Hospital labor costs held steady in August, signaling potential stabilization after several years of volatility. Yet new Kaufman Hall data shows that annual growth remains firmly in place, underscoring the lasting effects of a tight healthcare labor market and persistent wage inflation.

Nationally, labor expenses per calendar day were unchanged from July, but up 5% year over year and 5% year to date compared to 2024. The pause in month-over-month growth suggests hospitals may be regaining control over workforce spending though the continued annual increases suggest deeper structural challenges remain in staffing and compensation. More hospitals will likely seek creative partnerships or mergers and acquisitions to lessen the strain.

“Over the next three to five years, hospital consolidation will remain a defining force, though the pace will be shaped more by strategy than scale alone,” Sophia Holder, executive vice president and CFO of Children’s Hospital of Philadelphia, told Becker’s. “Rising labor costs, persistent reimbursement pressures, and the capital intensity of digital health and research investments will push organizations to evaluate partnerships that create durable, system-level value.”

Regional trends

Labor cost trends varied modestly by region, with most seeing flat or declining month-over-month figures but continued annual growth.

1. The West and Midwest both saw 1% month-over-month declines, reflecting early signs of cost containment. Still, labor expenses were up 5% and 4% year over year, respectively.

2. The South held steady month to month, maintaining 4% annual growth, mirroring national patterns.

3. The Northeast and Mid-Atlantic also reported a 1% decline from July and posted the smallest year-over-year increase at 3%, indicating gradual normalization after earlier spikes in staffing costs.

4. The Great Plains region was the exception, with labor expenses up 2% month over month and 6% year over year, reflecting continued staffing pressures in smaller, rural hospital markets where workforce shortages remain acute.

Regional variation suggests that while hospitals in major markets may be stabilizing staffing levels, rural and independent facilities continue to face higher labor costs tied to recruitment difficulties and reliance on premium pay.

“We need to search for true solutions and modern innovations that can address the changes we are seeing in population demographics and a new healthcare workforce,” said Stephen Parodi, MD, executive vice president of external affairs, communications and brand at The Permanente Federation in Oakland, Calif. “Delivering more care into homes through team-based approaches that address social, mental, and physical health will be a critical move necessitated by these emerging realities.”

Hospital size

Labor expense growth also diverged by hospital size, highlighting how both ends of the spectrum remain under the most strain.

Hospitals with fewer than 25 beds saw no change month over month, but labor costs were up 8% year to date — the steepest increase of any size group. Smaller hospitals often face limited staffing flexibility and are more vulnerable to contract labor and overtime pressures, driving faster cost escalation.

At the opposite end, hospitals with 500 or more beds also reported flat month-over-month trends, but expenses rose 7% year over year and 6% year to date. These large facilities continue to feel the effects of wage growth for specialized roles, union agreements and retention incentives, particularly in high-acuity and urban markets.

Mid-sized hospitals, ranging from 100 to 499 beds, generally reported stable month-to-month costs with 4–5% year-over-year growth, signaling improved workforce equilibrium after years of high turnover and aggressive recruiting.

Outlook

The August data provides cautious optimism that hospitals are beginning to contain labor expense growth in the short term. However, the consistent 4 to 6% annual increase across most markets points to lingering workforce pressures — especially in nursing, specialty care, and rural recruitment.

Health systems are adapting with strategies such as flexible scheduling, cross-training, and investment in workforce pipelines, but meaningful relief may require broader labor market stabilization. For now, the industry’s focus is shifting from acute cost control to sustaining staffing levels and building long-term workforce resilience.

“Over the next five years those health center C-Suites that will truly thrive will be marked by leadership stability, a strong sense of mutual trust and by continually bringing the very best out of each other and the entire health center workforce,” said Jeffrey Gold, MD, president of the University of Nebraska System in Lincoln. “The willingness and ability to take appropriate risk and to hold each other to the highest possible standards of patient centered service will ultimately define their future of success.”

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