HCA 125 Module 1 assignment: the financial and capital structure of the U.S. healthcare system, a full sample

Following $5.3 Trillion: Who Pays, Who Gets Paid, and How Hospitals Raise Capital in U.S. Health Care

Student Name

Health Care Administration Program, Aspen University

HCA 125: Healthcare Finance

Instructor Name

Month Day, Year

Following $5.3 Trillion: Who Pays, Who Gets Paid, and How Hospitals Raise Capital in U.S. Health Care

Every decision a healthcare manager makes, from staffing a clinic to buying a scanner, sits inside a larger system of money. Knowing where that money comes from, where it goes, and how organizations raise funds for buildings and equipment is the starting point for healthcare finance. This paper describes the sources and uses of U.S. health spending using the most recent federal data, traces how money flows from those who pay to those who provide care, and explains how the capital structure of not-for-profit and investor-owned hospitals differs.

How Much the Nation Spends

National health expenditures grew 7.2 percent to $5.3 trillion in 2024, or $15,474 per person, and accounted for 18.0 percent of gross domestic product (Centers for Medicare & Medicaid Services [CMS], 2025). Federal actuaries project that health spending will grow faster than the economy over the next decade, reaching 20.6 percent of gross domestic product by 2034 (CMS, 2025). The United States has spent more per person than other wealthy nations for decades. Comparing health systems across member countries of the Organization for Economic Cooperation and Development, Anderson et al. (2003) found that Americans used fewer of many services than the median country, and concluded that the spending gap was caused mostly by higher prices for health care goods and services. That finding still shapes how managers think about revenue: in the United States, the price paid for a service matters as much as how many services are delivered.

Sources: Who Pays

Table 1 shows the major sources of funds in 2024.

Who Ultimately Sponsors the Spending

The payers in Table 1 are intermediaries. Behind them stand the sponsors who actually provide the money. In 2024, the federal government sponsored 31 percent of health spending, households 28 percent, private businesses 18 percent, state and local governments 16 percent, and other private revenues 6 percent (CMS, 2025). Households pay directly through deductibles and copayments, and indirectly through premiums, payroll taxes, and income taxes. Employers pay premiums as part of employee compensation. This distinction matters because a change in who is labeled the payer, for example a shift from employer coverage to a public program, changes the flow of funds without necessarily changing who ultimately bears the cost.

Uses: Where the Money Goes

Hospital care is the largest category of spending, at $1,634.7 billion in 2024, or about 31 percent of the total. Physician and clinical services followed at $1,109.7 billion, about 21 percent, and retail prescription drugs at $467.0 billion, about 9 percent (CMS, 2025). Hospital spending grew 8.9 percent in 2024, after 10.6 percent growth in 2023. For a hospital manager, these figures mean that the organization sits in the largest single stream of health spending, and that payers, including employers and government, have strong incentives to scrutinize hospital prices and use.

How Money Flows to a Provider

A patient visit shows how the pieces fit. Suppose a composite 58-year-old patient with employer coverage has knee surgery at a community hospital. The patient pays a deductible and coinsurance; the employer and the patient's payroll deductions have funded the premium that the insurer uses to pay the hospital at a negotiated rate; and if the patient were 66, Medicare would pay a predetermined amount set by federal rules, funded partly by payroll taxes on current workers. The same surgery can therefore produce very different revenue depending on who pays. This is why hospitals track their payer mix, the share of patients or revenue from each payer, as closely as they track volume. A shift of a few percentage points from commercial insurance to Medicaid can turn a margin from positive to negative.

Capital Structure: How Hospitals Raise Money

Operating revenue pays for daily costs, but buildings, equipment, and information systems require capital, money raised for long-lived assets. Healthcare organizations raise capital in two broad ways: by borrowing, which creates debt, and by using equity, money that belongs to the organization or its owners (Reiter & Song, 2021). How they do it depends on ownership.

Not-for-profit hospitals, the majority of community hospitals, have no shareholders. Their equity comes from retained earnings, the surpluses they keep, and from charitable contributions. Because they are tax-exempt, many can issue tax-exempt bonds, which carry lower interest rates than taxable debt because investors do not pay federal income tax on the interest. In return, they must provide benefits to the community that justify their exemption. Investor-owned hospitals raise equity by selling shares and pay taxes on their profits, and they borrow in taxable markets. They must earn a return that satisfies shareholders, which gives them strong incentives to control costs and choose profitable services. The difference is not that one kind of hospital needs profit and the other does not; both need surpluses to replace equipment and grow, but they raise and use them under different rules.

Why This Matters for Managers

A manager who understands the system can read their own organization's finances better. Payer mix explains why two hospitals with the same volume can have very different revenues. The national trend toward higher spending explains why payers push back on prices. And the organization's capital structure determines how easily it can fund a new service: a not-for-profit hospital with strong retained earnings and a good bond rating can borrow cheaply, while one with thin margins may be unable to replace aging equipment. These themes, revenue, costs, capital, and returns, are the subjects of the rest of this course.

Conclusion

In 2024 the United States spent $5.3 trillion on health care, 18.0 percent of its economy, paid mostly through private insurance, Medicare, and Medicaid and sponsored ultimately by government, households, and businesses. Most of it went to hospitals and clinicians. Providers receive very different amounts for the same service depending on the payer, and they raise capital for buildings and equipment through debt and equity under rules shaped by their ownership. These structures set the conditions under which every healthcare financial decision is made.

References

Anderson, G. F., Reinhardt, U. E., Hussey, P. S., & Petrosyan, V. (2003). It's the prices, stupid: Why the United States is so different from other countries. Health Affairs, 22(3), 89-105. https://doi.org/10.1377/hlthaff.22.3.89

Centers for Medicare & Medicaid Services. (2025). NHE fact sheet. https://www.cms.gov/data-research/statistics-trends-and-reports/national-health-expenditure-data/nhe-fact-sheet

Reiter, K. L., & Song, P. H. (2021). Gapenski's healthcare finance: An introduction to accounting and financial management (7th ed.). Health Administration Press.