Workforce pressure will remain a major financial challenge for hospitals and health systems through 2025, according to data released this month by Kaufman Hall.
Labor remains the largest expense for hospitals, with approximately 70% of organizations working extensively on staffing optimization.
“An interesting trend in the workforce environment is that more than half [of hospitals] Potential outsourcing of non-core activities is being considered. This has always been a trend in healthcare, but it seems to be increasing as people look to improve some of their non-core capabilities, such as food service, revenue cycle, human resources, and more. ” said Lance Robinson, managing director of Kaufman Hall.
At the same time, many hospitals are raising employee wages and offering signing bonuses to retain clinicians amid record turnover and retirement rates, he noted.
Robinson added that in addition to compensation, hospitals are also rethinking care models. They are placing a greater emphasis on team-based staffing and investing in technologies such as ambient artificial intelligence to reduce administrative burdens and help clinicians work within the scope of their clearance.
In addition to workforce challenges, revenue cycle difficulties continue to put pressure on hospital finances. Robinson explained that denial is an ongoing stress point that is often driven by front-end issues such as prior authorization, eligibility errors, incorrect patient status or care settings.
He said hospitals should ensure closer coordination between revenue cycle teams and clinical staff to prevent errors before claims are issued.
On the physician side, insufficient documentation was the primary reason for denials, Robinson said, underscoring the need for more focused clinical documentation improvement efforts.
Still, underpayments and the payer escalation process put increased pressure on revenue cycle teams, requiring significant staff time and resources. As payers push more administrative work back to providers, hospitals are increasingly relying on more efficient, technology-enabled processes to manage these pressures without further increasing costs.
Supply costs are also a major concern – they are still rising, and tariffs add to uncertainty.
Hospital supply expenses increased 6-10% year over year, similar to 2023 levels. Robinson said it's unclear how much of this is driven by tariffs versus overall inflation, but better-resourced health systems are responding by doubling down on value analysis, physician involvement in product selection and tighter use of GPOs and distributor contracts to ensure better pricing.
He noted that larger health systems are generally better able to handle these pressures because they benefit from stronger balance sheets and greater leverage in contracts and staffing.
Robinson emphasized that smaller, independent hospitals are not without options, especially if they focus on tightening operations and controlling costs.
“They can still do a lot of things and they've proven they can do it,” he said.
Regardless of size, he believes hospitals need to be more strategic in where they invest and seek efficiencies. By 2026, financial performance will increasingly be tied to execution, not just market position.
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