Report: Key trends impacting hospital financial stability in 2025
Persistent cost growth, inadequate reimbursement, and shifting care patterns are creating a perfect storm of financial pressures for U.S. hospitals and health systems, according to a recent American Hospital Association (AHA) report.
The AHA highlighted how hospital expenses have surged and remained elevated in recent years, noting that labor continues to be the single largest category of hospital spending. However, Medicare reimbursement rates are not keeping pace with these rising expenses. Between 2022 and 2024, general inflation grew by 14.1% in the U.S., while net Medicare inpatient payment rates only increased by 5.1%, according to the report. The AHA estimated that this discrepancy resulted in $8.4 billion in lost hospital revenue during that time period.
The report also examined the growing financial impact of certain Medicare Advantage (MA) plans’ practices. For example, MA plans are increasingly favoring extended observation stays over inpatient admissions. While observation stays for MA patients were 28.6% longer than those of traditional Medicare beneficiaries in 2019, but 36.9% longer in 2024, according to the AHA.
“Compared to inpatient admissions, observation stays are reimbursed at lower rates—or in some cases, not at all—leaving hospitals to absorb much of the cost,” states the report. “In 2024, MA plans reimbursed just 49% of the actual cost for patients held in observation status.”
A similar pattern has emerged in inpatient stays. The average length of stay for MA patients grew significantly compared to traditional Medicare between 2019 and 2024, yet hospital reimbursement from MA plans fell by 8.8%, according to the AHA.
The report also dissected the impact of tariffs on hospital costs and supplies, as a large portion of essential medical goods are internationally sourced. The AHA highlighted that almost 70% of U.S.-marketed medical devices are exclusively manufactured overseas, with over $75 billion in medical devices and supplies being imported in 2024 alone.
“Tariffs on these critical goods could exacerbate shortages, disrupt patient care, and raise costs for hospitals,” states the report.
Looking ahead, the AHA called on policymakers to acknowledge that Medicare and MA payment policies must be updated to reflect the actual cost of care, as well as recognize that rising hospital expenses reflect real pressures, not inefficiencies. In addition, the association urged them to address structural drivers of cost, such as care delays and excessive administrative burdens, instead of simply cutting payments.