AHA Report: Hospitals Face Pressures that Challenge Ability to Provide 24/7 Care
Citing an increase in inflation, labor costs, and claim denials, the 2025 Environmental Scan released this week by the American Hospital Association (AHA) sheds light on the many costs forcing the nation’s hospitals to operate under intense financial uncertainty.
As hospitals face supply chain disruptions, inflation, commercial insurer denials and delayed payments, the Scan is designed to help hospitals in their strategic planning and improve their ability to deliver care to patients.
While the AHA states that hospital and health systems finances have experienced modest stabilization from the historic lows seen in 2022, the overall financial health of hospitals remains far from where it needs to be. The financial stress faced by many hospitals has caused longer wait times for patients, and hindered the ability to meet increasing demand for patient care, invest in new and promising technologies and interventions and prepare for the next healthcare crisis.
The stress is exacerbated by continued struggles with staffing, regulatory barriers, Medicaid disenrollment and the unprecedented Change Healthcare cyberattack and addition cyber incidents, which forced many hospitals to dip into their diminishing cash reserves to maintain operations.
The escalating operational costs and economic pressure faced by hospitals is evident in the data provided by the Scan. At 12.4%, inflation growth is more than double the 5.2% increase in Medicare inpatient reimbursement, and cumulative Medicaid and Medicare hospital underpayments continued to increase in recent years. From 2018 to 2022, hospitals received $522 billion in underpayments, up from $375 billion from 2013 to 2017.
At the same time they are experiencing these losses, hospitals continue to face drug shortages. In the first quarter of 2024, drug shortages reached an all time high — and quarter 2 of 2024 marks the sixth straight quarter with at least 300 drugs on shortage.
Supply Chain is a Continued Concern
AHA advises that the physical supply chain interruptions of the past and potential risks of the next year should act as reminders that investments in healthcare supply chain resilience remain vital from both a strategic and a financial perspective.
Due to supply shortages, the average increase in the cost of providing care for a medium-sized health system is $3.4 million. Ongoing inflation and cost pressures for labor and products are cited as the biggest operational and financial challenge for both provider and supplier organizations in 2024.
Workforce Challenges
Labor currently constitutes the largest percentage of hospital expenses. According to AHA, wages account for $839 billion, representing 60% of hospitals’ overall expenses. Wages continued their significant upward trend in 2023, increasing by 10.1% across all hospital jobs.
The hospital staff turnover rate in 2023 stands at 20.7%, down from a high of 25.9% in 2021. While this is clearly an improvement, the numbers are still above the pre-pandemic level of 17.8% in 2019. The vacancy rate for registered nurses is down to 9.9% in 2024, compared to a high of 17.0% in 2022 and rates of 9.0% in 2020 and 2021.
Beyond the data on workforce provided by the Scan, AHA emphasizes that traditional methods of investment in the workforce must continue to progress, including pathway development, recruitment and retention practices. Additionally, the way in which the work is done must change and evolve as the field explores care delivery model redesign. The field will continue to innovate, as the demand for healthcare services will grow in the future.
The Impact of Claim Denials from Commercial Insurers
Private insurer practices, including payment delays, increases in the use of prior authorization, and claim denials, have exacerbated the financial strain for hospitals. The annual cost to fight claim denials stands at $19.7 billion. This added burden on providers continues to put unnecessary financial stress on hospital systems as nearly 15% of all claims submitted to private payers for reimbursement are initially denied. Of the 15% denied, 54% were ultimately overturned, but only after multiple, costly rounds of provider appeals.
The use of artificial intelligence (AI) tools to approve or deny claims is cited as one factor driving growth of denials. Poor applications of these technologies can result in automatic denials of care without consideration of a patient’s individual clinical circumstances or review from a clinical or plan medical director as required. To overturn these inappropriate denials, hospital staff must spend valuable time and resources that could be better used elsewhere.
As hospitals continue to experience significant financial pressures that challenge their ability to provide around the clock care for patients, the mission to improve the health of their communities remains steadfast.
An op-ed published in August 2024 and authored by The Center for Health Affairs President & CEO Brian Lane brought attention to the importance of hospitals in Northeast Ohio and their impact on local communities. In 2022 alone, Northeast Ohio Hospitals provided more than $310 million in charity care, while also facing steep increases in labor and supply costs along with reductions in reimbursement payers. In addition to charity work, these hospitals provided essential specialized services, including inpatient behavioral health services, which operated at 34% below cost across all payers, and outpatient burn and wound services at 43% below cost.
“The health and well-being of our communities are inextricably linked to the financial stability of our hospitals,” said Lane. “We must advocate for increased public funding, supportive policy reforms, and continued community engagement to ensure these institutions can continue serving their mission.”
The Center and the American Hospital Association continue to urge Congress and the Biden Administration to support policies to ensure that hospitals and health systems have the resources they need to continue to provide vital care to communities throughout the nation.
The Environmental Scan is available for download at www.aha.org.
