Hospitals are reaching a breaking point as demand and competition for healthcare workers pushes wages ever higher.

Labor and expenses per calendar day grew 5% from 2024 to 2025, and 12% from 2022, according to Kaufman Hall’s “National Hospital Flash Report” and the growth may not be done. Fitch forecasts staffing costs will rise in the mid-single-digit rates, while medical professional fees could increase by around 10%, a change from last year’s tailwinds as health systems reduced reliance on temporary staffing. The pressure stems from a fundamental tension: increased competition for a finite pool of qualified workers, compounded by a generational shift in workforce expectations, is forcing hospitals to rethink their compensation strategy from the ground up.

Nowhere is that rethinking more visible than in California, where legislation passed in 2024 raised the minimum wage for healthcare workers to $25, phased in over three years. The mandate doesn’t just affect entry-level roles; it elevates the pay scale for positions throughout the system, creating a cascade effect that strains already tight budgets.

For hospitals, especially rural and community organizations operating on thin margins, the pressure is spurring a search for new revenue-adding services and more creative ways to make ends meet.

“One of the most pressing workforce challenges we anticipate in 2026 is the continued increase in mandated minimum wages for healthcare workers in California,” said Marie Langley, CEO of Desert Valley Medical Group in Victorville, Calif. “While raising wages are necessary to keep pace with the region’s escalating cost of living and to provide meaningful opportunities for individuals entering the workforce, they also create significant wage compression for experienced staff who have invested years in developing their skills and expertise.”

Ms. Langley said the salary increases impact almost all entry-level positions and create a complex challenge for leadership to balance fairness, retention and morale for the more tenured employees. She also sees compensation expectations shifting and the pressure mounts as professional reimbursement rates stagnate or decline.

“To address this, we are proactively reviewing compensation structures, investing in career progression and professional development opportunities and identifying operational efficiencies to help offset rising labor expenses,” she said. “Our goal is to remain competitive, equitable and financially sustainable while continuing to support and invest in our workforce.”

California hospitals aren’t the only ones giving steep pay increases. In the last year, Becker’s recorded 44 hospitals and health systems that increased pay for some or all employees in clinical and non-clinical roles. In January, Charlotte, N.C.-based Advocate Health reported investing $776 million in workforce compensation this year, including a unified $18.85 minimum wage across all hospitals. Renton, Wash.-based Providence also committed $600 million in merit and market adjustments for staff this year as part of a strategic overview.

Jenny Collopy, vice president and chief marketing and communications officer of The Christ Hospital Health Network in Cincinnati, sees a growing disconnect between the cost of care delivery and what hospitals are paid for care.

“Wages for healthcare workers must continue to increase so team members can keep up with inflation, support their families and manage the rising cost of living,” she said. “At the same time, inflation continues to outpace what payers are willing to reimburse for healthcare services. That imbalance puts real pressure on health systems and forces difficult tradeoffs.”

The Christ Hospital is making adjustments through the Forward 2.0 operational improvement plan, focused on improving performance, eliminating inefficiencies and redesigning care so our teams can work at the top of their license. Then, the organization can reinvest in the workforce without negatively impacting access or quality of care.

The hospital’s Team Member Value Proposition focuses on ensuring team members have “everything it takes for everyone to thrive.”

“That means creating an environment where team members feel valued, have clear pathways for growth and mobility, are recognized and rewarded for excellence, and feel genuinely connected to our mission,” said Ms. Collopy. “Building a strong culture of engagement and loyalty is one of the most important drivers of retention, and it’s a commitment we take seriously as we navigate the workforce challenges ahead.”

Hiring healthcare workers is more competitive; health systems are investing in education pipelines, but that takes time and organizations are seeing an immediate need to increase compensation packages to maintain or expand access to care today. Physicians and nurses entering the workforce are seeking additional schedule flexibility, faster career growth tracks and more work-life balance.

Erika Werner, MD, president of the physician organization at Boston-based Tufts Medical Center, said historically hospitals expected 50-plus hour work weeks that could stretch all seven days of the week, and clinicians requested less time off for illness or family leave. In the academic setting, research and committee work were performed outside regular hours and considered “privileged pursuits.”

That’s not the case today.

“Not only are new hires challenging these historic healthcare norms, but seasoned clinicians are seeking culture change as they see their age-matched peers in other professions having increased schedule flexibility,” said Dr. Werner. “While this evolution has enormous potential to result in a happier, healthier workforce, reductions in clinician effort without congruent decreases in compensation risk further increases in labor costs, the main driver of ever escalating healthcare costs. Our health system is navigating these competing interests through honest, direct discussions between clinicians and administrators.”

The clinical and administrative leaders are developing a framework of understanding about how clinical and non-clinical time drives healthcare forward and delivers value. Together, the group is increasing transparency about the value of future investments.

“We are evolving our employment model so that clinicians can titrate time and compensation to best fit their individual needs,” said Dr. Werner. “Only with partnership, transparency and flexibility can we meet workforce and financial demands of 2026 and beyond.”

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