What's Happening?
According to Kaufman Hall's 2025 Health System Performance Outlook, U.S. hospitals are facing significant financial challenges due to rising non-labor costs and payer denials. Nearly 60% of health systems reported non-labor cost increases of up to 10%,
driven by inflation and tariffs. Additionally, 44% of hospitals cited high claim denial rates as a major challenge. The report emphasizes the need for operational resilience and clinical integration to navigate these pressures. Hospitals are also dealing with workforce optimization issues, as staffing levels decrease while labor efficiency metrics rise, potentially leading to workforce burnout.
Why It's Important?
The financial pressures highlighted in the report have significant implications for the U.S. healthcare system. Rising non-labor costs and payer denials threaten to erode hospital margins, impacting their ability to provide care. The challenges of workforce optimization and potential burnout could further strain hospital operations. These issues may lead to increased healthcare costs for patients and reduced access to care. The report underscores the need for hospitals to adapt by improving operational efficiency and integrating clinical practices to maintain financial stability.
What's Next?
Hospitals are expected to focus on strategies to mitigate these financial pressures, such as expanding signing and retention incentives to maintain core staff. The deployment of Advanced Practice Providers (APPs) is also being considered to enhance clinical integration. Legislative uncertainty surrounding Medicaid and rising bad debt and charity care are likely to continue into 2026, posing additional challenges for hospitals. Stakeholders in the healthcare industry will need to collaborate to address these issues and ensure the sustainability of hospital operations.
