U.S. healthcare spending is on a path that has finance leaders increasingly uneasy. With national health expenditures projected to reach $8.6 trillion by 2033 — and consume more than 20% of the nation’s GDP — health system leaders say the conversation around cost containment, payment reform and sustainability can no longer be deferred.

Recent projections from CMS underscore the scale of the challenge, as spending growth continues to outpace economic growth. The trajectory raises fundamental questions about how hospitals operate, how risk is shared across the healthcare ecosystem and what guardrails are needed to ensure long-term stability.

“We’re approaching 18% of GDP … [and] we’ve seen some response from the federal government, such as H.R. 1, which has wide-ranging implications for a health system like Temple Health,” Byron Glasgow, vice president of finance for Philadelphia-based Temple University Health System, said during an episode of the Becker’s CFO and Revenue Cycle Podcast. “That includes everything from provider taxes to Medicaid redeterminations.”

“Even putting HR1 aside, rising costs remain a hot-button issue. Hospitals are at the forefront of care, and much of the national focus on cost containment lands squarely on them. That’s pretty unique compared to other sectors. Take groceries, for example — there was a national conversation about food prices, and the question was, “What is the government going to do?” Years ago, it was gas prices. But when it comes to healthcare, the question often becomes, “What are hospitals going to do about it?”

CMS’ recent report paints a sobering picture: national health spending grew 8.2% in 2024, with another 7.1% projected for 2025. That’s far above the GDP growth rate, and a trend that finance leaders say is unsustainable.

“That’s tough, because hospitals operate on razor-thin margins — 1% to 3% at best. If you’re a safety-net provider, it’s often less than 1%,” he said. “Meanwhile, other parts of the healthcare ecosystem — insurers, pharmaceuticals, medical device manufacturers — may have margins closer to 5%, 10%, or even over 20%. So, to address rising healthcare costs, we need a broader view that recognizes what hospitals can and can’t realistically control.”

Temple Health is focused on improving efficiency in the areas it can control. That includes working with Medicaid managed care partners to streamline claims processing, reduce denials, and eliminate administrative waste.

“We’ve made progress in contracting, but there’s only so much we can do without a broader evaluation of all the cost drivers in healthcare,” he said. “Fortunately, we’re now seeing the federal government start to examine those broader inputs — and that brings me to value-based care. The focus here is on risk-based arrangements, and for us, particularly in Medicaid, that gets tricky. The medical loss ratio can swing wildly from year to year due to factors like enrollment shifts or changing population health. For a safety-net provider like Temple, it’s simply not responsible to enter full-risk agreements when those kinds of unpredictable swings could put us in a $10 million hole — enough to seriously threaten operations.”

“Until we have stronger guardrails on cost and more predictability in spending, aligning with value-based care models — particularly those with significant downside risk — will remain unsustainable for safety-net systems like ours. We’re committed to doing our part, but the system as a whole needs to evolve to make that possible.”

That sentiment is echoed by Cleveland Clinic Executive Vice President and CFO Dennis Laraway, who says the sector is entering a new phase of industrialization not seen in healthcare before — one driven by three converging forces: payment reform, cost transformation and technology innovation.

“Federal dollars going toward healthcare are going to come down. We’re going to see reduced federal funding of programs. The government’s risk in fee-for-service care — utilization risk, claim risk, volume risk — is budget risk, and they’re looking to mitigate it,” Mr. Laraway told Becker’s. “That means price and payment pressure from CMS and from federal support for Medicaid programs nationwide. Government reimbursement pressure is going to continue, whether we like it or not. And for many health systems, including Cleveland Clinic, 50-60% of hospital utilization is tied to Medicare and Medicaid. That kind of pricing shift has everyone’s attention.”

To combat this, Cleveland Clinic is doubling down on cost transformation: improving labor productivity, consolidating back-office services and driving systemwide efficiency.

“These aren’t new strategies, but they’re more important than ever,” Mr. Laraway said. “Creating reproducible standards and reducing variation are key to improving systemwide efficiency, and that’s something we’re very focused on.”

Technology also plays a critical role. Healthcare has lagged far behind other industries, such as banking or manufacturing, in adopting technologies including robotic process automation or AI-driven systems, primarily due to its thin operating margins.

“But we’ve come a long way, and AI is now very well represented in the health sector,” Mr. Laraway said. “Healthcare is fertile ground for innovation, and that’s certainly true for AI, robotics and other technologies that can help us scale — expanding patient coverage, boosting transactional volume, improving speed and accuracy. That supports cost transformation, which is a key part of our response to payment reform and healthcare legislation.”

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