Hospitals and health systems are facing continued increases in operating costs, while reimbursement and prices lag behind, according to a new report from the American Hospital Association.

The organization’s annual Costs of Caring report outlines several factors contributing to financial strain across the hospital sector, including workforce expenses, rising supply and drug costs, administrative complexity, and a growing number of patients with complex medical needs.

Labor remains the largest expense category for hospitals. Roughly 60% of hospital spending is tied to workforce costs, which rose 5.6% in 2025 compared with the previous year. These expenses include wages and benefits for physicians, nurses and other clinical and support staff required to maintain continuous care.
Overall hospital spending increased 7.5% in 2025, more than twice the rate of growth in hospital prices, according to the report. Costs for supplies climbed 9.9%, while drug spending rose 13.6%.

Changes in patient acuity are also contributing to higher spending. From 2019 through 2024, the report estimates that about 36% of hospital expense growth was tied to treating more patients. Another 19% was linked to caring for patients with more complex medical conditions, which often require additional staff time, monitoring and specialized treatment.

Administrative processes tied to insurance coverage remain another significant cost driver. Hospitals spent an estimated $43 billion in 2025 attempting to secure payment from insurers for care already delivered. The report attributes these expenses to prior authorization requirements, claim denials, payment delays and repeated documentation requests.

The AHA also reported that more than half of hospital costs are associated with service lines where reimbursement does not cover the full cost of care. These include behavioral health, obstetrics, infectious disease and burn and wound care.

“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,” said Rick Pollack, president and CEO of the AHA.

The report is part of the association’s broader policy effort outlining financial and operational pressures affecting hospitals and health systems.

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