In April 2025, the American Hospital Association (AHA) released a report outlining the “key trends impacting hospital financial stability” in 2025. Entitled “The Cost of Caring: Challenges Facing America’s Hospitals in 2025,” it argues that there is a “perfect storm” of financial pressures resulting from “heightened expenses that hospitals have faced in recent years in caring for patients.”
As an accompanying statement notes, the report comes as “Congress is considering proposals that would cut Medicaid, Medicare and other programs,” and seeks to inform policymakers that hospitals are “struggling to maintain access to essential services amid workforce shortages, supply chain disruptions, tariffs and policy decisions that often fail to reflect on-the-ground realities.”
Findings
The report draws the following conclusions and advises policymakers that they should:
- Recognize that rising expenses reflect real pressures, such as labor shortages and increasing demand, not inefficiency.
- Acknowledge that Medicare and Medicare Advantage (MA) payment policies must be updated to reflect the actual cost of care
- Address structural drivers of cost, such as care delays and excessive administrative burdens, instead of simply cutting payments.
Labor Costs
According to the report, at 56% in 2024, labor costs are the “single largest category of hospital spending.” As mentioned in the findings above, it is noteworthy that the report requests that policymakers ‘recognize’ this reality, rather than recommend any specific changes in policy that might reduce these costs. It explains that hospitals are “among the few sectors that consistently employ a highly educated, highly paid workforce,” making the claim that such jobs cannot be outsourced or automated. Pointing to “ongoing workforce shortages,” the report says that hospitals have no choice but to “offer competitive wages to retain and recruit staff.”
Chronic Conditions
Another area of focus of the report is the burdens caused by chronic diseases, linked at least in part to the aging U.S. population. It says that the resulting higher utilization and acuity have contributed to rising hospital costs. Longer stays for MA patients are also noted, as well as delays in discharging patients to post-acute care facilities, to the point of “increased hospital crowding.”
Administrative Burden
As was the case with labor costs, the report does not make any direct policy recommendations when it comes to chronic diseases themselves. However, they do note changes that can be made in terms of how the healthcare system deals with patients with such conditions. For example, it notes that MA plans, which private health insurance companies administer, utilize a ‘strategy’ of using “extended observation stays that avoid admitting patients as inpatients.” The report says that this “shifts financial burden onto hospitals.” It notes that in 2019, such stays were 28.6% longer than those in Traditional Medicare, which the government administers.
Delays in discharging patients to post-acute care facilities are another instance of administrative burden, which are said to lead to longer inpatient hospital stays. The delays are said to be “often driven by prior authorization requirements or insufficient post-acute provider networks within MA plans.” The report notes the recent U.S. Senate Permanent Subcommittee report that found that “some MA plans disproportionately imposed prior authorization and claim denials on post-acute care, exacerbating delays and shifting costs to hospitals.” It can also be noted that there are currently federal cases against Cigna, Humana, and UnitedHealthcare that allege the improper denial of post-acute care under MA plans by these entities.
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