Annual changes in hospital medical supply costs

Supply costs are one of the most significant expenses in hospitals and other healthcare facilities, second only to labor costs and administrative expenses.

According to data from the Definitive Healthcare HospitalView product, U.S. hospitals reported nearly $40 billion in combined medical and surgical supply costs in 2020—averaging $13 million per hospital. This medical and surgical supply cost metric is sourced from the Medicare Cost Report, and includes the cost of medical devices, implantable devices, and pharmaceuticals charged to patients without overhead costs.

In this post, we analyze supply costs from 2016 to 2020 across 3,075 U.S. hospitals.

Medical and surgical supply costs increase 5% on average

Many factors contribute to hospital spending such as the high cost of pharmaceuticals and the impact of physician preference item spending.

Medical and surgical supply costs have steadily increased in recent years. Between 2016 and 2020, average medical surgical supply costs increased by over $2.4 million, or about 5% each year. From 2019 to 2020, the increase in these supply expenses was about 3%.

While hospital financial data for 2021 is still being compiled, we certainly know that material cost increases and chokepoints in the medical supply chain, rising contract labor costs and decreasing revenue will continue to impact care delivery.

Average medical and surgical supply costs

Fig. 1 Data is from the Definitive Healthcare HospitalView product. Data is sourced from the Medicare Cost Report. Results based on 3,075 U.S. hospitals with reported medical surgical supply cost data each year from 2016 to 2020. Accessed April 2022.

Total supply expense averages over $30 million

Medical and surgical supply costs account for over half of total supply expenses, approximately 57% in 2020.

Total medical surgical supply costs as tracked in HospitalView includes medical surgical supply costs as well as overhead costs such as buildings/fixtures, maintenance, and operation of plant.

Between 2016 and 2020, total supply costs increased by 5% on average each year. As of 2020, average total supply costs are $30 million per hospital.

Total average hospital supply costs

Fig. 2 Data is from the Definitive Healthcare HospitalView product. Data is sourced from the Medicare Cost Report. Results based on 3,075 U.S. hospitals with reported medical surgical supply cost data each year from 2016 to 2020. Accessed April 2022.

Hospitals over 250 beds spend $62 million on average in medical/surgical supply costs

There's a strong correlation between reported medical and surgical supply costs and hospital bed count. According to HospitalView data, hospitals with 25 beds or fewer spent an average of $2.4 million on medical and surgical supplies in 2020.

In comparison, hospitals with 250 beds or more spent an average of $62.2 million in medical and surgical supply costs—25 times the amount reported by smaller facilities. Larger hospitals have a greater number of patients to care for than small healthcare facilities and, because of this, require more resources and supplies to administer proper care to all patients.

The average annual increase in medical and surgical supply costs also varies by hospital size. Hospitals with more than 250 beds had annual increases between 2016 and 2020 average at 6.3% while hospitals with 26 to 100 beds had a 2.6% increase and hospitals with 25 beds or fewer had a 4.9% increase.

Though medical and surgical supply costs are lower at hospitals with 25 beds or fewer, this expense accounts for a much greater portion of their total supply budget. In 2020, medical and surgical supply costs accounted for 64.2% of the total supply expenses at hospitals with 25 beds or fewer. At hospitals with 250 beds or more, however, medical and surgical supply costs made up only 44% of total supply expenses.

Medical and surgical supply costs by hospital bed count

Fig. 3 Data is from the Definitive Healthcare HospitalView product. Data is sourced from the Medicare Cost Report. Results based on 3,075 U.S. hospitals with reported medical surgical supply cost data each year from 2016 to 2020. Accessed April 2022.

Southeastern hospitals have highest average medical/surgical supply costs

Hospitals in the Southeastern United States have the highest medical and surgical supply costs, with an average of $15.8 million reported in 2020. Hospitals in the Midwest reported the lowest average medical and surgical supply cost at $11.4 million in 2020. Midwestern hospitals saw the biggest increases to medical and surgical supply expenses with a 7.6% average increase 2016 to 2020, compared to other regions at 3.7% to 5.1%.

Despite their slightly lower average supply costs, hospitals in both the Midwest and Southwest regions reported medical and surgical supply costs as a higher percentage of their total supply budget. In 2020, medical and surgical supply costs accounted for 60.6% of total supply costs at Midwestern hospitals and 58.1% at Southwestern hospitals.

Medical and surgical supply costs by hospital region

Fig. 4 Data is from the Definitive Healthcare HospitalView product. Data is sourced from the Medicare Cost Report. Results based on 3,075 U.S. hospitals with reported medical surgical supply cost data each year from 2016 to 2020. Accessed April 2022.

Supply costs are a larger percent of total supplies at independent hospitals

On average, medical and surgical supply costs are much higher at hospitals operated by an integrated delivery network (IDN) than at independent, unaffiliated hospitals.

In 2020, IDN-operated hospitals reported an average of $16.2 million in medical and surgical supply costs, compared to an average of $5.5 million at independent hospitals.

Between 2016 and 2020, medical and surgical supply expenses increased  about 5% a year for IDN-owned hospitals compared to 5.7% for independent hospitals.

However, medical and surgical supply costs account for a much larger share of total supply costs at independent hospitals than they do at IDN-operated facilities. For example, medical and surgical supply costs represented nearly 62% of the total supply budget at independent hospitals in 2020, while these costs accounted for just 54.2% of total supply expenses at IDN-operated hospitals.

Medical and surgical supply costs by hospital ownership

Fig. 5 Data is from the Definitive Healthcare HospitalView product. Data is sourced from the Medicare Cost Report. Results based on 3,075 U.S. hospitals with reported medical surgical supply cost data each year from 2016 to 2020. Accessed April 2022.

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