By Arnab Sen

After a challenging few years post-pandemic, hospital and health system finances have slowly started to stabilize, with many providers entering 2025 in better shape.

Key metrics, such as operating margins, revenue, and length of stay, have shown signs of improvement for many health systems, particularly those in high-growth areas. In December 2024, credit ratings agency Fitch revised its outlook for U.S. nonprofit hospitals to “neutral” from “deteriorating,” citing “meaningful strides” in operating-margin improvements.
As a result, health system executives can finally breathe a sigh of relief that perhaps the worst is over. However, that doesn’t mean the industry is free of potential headwinds in 2025.

Rising operational and labor costs, declining reimbursement, and surging claim denials loom as significant challenges that could disrupt health system finances and compromise hospitals’ ability to deliver critical care to their communities. Following is a look at some of the major challenges to expect in hospital revenue cycle management (RCM) in the coming months.

Rising costs: Increasing costs continue to represent the greatest obstacle for hospitals and health systems. A 2024 report from the American Hospital Association (AHA) found that hospitals’ labor costs, which on average account for 60% of a hospital’s budget, increased by more than $42.5 billion between 2021 and 2023, now totaling $839 billion.

Persistent staffing shortages: Worker shortages have long been a concern in the healthcare industry, a problem exacerbated by the pandemic. These shortages are likely to extend into the future. A Mercer report projects a shortage of about 100,000 critical healthcare workers by 2028. The shortage of nursing assistants, in particular, is expected to reach 73,000 by that time. Although shortages of clinical workers attract the most media attention, hospitals are facing similar challenges with shortfalls of RCM employees. A PWC survey of CFOs and revenue cycle vice presidents indicates eight out of 10 respondents experienced labor shortages across the revenue cycle, with 44% indicating that their RCM staff was down 10-20% below steady-state levels.

Declining reimbursement: The costs that hospitals have incurred to deliver care have outpaced reimbursement by a significant amount in recent years. For example, payments for inpatient behavioral health services were on average 34% below costs, and in the outpatient setting, payments for burn and wound services were on average 43% below costs, the AHA found.

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