The cost of hospital care: 10 notes for supply leaders

Medical supplies cost hospitals $146.9 billion in 2023 — an uptick from about $140 billion expenses a year prior, the American Hospital Association said in a May update of its Costs of Caring report

Leaders at hospitals and health systems should expect to continue seeing price increases for labor, drugs and medical supplies in 2024, the AHA said. 

Here are 10 things supply chain executives should know: 

1. In 2023, medical supply costs accounted for about 10.5% of the average hospital's budget. 

2. Inflation increased 12.4% between 2021 and 2023 — a rate that is more than two times faster than Medicare reimbursement for inpatient care. 

3. Upfront costs for critical equipment and device upgrades are high. For example, magnetic resonance imaging machines are, on average, $3.2 million

4. Since 2022, the number of days cash on hand has fallen by 28.3% for hospitals and health systems. 

5. The average age of capital investments for medical equipment and infrastructure rose 7.1% for all hospitals in 2023, meaning these businesses are conducting tradeoffs to maintain healthcare services and postponing planned upgrades. 

6. In 2022, Medicare paid 82 cents for every dollar spent by hospitals, leading to a deficit of nearly $100 billion

7. Denials cost hospitals $20 billion every year, and denials for commercial Medicare Advantage plans increased 55.7% in 2023. Health insurance premiums grew at a rate of 6.7% while hospital prices increased 2.6%

8. In 2022, hospitals spent nearly $30 billion on property and medical liability insurance. 

9. The median annual list price for a new drug in 2023 was $300,000 — a 35% increase from 2022. 

10. Labor costs in hospitals were $839 billion between 2021 and 2023, equal to nearly 60% of the average hospital's expenses. In 2023, the advertised wage rates for all hospital jobs increased 10.1%.

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