Healthcare systems across the U.S. reported significant spikes in supply costs for the quarter ending March 31, 2025. According to the American Hospital Association’s “Cost of Caring” report, supply expenses now account for around 13% of total hospital expenditures, contributing to the broader challenge of rapidly rising institutional costs.
Let’s dig into the data and explore what lies behind this growing financial strain.
1. Overall Financial Pressure in Hospitals
In 2024, total hospital expenses surged by 5.1%, well above the 2.9% inflation rate highlighting the pressure of rising supply and labor costs on health systems nationwide. These surging costs have stretched budgets and challenged long-term sustainability.
2. How Much Supply Costs Have Grown Across 20 Health Systems
Here’s a snapshot of year-over-year supply cost increases at major systems for Q1 2025:
- Allina Health (Minneapolis): +27.8% highest among peers
- Legacy Health (Portland): +13.8%
- Allegheny Health Network (Pittsburgh): +13.6%
- Mayo Clinic (Rochester): +12.2%
- Other notable increases: UnityPoint Health (14.2%), Sharp HealthCare (18.1%), Corewell Health (9.6%), and BayCare (10.5%)
- Conversely, several systems experienced modest increases, including Bon Secours Mercy Health (+3.6%), Montefiore (+2.8%), Cleveland Clinic (+0.8%), and ProMedica (+0.6%).
These fluctuations reflect varying supply chain pressures across regions and system structures.
3. Why These Costs Are Rising
Inflation & Global Supply Constraints: Ongoing inflation, paired with strained global sourcing, has significantly raised prices for medical supplies.
Tariffs & Import Disruptions: Healthcare relies heavily on imports. Tariffs could further inflate costs, with some experts warning of a 15% spike in hospital expenses.
Underpayments Compounding Strain: Hospitals absorbed $130 billion in underpayments from Medicare and Medicaid in 2023, representing a 14% annual increase, adding further pressure to their supply budgets.
4. Broader Implications for Healthcare Operations
Health systems facing rising supply costs must rethink strategies, including:
- Tightening operational budgets or slowing capital investments, as evidenced by aging infrastructure across many hospitals.
- Potential postponement of equipment purchases, risking care quality and technological progress.
- Advocacy for tariff exemptions and improved reimbursement strategies through legislation and policy channels.
5. How Facilities Can Respond Strategically
- Leverage group purchasing organizations (GPOs) to negotiate better pricing and manage supplier diversity.
- Enhance supply chain intelligence, including real-time tracking and demand forecasting.
- Seek policy interventions, such as tariffs waivers for critical supplies, to stabilize costs.
- Optimize operational efficiency to offset rising supply outlays with smarter workflows and staffing models.
Conclusion
Supply costs are rising sharply across U.S. health systems—ranging from modest increases to nearly 28% at some and contributing to broader financial strain. Coupled with underpayments and policy pressures, healthcare organizations must increase operational resilience and advocate for systemic support. The path forward lies in smarter supply strategies and collaborative solutions that secure quality care under cost constraints.
