U.S. hospitals and health systems are facing sustained increases in non-labor costs, particularly in medical supplies and drugs, according to a new report from Chicago-based Strata Decision Technology.

The analysis also points to rising levels of charity care and bad debt, trends that may be intensified by upcoming federal policy decisions.

Between the first quarter of 2023 and the same period in 2025, medical supply expenses rose from 7.2% to 8.0% of total hospital spending. Drug costs followed a similar pattern, increasing from 4.1% to 4.4% of total expenses. On a per-patient basis, hospitals saw an 8.4% increase in drug expense per adjusted patient day, climbing to $108.07. Medical supply expense per patient rose 6.7% to $207.11.
“Hospitals and health systems have battled persistent expense increases for years across both labor and non-labor categories,” said Steve Wasson, chief data and intelligence officer at Strata. “Now — with more than two-thirds of medical devices used in the U.S. manufactured outside of the country — tariffs and other federal policy changes could further drive up costs for pharmaceuticals, syringes, personal protective equipment, and other medical supplies and devices that healthcare professionals rely on every day to care for patients.”

The report also shows a continued rise in uncompensated care. Charity deductions at hospitals rose 7.6% from the first quarter of 2024 to 2025, and 24.5% compared to 2023. While bad debt was down slightly over the past year (0.9%), it remains 15.3% higher than in Q1 2023.

Medicaid remains a key revenue source, comprising at least 12% of hospital income in most regions. The West has the highest share at 14.4%, and the Midwest the lowest at 11.1%. Larger hospitals also tend to rely more on Medicaid, with facilities reporting over $1 billion in annual operating expenses receiving 16.5% of their revenue from the program.

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