Hospital Expenses Surge 7.5% in 2025, Driven by Labor and Patient Acuity

Total hospital expenses in the United States rose 7.5% in 2025, outpacing the 3.3% increase in hospital prices, according to a new report released by the American Hospital Association (AHA) on March 11, 2026. The findings highlight the ongoing financial pressures facing hospitals and health systems as they navigate rising costs for labor, supplies, and medications while caring for a growing number of sicker patients.

Workforce Costs Remain the Largest Expense

Labor expenses continue to be the dominant driver of hospital costs, accounting for approximately 60% of total expenses in 2025. This reflects the critical role of doctors, nurses, specialists, and support staff in providing 24/7 care. Advertised salaries for registered nurses have grown 26.6% faster than the rate of inflation over the past four years, as hospitals compete to retain and recruit qualified personnel [2].

Rising Costs Across the Board

Beyond labor, hospitals experienced significant increases in other key expense categories:

• Supplies: Costs increased by 9.9% in 2025, representing 19% of total hospital expenses. [3]
• Drugs: Spending on medications rose by 13.6%, contributing to 9% of total hospital costs. [3]

Patient Complexity and Volume Contribute to Expense Growth

The AHA report indicates that increases in both patient volume and acuity are driving up hospital expenses. From 2019 to 2024, inpatient volumes rose 5.3% and outpatient volumes grew 9.8%. During the same period, the hospital case-mix index increased by about 5%, indicating that hospitals are treating patients with more complex and intensive care needs. Approximately 36% of hospital expense growth between 2019 and 2024 was tied to increased patient volume, while 19% was attributed to caring for sicker patients. [3]

Administrative Burdens Add to Financial Strain

Hospitals too face significant administrative costs, including $43 billion spent in 2025 attempting to collect payments from insurers for services already rendered. The report highlights that nearly 56% of hospital costs are associated with service lines where reimbursement falls short of the actual cost of care, including behavioral health, obstetrics, infectious disease, and burn and wound care. [4]

Industry Response

“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 AHA President and CEO Rick Pollack. “These strains are jeopardizing hospitals’ ability to provide around-the-clock care and services that patients and communities need.” [4]

Looking Ahead

The AHA’s “Costs of Caring” report underscores the urgent need for sustainable solutions to address the financial challenges facing hospitals. These challenges threaten access to essential care services and require attention from policymakers, insurers, and healthcare providers to ensure the long-term viability of the nation’s healthcare system. [1]