Kaufman Hall’s analysis spotlights the financial challenges that defined the year and the priorities shaping strategies for 2026.
Hospitals and health systems nationwide navigated a precarious performance landscape this year, according to Kaufman Hall’s 2025 performance outlook report.
The research, based on a survey of 103 hospital and system leaders, examines how financial pressures from rising non-labor costs, workforce challenges, capacity constraints, and reimbursement hurdles are shaping operational priorities for organizations heading into 2026.
Non-Labor Costs Fuel Financial Strain
Across the country, almost 60% of respondents reported non-labor expense increases of 6% to 10% over the past year, with tariffs and reimbursement cited as contributing factors. Many organizations have established internal tariff workgroups to quantify and manage costs, but the trend aligns with ongoing inflationary challenges rather than one-off spikes.
Supply chain volatility remains high with 52% of respondents not yet using AI in supply chain operations, even as tools for logistics, demand forecasting, and supplier performance present potential avenues to strengthen financial resilience.
Workforce Optimization at the Forefront
Labor continues to be the largest share of operating expenses. Kaufman Hall’s National Hospital Flash Report shows labor expenses per calendar day were up roughly 5% through September compared to the first nine months of 2024, reinforcing why at least 70% of health systems reported active efforts to optimize staffing.
Leaders are rethinking staffing models by reevaluating span of control, adjusting targets in clinical and support roles, benchmark staffing against peers, and even eliminating certain fixed positions. At the same time, competitive markets are driving wage increases, with 83% raising starting salaries and 81% offering signing bonuses to attract and retain clinical personnel. Outsourcing of support functions, from food and nutrition to revenue cycle and environmental services, is also widespread.
Access, Capacity, and Care Bottlenecks
Access to care remains a major concern. A whopping 91% of respondents said they could not accommodate patients in a timely manner, with 42% reporting excessive wait times for appointments. Emergency department capacity remains a top constraint, cited by 77% of health system leaders.
These capacity pressures are exacerbated by external bottlenecks such as insurance referral delays, compounding backlog challenges in already stressed clinical environments.
Reimbursement Challenges Persist
Payer dynamics continue to weigh heavily on performance outlooks. High claim denial rates and the administrative burden associated with managed care transactions were flagged by 44% of respondents as the top reimbursement challenge. Reimbursement rates that do not align with cost trends (30%) and difficulties renegotiating commercial contracts (11%) were second and third among concerns.
Breakdowns early in the revenue cycle, such as eligibility verification and authorization processes, remain primary contributors to denials, with clinicians also noting incomplete documentation as a frequent culprit.
Looking Forward
Despite these headwinds, the report shows a nuanced financial picture. Only 30% of respondents expect cash balances to improve over the next 12 months, while others foresee flat or declining liquidity, highlighting ongoing uncertainty about the economic picture.
“While non-labor expenses are no doubt putting financial pressure on organizations, the 2025 findings may reflect broad inflationary pressure rather than abnormal spikes,” Lance Robinson, managing director and operations improvement practice leader with Kaufman Hall, said in a statement: “Data from research we conducted a few years ago found similar trends, and with more cost pressures likely ahead, this points to the continued need for hospitals to strengthen their financial resiliency.”
To counter these pressures, the report highlights actionable strategies: enhancing financial visibility into non-labor expenses, strengthening governance for cost management, expanding use of analytics and automation, and improving throughput and patient flow across care settings.
As hospitals close out 2025, the convergence of challenges across the board suggests that performance must be reimagined to balance financial health with effective care delivery.
Jay Asser is the CEO editor for HealthLeaders.
KEY TAKEAWAYS
Nearly 60% of hospital leaders saw non-labor costs rise 6% to 10% over the past year, reflecting sustained inflation rather than temporary spikes.
Labor expenses climbed about 5%, pushing systems to optimize staffing even as wages and bonuses increased.
Access and reimbursement challenges persist, with capacity limits, payer denials, and uncertain liquidity clouding the outlook.