Drug costs are emerging as one of hospitals’ fastest-growing expense categories, outpacing labor and other nonlabor costs as organizations continue to navigate a challenging financial environment, according to Kaufman Hall’s latest “National Hospital Flash Report.”
Nationally, drug expense per adjusted discharge increased 11% compared to 2023, one of the largest increases among major hospital expense categories. Drug expense per calendar day also rose 5% year over year and 25% compared to 2023, exceeding the growth rate for labor and total operating expenses.
The trend is especially pronounced at the nation’s largest hospitals.
Among facilities with more than 500 beds, drug expense per adjusted discharge climbed 12.3% year over year and 33.6% compared to 2023. Drug expense per calendar day increased 12% from the prior year and 43.3% over the three-year period, making it the fastest-growing major expense category for large hospitals.
Overall hospital finances remain under pressure despite continued revenue growth. Through May, operating revenue per calendar day increased 6% year over year, but total expense per calendar day also rose 7%. Labor expense per calendar day increased 4% and nonlabor expense rose 9% year over year, reflecting persistent inflationary pressures across hospital operations.
“Both labor and non-labor expenses remain elevated overall through May as compared with last year. As more care shifts to outpatient settings, health systems should evaluate how they strategically plan, align, and deploy resources to maximize effectiveness,” Kaufman Hall analysts write in the report.
Kaufman Hall also found hospitals continue shifting care into outpatient settings. Through May, outpatient revenue per calendar day increased 8% year over year, compared with 5% growth in inpatient revenue, while adjusted patient days increased 1% despite inpatient discharges remaining relatively flat.
Kaufman Hall’s report is based on financial and operational data from more than 1,300 hospitals nationwide.
Click here to access the report.
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