Hospitals and health systems play a crucial role in communities nationwide, providing essential services to patients that are often irreplaceable. Doctors and nurses in hospitals routinely treat sicker patients with more complex and chronic conditions who may be unable to receive adequate care in physician offices or urgent care centers. The care provided within hospitals and hospital systems is built to handle complications and emergencies, unlike these facilities, meeting higher regulatory and safety standards. Patients who seek care in hospitals receive treatment 24/7, regardless of their ability to pay.
The expenses hospitals incur to provide this essential care to their communities have continued to rise for various reasons, while reimbursements from payers often fail to cover the full costs of delivering it.
Growing Labor Costs
24/7 care requires a 24/7 workforce, with hospitals employing an around-the-clock staff made up of skilled and compassionate caregivers. Workforce spending for hospitals often accounts for over 50% of their costs, especially during workforce shortages. These shortages have caused advertised salaries for registered nurses to grow nearly 27% faster than the rate of inflation over the past four years as hospitals try to remain competitive when hiring.
Corporate Insurer-Driven Administrative Costs
Nearly 30% of healthcare spending can be attributable to administrative costs associated with billing and insurance. Medicare Advantage plans and their excessive prior authorization policies led to 50 million prior authorization requests in 2023, up more than 40% from 2020, and hospitals spent $26 billion in 2023 managing insurance claims, a 23% increase over the previous year. Corporate insurers also impose costs on hospitals through excessive denials: 70% of denied claims are ultimately paid, often only after multiple costly reviews, and hospitals are not reimbursed for the time and expenses incurred in contesting these denials. Furthermore, when access to treatment is governed by corporate insurer policies instead of medical judgment, patients pay the consequences through poorer health outcomes and worsening conditions.
Underpayments by Corporate Insurers
Reimbursement rates for treatment under Medicare Advantage plans are often lower than those under traditional Medicare, amplifying existing financial pressures on hospitals. Medicare Advantage also relies on extended “observation stays” to keep the cost of plans down by avoiding admitting patients. Medicare Advantage reimburses these observational stays at lower rates than inpatient admissions; in 2024, the rate was only 49% of a hospital’s actual cost on average. These extended stays increase the need for additional hospital staff, and the lower reimbursement rates add to the financial pressure on hospitals.
Hospitals and health systems across the country deliver high-quality, timely care to their communities every day, but are often at the mercy of structural cost drivers from others in the healthcare system, such as administrative burdens and excessive care delays and denials from corporate insurers. Meanwhile, some in Congress are pushing cuts to hospitals that will do nothing to reduce these costs while prolonging wait times, inflating costs, and placing patients at greater risk, especially when care is time-sensitive. Patient access to the vital services that only hospitals can provide is a cornerstone of our health care system, and preserving it requires an honest look at the preventable practices by insurers that truly drive costs.