Dive Brief:
The American Hospital Association released a report on Wednesday warning that cost growth, inadequate reimbursement and potential policy changes in Washington threaten to coalesce into a financial “perfect storm” for hospitals.
The lobbying group said that, while hospitals continue to see supply and labor expenses rise, they’re also being underpaid by payers. Hospitals absorbed $130 billion in underpayments from Medicare and Medicaid in 2023, with the shortfall worsening 14% annually between 2019 and 2023, according to the report.
The collective pressures are “jeopardizing the ability of hospitals to deliver high-quality, timely care to their communities,” AHA President and CEO Rick Pollack said in a press release.
Dive Insight:
Top of mind for hospital administrators is how much tariffs will impact their finances. The Trump administration has flip-flopped on its trade policy, reconsidering which countries to tariff, how high to set rates, when policies might go into effect and what goods could be subject to import taxes.
Still, the final impact could be large. Nearly 70% of medical devices marketed in the U.S. are manufactured overseas, and last year, the country imported over $75 billion worth of devices and supplies, including syringes, needles and IV saline bags, according to the report.
“Tariffs on these critical goods could exacerbate shortages, disrupt patient care and raise costs for hospitals,” the report said.
Hospitals are most closely watching tariffs on China, where health systems source devices and supplies, and looming pharmaceutical tariffs. President Donald Trump initially left pharmaceuticals out of his tariff agenda but said last month that the fees were coming.
The industry imports nearly 30% of active pharmaceutical ingredients from China, while over 90% of generic sterile injectable drugs, like some chemotherapy treatments and antibiotics, depend on components manufactured in India or China. The industry group warned that even “temporary disruptions” to the supply chain could risk patient harm.
In addition to potential tariff impacts, the AHA also flagged rising labor costs.
Total compensation and related expenses now account for over half of hospital costs, according to AHA data.
Many hospitals are still offering competitive wages in order to retain and recruit staff in a tight labor market. Over the past four years, advertised salaries for registered nurses, for example, have grown 26.6% faster than the rate of inflation, according to the report.
Still, last month the nation’s leading for-profit hospital operators — HCA Healthcare, Tenet Healthcare, Universal Health Services and Community Health Systems — told investors that labor costs had significantly stabilized relative to last year, particularly contract labor. Nonprofits have also made progress containing labor costs, according to Fitch Ratings.
Providers also say they’re facing mounting barriers to reimbursement, especially in Medicare Advantage plans.
Hospital reimbursement from MA plans declined by 8.8% on a cost basis between 2019 and 2024, according to the report, even as the average length of stay for MA patients increased. Discharge delays, often driven by prior authorization requirements, contribute to the rising lengths of stay in MA plans, according to the AHA.
The AHA also accused MA plans of leveraging extended observation stays to avoid coding patients as inpatient, thus allowing the plans to reimburse hospitals at lower rates, if at all. Observation stays were 36.9% longer in MA than traditional Medicare plans in 2024, an increase from 28.6% in 2019, according to the AHA.
