Hospital use and service intensity helped fuel healthcare spending growth in 2024

Increasing use and intensity of hospital care, physician and clinical services, and retail prescription drugs led a continued surge in U.S. healthcare spending in 2024, according to newly released data.

National health expenditures (NHE) reached $5.3 trillion, a 7.2% increase year-over-year and comparable with the 7.4% jump recorded in 2023. Except for the pandemic year of 2020, when spending rose by 10.5%, the increases seen in the two most recent years of data are the biggest since 2003.

As a share of GDP, NHE reached 18% in 2024. That was down from 2020 (19.7%) and 2021 (18.4%) but up from 2022 (17.6%) and 2023 (17.7%).

“The strong growth in both 2023 and 2024 was driven by nonprice factors (such as increased demand for care and changes in the composition of the healthcare goods and services consumed),” CMS researchers wrote in a Jan. 14 article published in Health Affairs.

On a per capita basis, NHE increased by 6.5% in 2023 and 6.1% in 2024. Aside from 2020, when per capita NHE jumped by 10%, the increase had not hit 6% since 2005 and had not even reached 5% since 2007.

Of the 2024 per capita increase, 2.5 percentage points stemmed from price increases and 3.6 from the use and intensity of healthcare goods and services, the researchers determined.

Hospital care expenditures accelerate

Spending on hospital care grew by 8.4% to surpass $1.6 trillion in 2024, an increase of more than $500 billion relative to 2018.

The 3.4% price hike for hospitals was the biggest year-over-year change since 2007. Still, the researchers also attributed the spending hike to a post-pandemic rebound in demand and higher enrollment in health insurance. Because of such factors, hospital days (1.5%) and discharges (3.2%) remained on the upswing in 2024.

Hospital advocates say the sheer cost of delivering healthcare is spurring the rise in prices and the acceleration in NHE. In a 2025 analysis, the American Hospital Association noted that hospitals are “among the few sectors that consistently employ a highly educated, highly paid workforce — anchoring local economies with middle- and high-skill jobs that cannot be outsourced or automated.”

More generally, hospital expenses grew by 5.1% in 2024, according to the AHA. That mark easily exceeded general inflation (2.9%).

The association’s analysis also quantified population health issues affecting health spending, specifically the impact of chronic disease. For example, the 2010-19 per capita volume increase in emergency department encounters for heart failure was 126.7%, with associated costs rising by 177%.

A report by a leading accounting firm similarly found that macro-level factors are driving hospital spending.

“Hospital systems remain burdened by rising operational costs due to ongoing labor shortages, wage increases and overall inflation in costs of supplies and goods,” PwC wrote in a 2025 report.

Medicare, Medicaid, and private insurance spending patterns

Medicare fee-for-service contributed to the increasing NHE in 2024. Program spending rose by 4.1% year-over-year in the hospital setting, compared with 1.3% in 2023. The acceleration was attributed to the volume and intensity of services in both inpatient and outpatient units, likely reflecting continuing demographic shifts and increasing demand as the pandemic further receded.

Medicare spending on physician and clinical services, including payment for Part B drugs, increased by 5.8% following a 3.7% rise the prior year. Spending on retail prescription drugs soared by 11.9% in 2023 and 12.9% in 2024. Part of that was due to the Part D benefit redesign authorized by the Inflation Reduction Act, according to the researchers.

Policy changes slowed the Medicare Advantage (MA) spending increase from 16.1% in 2023 to 9% in 2024. That trend may be reversed in 2026 after CMS increased benchmark payment rates to MA plans by more than 5% going into 2026, although decelerating enrollment could serve as a counter.

In Medicaid, spending growth eased in 2024 as the continuous-enrollment provisions of the COVID-19 public health emergency continued to be unwound. In hospitals, the year-over-year Medicaid change was 8.5%, compared with 9.2% in 2023.

Healthcare spending by private health plans increased by 8.8%, down from 11.2% in 2023. Health plan spending on hospital care escalated by 10.4% “as enrollment increased and demand for medical care picked up,” the researchers wrote.

“Some health insurance plans reported higher medical losses resulting from an increase in demand for care that was stronger than anticipated,” the researchers noted, citing a National Association of Insurance Commissioners report.

That observation also is reflected in recent analyses of the health insurance industry, to which one credit-ratings agency gave an outlook of deteriorating heading into 2026.

Revenue cycle performance and coding intensity

Some of the recent increase in NHE may stem from changes in providers’ revenue cycle capabilities.

“There is some evidence from recent years of an uptick in coding for sepsis, greater use of higher-acuity evaluation and management codes, and use of new evaluation and management codes,” Michael Chernew, professor of healthcare policy at Harvard Medical School and currently chair of the Medicare Payment Advisory Commission (MedPAC), wrote as part of an accompanying commentary in Health Affairs. He cited AI and ambient scribe technology as potential influences.

Advanced technology and analytics may make revenue cycle management more efficient for hospitals, PwC wrote in its report.

‘These tools have streamlined processes such as insurance eligibility verification, diagnosis coding, claims scrubbing and proactive denial management,” the report states. “Hospitals also have outsourced billing operations and improved patient financial engagement to manage their revenue cycles more efficiently.

“These improvements have accelerated internal processes, reduced errors and maximized revenue capture. As a result, many systems have been able to treat more patients, capture revenue for newer high-cost procedures, and identify opportunities to further boost revenue.”

Issues to consider in recent healthcare spending trends include provider consolidation that may funnel patients to higher-priced settings, Chernew wrote. He also mentioned use of expensive products and said policymakers should explore countermeasures such as reducing Medicare payments for Part B drugs.

“The spending growth we have experienced, and will experience in the future, reflect system design choices,” Chernew wrote. “Our ability to support access to high-quality care at a cost that is affordable in aggregate will require redoubled efforts to reform both healthcare financing and delivery.”