U.S. hospitals are facing mounting financial pressures as President Trump’s tariffs hit prescription drugs and the Republican-led Congress’ cuts to healthcare spending begin to take hold as early as next year.
A parade of new reports on hospital and health system finances show operating margins falling and financial outlooks dimming in part due to rising prescription drug costs. Meanwhile, bad debt and charity expenses are increasing as Americans see higher co-payments and deductibles, which means they aren’t paying their hospital bills or at least the patient share of the tab.
“U.S. hospitals and health systems are contending with these rising costs against a backdrop of policy uncertainty,” a new report on hospital and health system finances from Strata Decision Technology says.
“The Trump administration has announced plans to impose pharmaceutical import tariffs of up to 200% within the next 18 months,” Strata’s report said. “At the same time, industry analysts predict proposed changes to Medicaid could reduce coverage for millions of low-income Americans. Such measures, layered on top of already steep expense growth, could place unprecedented financial pressure on healthcare organizations.”
To be sure, health insurance companies are already seeing rising expenses due to increase use of healthcare services from surgeries and other inpatient care to preventive care put off during the Covid-19 pandemic. As one example, the Strata report said the cancer service line saw “one of the largest increases in inpatient drug expenses per case, with the metric jumping 65.4% year-over-year to close the second quarter in June.”
Another report from the consulting firm KaufmannHall, a unit of Vizient, showed financial and operational performance as “generally stable” in July “but could be threatened by growth in the cost of expenses outpacing growth in revenues.” While patient volumes and revenues are “trending upward,” the KaufmannHall report said, “bad debt and charity care continue to be elevated.”
Already, health insurers and their customers with individual coverage under the Affordable Care Act are bracing for higher premiums and out-of-pocket costs as the Republican-led Congress decides whether to extend tax credits or trigger a big price hike in premiums for millions of Americans for the 2026 health benefit year.
The subsidies, or tax credits, make health insurance premiums more affordable for individuals and were enhanced by the Biden administration and the Democratic-controlled Congress, which passed the Inflation Reduction Act of 2022, allowing more Americans to buy coverage. The enhanced subsidies helped enrollment in the ACA’s individual coverage, also known as Obamacare, eclipse a record 24 million Americans and help its popularity hit all-time highs.
If the Trump administration and the Republican-controlled Congress eliminate or reduce subsidies, premium costs could soar by double-digit and even triple-digit percentages for next year, health insurance executives say.
The loss of tax credits would be on top of the Big Beautiful Bill Act that Trump signed into law that cuts $1 trillion in Medicaid spending on low income Americans. The nonpartisan Congressional Budget Office estimates that budget bill will lead to nearly 12 million Americans losing health insurance coverage over the next 10 years.
“Hospital performance in Q2 and early Q3 reflects both resilience and risk,” said Steve Wasson, Strata’s chief data & intelligence officer. “Organizations are holding steady for now, but rising drug expenses combined with looming policy changes are a one-two punch that could quickly erode financial stability. Healthcare leaders need to prepare for significant uncertainty in the months ahead.”
