Hospital Intelligence Brief
How to Evaluate Hospital Expense Growth Against Revenue Growth
“Expenses are up 8% and revenue is up 6%” is a start. The useful questions come next: which categories, relative to what, and for how long.
Short answer
To evaluate expense growth against revenue growth, calculate the gap in points and dollars, break it into cost categories, compare cost per case with revenue per case, and then investigate why the leading categories moved. An 8 percent expense increase against 6 percent revenue growth can mean very different things depending on where the increase sits.[1][2]
Why is the growth gap not enough?
Almost every hospital reports expense growth and revenue growth. What is less common is a disciplined way to compare them: to break the gap into pieces and decide which pieces deserve attention. An 8 percent expense increase against 6 percent revenue growth can mean very different things depending on where the increase sits. A fixed-cost step, such as opening a new unit, is different from wage inflation, which is different from a volume-driven increase that is simply earning less per case.
The gap itself is still the right starting point. Express it in percentage points and in dollars. On a hospital with $400 million in revenue, a two-point gap is about $8 million of margin per year, enough to change the budget.
What are the four layers of the comparison?
The first layer is the growth gap: expense growth minus revenue growth, in points and in dollars. The second is the category view: which categories contributed what share of the increase? The third is the per-unit view: how does cost per case compare with revenue per case? The fourth is the cause view: why did the leading categories move? That last layer needs operational detail from outside the finance function.
Public cost reports support the second layer. The hospital cost report that Medicare-certified hospitals file annually includes costs and charges by cost center, utilization data and financial statement data.[1] In New York, Article 28 hospitals also file an annual Institutional Cost Report to the state Department of Health, which includes revenues, expenses, assets, liabilities and statistical information and is used to develop Medicaid rates.[4] Both can show how expense is distributed, though both lag.
What does sector data suggest about categories?
Context helps set expectations. The American Hospital Association reports that labor is the largest category at 56 percent of costs, that total hospital expense grew 5.1 percent in 2024 and that the average age of plant, a measure of how old a hospital’s infrastructure is, rose by more than 10 percent over two years according to industry benchmark data.[2] Kaufman Hall reported in its August 2026 data that non-labor expense per adjusted discharge rose 6 percent year to date, with supply expense up 5 percent and drug expense up 6 percent.[3]
Taken together, these suggest that a hospital with expense growth in the 5 to 8 percent range is not unusual, and the diagnostic question is whether its revenue growth kept pace and whether any category stands out relative to the sector. A hospital whose labor grew 4 percent but whose purchased services grew 15 percent has a clear place to look.
How do you move from the gap to a cause?
For each leading category, ask three questions: is the change price, quantity or mix; is it recurring; and is it linked to volume? Price changes include wage rates and vendor prices. Quantity changes include hours and units consumed. Mix changes include shifts toward more expensive roles, drugs or devices. Compare the category’s growth with volume growth to see how much is volume-driven.
An invented example shows the process. Expenses rose 8 percent and revenue rose 6 percent. Labor, 55 percent of expense, rose 7 percent; supplies, 20 percent of expense, rose 12 percent; purchased services, 15 percent, rose 9 percent; and other, 10 percent, rose 3 percent. Supplies contributed 2.4 points of the 8-point increase despite being a fifth of costs, which makes them the first place to investigate even though labor is larger. The figures are illustrative only.
Then check how long the pattern has persisted. A category that has grown faster than revenue for six quarters is a different problem from one that jumped in a single quarter.
Frequently asked questions
How do you compare hospital expense growth with revenue growth?
Calculate the gap in points and dollars, break expense into categories, compare cost per case with revenue per case and investigate the causes of the leading categories.
What is cost per case?
Total expense divided by cases or adjusted discharges, used to separate volume effects from cost-rate effects.
Where can I find hospital expense data by category?
Medicare cost reports include costs and charges by cost center, and New York Article 28 hospitals file an Institutional Cost Report with the state.[1][4]
Is 8 percent expense growth high for a hospital?
The AHA reported 5.1 percent total expense growth in 2024; whether 8 percent is high depends on the hospital’s volume growth and category mix.[2]
What should come first after finding a gap?
Rank categories by their contribution to the total increase, then investigate the largest.
What to do next
- Calculate the expense-revenue gap in points and dollars.
- Rank categories by contribution to the increase.
- Compare each category’s growth with volume growth.
- Ask whether each driver is price, quantity or mix.
Optional · interactive example
See it in an interactive example.
Hospital Financial Investigator: a working dashboard, scenario simulator, evidence-linked answers from APIS, and a sample executive brief, all on synthetic data.
The experience below is built on a synthetic hospital, “Demo Community Hospital,” with two fiscal years of data. Nothing in it is real, so you can explore freely.
- In the Expense detail table, sort by “% of total” and note which two categories carry the increase.
- Click the Supplies bar in the chart, then the quarter points on the trend line to see whether it is steady.
- Ask APIS which expense categories explain the change, and open the evidence it cites.
Explore Your Hospital’s Opportunities
Two Pillars can help hospital leadership investigate market, financial, operational and strategic questions using relevant organizational data, public information and a structured assessment process. A good first step is a short financial performance review that places revenue, expense, volume and margin side by side and shows where the pressure actually sits.
Sources
- Centers for Medicare & Medicaid Services, Cost Reports. Accessed October 2026.
- American Hospital Association, The Cost of Caring: Challenges Facing America’s Hospitals in 2025. Accessed October 2026.
- Kaufman Hall (Vizient), National Hospital Flash Report: August 2026 Data (October 13, 2026). Accessed October 2026.
- New York State Department of Health, Institutional Cost Reports (ICRs). Accessed October 2026.
Sources checked October 2026. This guide is general information for healthcare leaders and is not legal, financial, clinical or compliance advice. Figures and rules are cited to the sources below and may have changed since they were accessed, so confirm anything you rely on against the current source. Two Pillars & Co is independent of the organizations cited. See our editorial policy.