Hospitals confront rising non-labor costs, workforce pressures and reimbursement challenges, Kaufman Hall reports

Hospitals and health systems are grappling with sharp increases in non-labor expenses, workforce retention issues and continued payer reimbursement pressures, according to Kaufman Hall’s 2025 Health System Performance Outlook report.

Nearly 60% of surveyed organizations reported non-labor cost increases of 6% to 10% over the past year, driven largely by tariffs and ongoing challenges with payer reimbursement. Eighty-three percent of respondents said they have taken steps to quantify the financial impact of tariffs.

“While non-labor expenses are no doubt putting financial pressure on organizations, the 2025 findings may reflect broad inflationary pressure rather than abnormal spikes,” said Lance Robinson, managing director and Operations Improvement Practice Leader with Kaufman Hall. “Data from research we conducted a few years ago found similar trends, and with more cost pressures likely ahead, this points to the continued need for hospitals to strengthen their financial resiliency.”

Workforce optimization also remains a key priority, with at least 70% of hospitals focusing on staffing strategies in a competitive labor market. Respondents reported raising wages, expanding signing and retention bonuses, adjusting staffing models and investing in staff engagement. Many organizations are also turning to advanced practice providers to help meet care demands—42% of respondents highlighted the value of APPs—though utilization varies widely across systems.

The report also cites intensifying pressures tied to payer reimbursement, including claim denials, administrative burdens and Medicaid-related uncertainty. Forty-four percent of hospitals identified high denial rates as one of their top challenges with managed care organizations.

“Heading into 2026, leaders should be strengthening their operational footing to position themselves for long-term resilience,” Robinson said.

The findings are based on survey and interview responses from 103 hospital and health system leaders nationwide.

National Hospital Flash Report shows mixed financial signals

Kaufman Hall’s latest National Hospital Flash Report shows that while patient volumes remain strong, revenue pressures continue to mount. Adjusted discharges per calendar day rose 5% year-to-date compared with 2024, but net patient service revenue per adjusted discharge fell 3% in October from the prior month. The data aligns with the broader trends detailed in the 2025 Performance Outlook report.

“Bad debt and charity care have been consistently rising, a trend that is likely to continue into 2026 given both natural demographic shifts and the forthcoming Medicaid policy changes,” said Erik Swanson, managing director and Data and Analytics Group Leader with Kaufman Hall. “Hospital leaders should also closely track labor trends. The number of full-time employees is down while labor efficiency is up, indicating tight staffing levels and potential workforce burnout.”

The Flash Report draws on financial and operational data from more than 1,300 hospitals contributed by Strata Decision Technology LLC.