Workforce pressures remained the dominant financial challenge for hospitals and health systems in 2025, according to data released this month by Kaufman Hall.
Labor is still the largest expense for hospitals, with about 70% of organizations pursuing widespread efforts focused on staffing optimization.
“The interesting trend within the workforce setting is that more than half [of hospitals] are looking at the potential outsourcing of non-core activities. This has always been a trend in healthcare, but it seems to be increasing as people look to improve some of the non-core competencies, such as food service, revenue cycle, HR, etc.,” said Lance Robinson, managing director at Kaufman Hall.
At the same time, many hospitals are raising staff salaries and offering sign-on bonuses to retain clinicians amid record rates of turnover and retirement, he noted.
Beyond pay, hospitals are rethinking care models, Robinson added. They are placing more of an emphasis on team-based staffing, as well as investing in technologies like ambient AI to reduce administrative burden and help clinicians work at the top of their license.
In addition to workforce challenges, revenue cycle difficulties continue to strain hospitals’ finances. Denials are a persistent pressure point, and they are typically driven by front-end issues such as prior authorization, eligibility errors, incorrect patient status or care setting, Robinson explained.
He said hospitals should ensure tighter coordination between revenue cycle teams and clinical staff to prevent errors before claims go out.
On the physician side of things, inadequate documentation is a major driver of denials — emphasizing the need for more focused clinical documentation improvement efforts, Robinson stated.
Still, underpayments and payer escalation processes place more strain on revenue cycle teams, requiring significant staff time and resources. As payers push more administrative work back onto providers, hospitals are increasingly reliant on more efficient, tech-enabled processes to manage these pressures without further driving up costs.
Supply costs are a major concern as well — they’re still on the rise, with tariffs adding uncertainty.
Hospitals are seeing 6-10% year-over-year growth in supply expenses, similar to 2023 levels. Robinson said it’s unclear how much of this is driven by tariffs versus general inflation, but more well-resourced health systems are responding by doubling down on value analysis, physician engagement around product selection, and tighter use of GPO and distributor contracts to secure better pricing.
He noted that health systems with greater scale are generally better positioned to manage these pressures, as they benefit from stronger balance sheets and more leverage in contracting and staffing.
Robinson stressed that smaller and standalone hospitals are not without options, though — particularly if they focus on tightening operations and controlling costs.
“There’s a lot of things that they can still do, and they’ve proven that they can do it,” he remarked.
Regardless of size, he thinks hospitals will need to be more strategic about where they invest and where they look for efficiencies. In 2026, financial performance will be increasingly tied to execution rather than market position alone.
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