Report: Hospitals faced increased expenses, inadequate reimbursement in 2023

The American Hospital Association (AHA) recently published its annual report on current cost realities for hospitals and health systems. The report details how labor, drug, and administrative expenses impacted care provision in 2023, as well as what hospitals should expect in 2024.

Economy-wide inflation grew by 12.4% between 2021 and 2023, whereas Inpatient Prospective Payment System (IPPS) reimbursement only grew by 5.2%, according to the report. The AHA also reported that the number of days cash on hand for hospitals and health systems has decreased by 28.3% since the start of 2022. These factors make it more difficult for organizations to secure supplies and invest in updated technologies that improve care.

The AHA discussed how reimbursement for certain services consistently fell below costs in 2023. For example, payments for inpatient behavioral health services were 34.3% below costs across all payers on average.

Increased administrative costs caused by increased denials and other commercial payer practices have also burdened organizations. The AHA cited a recent Premier study that found that hospitals are spending approximately $20 billion per year to appeal denials.

Labor costs increased by $42.5 billion between 2021 and 2023, reaching a total of $839 billion, according to the report. The AHA noted that labor costs account for nearly 60% of the average hospital’s budget. Medical supply expenses, which account for approximately 10.5% of the average hospital’s budget, increased by $6.6 billion between 2022 and 2023, reaching a total of $146.9 billion.

Hospitals spent $115 billion on drug expenses in 2023, which was partially fueled by drug companies increasing the price of many existing drugs, according to the report. In addition, the median annual list price for new drugs was $300,000, a 35% increase from 2022. Along with these increased costs, organizations had to combat record drug shortages.

The AHA expects that hospitals will continue to see increased labor, drug, and administrative expenses in 2024. It encouraged CMS and Congress to do the following to ensure hospitals have the resources they need to provide 24/7 care to patients:

• Reject Medicare and Medicaid cuts to hospital care, including harmful site-neutral proposals and forthcoming reductions to Medicaid disproportionate share hospitals
• Support and strengthen the healthcare workforce
• Protect the 340B drug pricing program from any harmful changes and reining in the increasing costs of drugs
• Take actions to hold commercial insurers accountable for practices that delay, deny, and disrupt care
• Bolster support to enhance cybersecurity of hospitals and the entire healthcare system