Hospitals face growing financial headwinds, amid fears of less federal aid

While some hospitals have seen modest improvement in their financial performance over the past couple of years, health systems are facing more cost pressures.

Rick Pollack, president and CEO of the American Hospital Association, says hospitals are already facing considerable challenges and need the support of policymakers.

Hospitals continue to see expenses rise faster than the broader rate of inflation, including growing labor costs, according to a new report the American Hospital Association released Wednesday.

Federal reimbursements aren’t keeping up with expenses. Hospitals are seeing more friction with Medicare Advantage plans, and more frustrations with obtaining approval from insurers for payments and treatments. Health systems are also seeing more Medicare Advantage payments for longer stays, while they face more delays in discharging patients to post-acute care facilities.

Those headwinds would be challenging enough for hospitals. But Congress and President Trump’s administration are weighing cuts to Medicaid and other federal programs. Health systems are worried about the impact of tariffs, since nearly 70% of medical devices marketed in the U.S. are made overseas.

Lawmakers need to understand the financial problems hospitals are facing, Rick Pollack, president and CEO of the American Hospital Association.

“This report should serve as an alarm bell that a perfect storm of rising costs, inadequate reimbursement, and certain corporate insurer practices are jeopardizing the ability of hospitals to deliver high-quality, timely care to their communities,” Pollack said in a statement. “With so much at stake, policymakers must recommit to making preserving access to hospital care a national priority.”

Rising expenses

Hospitals are facing higher costs in labor and supplies.

Total hospital expenses rose by 5.1% in 2024, surpassing the overall inflation rate of 2.9%, according to the report.

Much of those costs are driven by higher costs in staffing, as labor costs now account for 56% of hospital costs.

As hospital costs rise, some health systems have had to delay some construction and improvement projects, the association says. The average age of hospital facilities has risen by more than 10% over the past two years, according to data from Strata Decision Technology.

Medicare Advantage payments

Hospitals have complained about more problems with reimbursements from Medicare Advantage plans, and the report indicates those challenges are getting worse.

Medicare Advantage plans are more likely than traditional Medicare to press hospitals to keep patients in “observation status” for longer periods before admitting those patients.

The problem: Hospitals get reimbursed less for patients who are in observation, if they get reimbursed at all.

Medicare Advantage patients had observation stays 36.9% longer than patients on traditional Medicare in 2024, the report stated. In 2019, the Medicare Advantage observation stays were 28.6% longer.

Patients staying longer

More patients are having longer stays in the hospital, the report states.

Again, Medicare Advantage patients are driving some of the problem, with MA patients having longer stays in the hospital.

More patients are seeking treatment due to chronic issues such as heart disease, renal failure, and diabetes. Emergency visits tied to heart failure surged 126.7% per capita from 2010 to 2019, according to the report.

Hospitals continue to see a stubborn problem with delays in discharging patients who no longer need acute care. Hospitals are continuing to care for patients who are ready to go to a rehabilitation facility, nursing home or some other post-acute care facility, due to a lack of beds or staffing. Some discharge delays are tied to waiting on approval from insurance companies.

Again, Medicare Advantage patients are more likely to see delays in discharge than those on traditional Medicare. “The average length of stay prior to discharge to post-acute care has doubled relative to Traditional Medicare between 2019 and 2024,” the report states.

Inadequate reimbursements

While hospitals may encounter difficulties with Medicare Advantage plans, hospitals say they continue to see insufficient payment from Medicare and Medicaid for their services. For every dollar of care provided to Medicare patients, Medicare covered 83 cents in 2023.

Medicare net inpatient rates rose 5.1% from 2022 to 2024, but hospitals saw a 14% increase in inflation over that span.

“Hospitals absorbed $130 billion in underpayments from Medicare and Medicaid in 2023 alone,” the report states.