operational problems. Chronic disease, sicker patients, low payments, complex paperwork, and supply issues combine to make things difficult. Yet, using AI-based automation, better care coordination, and smart management can help hospitals and medical practices reduce costs and keep focus on patient care.
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.
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