Health system performance in 2025

For the report, Kaufman Hall surveyed leaders from 103 hospitals and health systems. Of the respondents, 60% were in executive roles, 16% were in finance, and others were in quality and operations.

Non-labor expenses

Around 60% of respondents reported that their non-labor expenses increased by 6% to 10% over the last year, with many highlighting tariffs and payer reimbursement dynamics as key contributors to the increase.

According to the report, this increase in non-labor expenses is similar to prior years, which suggests that it is being driven by broad inflationary pressures instead of a specific change, such as tariffs. However, over 80% of respondents said they have taken steps to quantify the impact of tariff-related costs.

Currently, Vizient's 2025 Spend Management Outlook predicts that hospitals will continue to see increased pressure in their non-labor expenses, with a 2.41% supply chain price inflation and 3.35% pharmacy inflation occurring in 2026.

Labor expenses/workforce

Labor expenses continue to make up the largest share of operating costs for most health systems. According to data from Kaufman Hall's National Flash Report, labor expenses per calendar day were up 5% through September 2025 compared to the same time in 2024.

In the report, at least 70% of respondents said they were considering different ways to optimize their staffing, including benchmarking their current staffing targets to peers, adjusting staffing targets in non-clinical or support departments, and eliminating fixed positions. 

Many respondents are outsourcing certain services to reduce costs or overcome staffing challenges. The most common services being outsourced were food and nutrition services, revenue cycle, IT, and environmental services.

"We are seeing the perfect storm where both labor and supply costs are rising simultaneously. To survive the squeeze, hospitals must focus on the one lever they can pull: driving down non-labor expenses through better purchasing and utilization," said Derek Kazahaya, practice leader of supply chain advisory services at Optum.* "If you aren't aggressively auditing your supply chain for hard-dollar savings right now, you are leaving margin on the table."

Care challenges

According to the report, access to care remains a critical issue for hospitals and health systems, with only 9% of respondents saying they can see patients within a few days. Over 40% of respondents said patients were waiting too long for appointments.

Capacity is also a significant challenge, with many respondents citing holds in the ED and insurance-related referral delays as being their top constraints. Almost 75% of respondents also said that capacity issues led to ED boarding.

"Forty percent of our ED visits are people who do not need to be in the emergency room — they just can't get into primary care," one respondent said.

Among physicians, the most common causes of denials were incomplete documentation, prior authorization gaps, and issues with bundled or separately billed services.

Some hospitals have invested in clinical documentation integrity systems, however, the benefits have largely been mixed. Although 30% of respondents said they saw a measurable return on their investment, 26% said the value remains unclear.

Financial outlook

Overall, the financial outlook for hospitals and health systems continues to be uncertain. Only 30% of respondents said they expect their cash balances to improve over the next 12 months while another 30% are predicting lower levels and 40% say they expect minimal change.

"The wide split highlights the relative uncertainty health systems have about the future, citing the competitive landscape; regulatory changes including the One Big Beautiful Bill, ACA tax subsidies and tariffs; reimbursement; and operational and workforce challenges," the report said. "Interviewees say they've also slowed down on capital spending and are closely monitoring regulatory changes to Medicaid. Ensuring adequate access to external working capital solutions can help bolster liquidity, especially in times of uncertainty."

*Advisory Board is a subsidiary of Optum. All Advisory Board research, expert perspectives, and recommendations remain independent.