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Hospitals and health systems are facing significant financial pressures that make it difficult for them to balance their budgets year after year, according to a new economic report from the American Hospital Association (AHA). Even as the pandemic eased in 2023, they dealt with rising expenses stemming from high labor, drug, and supply costs, as well as increasing administrative burdens. Meanwhile, reimbursements from Medicare and Medicaid programs haven’t kept up with the rising costs, and hospitals have had to spend even more time working with commercial insurers to ensure payment, and in many cases, to check all the boxes to get through the prior authorization process. AHA cites a 2023 study that found that hospitals are spending almost $20 billion annually appealing insurer denials. The recent cyberattack on Change Healthcare has also added to the pressure, causing slowed payment and dwindling cash reserves.

Let’s break it down: Labor remains the highest cost for hospitals—in line with what most provider organizations experience—accounting for 60% of expenses. Additionally, supplies account for 13%, drugs for 8%, and other expenses account for 19% of the spending. Other expenses include IT infrastructure, quality programs, and liability insurance, according to the report.

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AHA Cites Labor Costs and Administrative Burdens as Top Financial Issues
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