Article
The numbers
The American Hospital Association’s annual Costs of Caring report, released March 11, puts total hospital expense growth at 7.5% in 2025, compared with 3.3% growth in hospital prices. That spread explains much of the margin pressure many systems reported through the year.
- Drug expenses rose 13.6%.
- Supply expenses rose 9.9%.
- Workforce costs rose 5.6% and make up about 60% of total hospital expenses.
- Hospitals spent $43 billion in 2025 pursuing payment from insurers for care already delivered.
Volume and acuity are part of the story
The report attributes about 36% of expense growth from 2019 to 2024 to higher patient volume and about 19% to sicker, more complex patients. In other words, slightly more than half of cost growth reflects more care delivered, not only higher input prices. That distinction matters in conversations with boards, payers and lawmakers who look at total spending without separating volume from unit cost.
AHA also estimates that about 56% of hospital costs sit in service lines where payment falls short of the cost of care, naming behavioral health, obstetrics, infectious disease, and burns and wounds as examples.
How to use it
For finance leaders building fiscal 2027 budgets, the report offers external benchmarks. Compare your own drug and supply growth with the national figures. If yours is materially higher, look at formulary management, specialty pharmacy strategy and purchasing terms. If it is lower, document that for rating agencies and payers.
The $43 billion collections figure is also useful at the negotiating table. Systems that track denial rates, days in accounts receivable and staff time spent on prior authorization by payer can show which contracts carry the heaviest administrative cost. That evidence supports both contract talks and advocacy on prior authorization reform.
Finally, the service-line data argue for a clear review of which money-losing services are essential to the mission and how they will be funded, rather than letting losses build without a plan.
Archive entry for Mar 12, 2026, added Nov. 11, 2026.