Annual changes in hospital medical supply costs

Medical 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 more than $48 billion in combined medical and surgical supply costs in 2021 — averaging $13.5 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 6% on average

Many factors contribute to hospitals’ 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 2017 and 2021, average medical surgical supply costs increased by nearly $3 million, or about 6.5% each year. From 2019 to 2020, the increase in these supply expenses was only about 3% then between 2020 and 2021, expense were up by 10% on average.

While hospital financial data for 2022 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 and aggregated from the most recent 12-month interval tracked in our database. Accessed March 2023.

Total hospital supply expense averages more than $38 million

Medical and surgical supply costs account for more than one-third of total hospital supply expenses, approximately 35% in 2021.

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 2017 and 2021, total supply costs increased by 6.5% on average each year. As of 2021, average total supply costs are nearly $39 million per hospital.

Total average hospital supply costs

Fig. 2 Data is from the Definitive Healthcare HospitalView product and aggregated from the most recent 12-month interval tracked in our database. Accessed March 2023.

Hospitals over 250 beds spend $64 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 $2.7 million on medical and surgical supplies in 2021.

In comparison, hospitals with 250 beds or more spent an average of $64.4 million in medical and surgical supply costs — 23 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 2017 and 2021 average at 7.9% while hospitals with 26 to 100 beds had a 3.4% increase in hospital medical supply expenses.

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 2021, medical and surgical supply costs accounted for 59.4% 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 41% of total supply expenses.

Medical and surgical supply costs by hospital bed count

Fig. 3 Data is from the Definitive Healthcare HospitalView product and aggregated from the most recent 12-month interval tracked in our database. Accessed March 2023.

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 2021. Hospitals in the Midwest reported the lowest average medical and surgical supply cost at $12.1 million in 2021. Midwestern hospitals saw the biggest increases to medical and surgical supply expenses with a 7.7% average increase 2017 to 2021, compared to other regions at 4.9% to 5.9%.

Hospitals in the southwest region reported medical and surgical supply costs at a higher percentage of their total supply budget. In 2021, medical and surgical supply costs accounted for 42.4% at southwestern hospitals.

Medical and surgical supply costs by hospital region

Fig. 4 Data is from the Definitive Healthcare HospitalView product and aggregated from the most recent 12-month interval tracked in our database. Accessed March 2023.

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