When asked to account for the skyrocketing cost of health coverage before two House committees last Thursday, the chief executives of five of America’s largest health insurance companies pointed fingers.
Don’t look at us, they said. Look at hospitals and drugmakers.
It was a plainly self-serving argument, of course. But there’s a kernel of truth in it. Hospitals represent a greater share of our nation’s health bill than any other group. Lawmakers concerned about healthcare affordability will need to take a long look at the hospital sector.
According to the latest federal data, hospitals accounted for 31% of U.S. healthcare spending in 2024. By comparison, the insurance industry’s other scapegoat, prescription drug spending, represented 8.8% of health spending.
Hospitals have also been getting costlier by the year, with overall hospital spending growing by 10.6% in 2023 and another 8.9% in 2024.
This growth is in part a function of the rampant consolidation of local healthcare markets by hospitals.
In 2022, just one or two health systems controlled the entire market for inpatient hospital care in nearly half of metropolitan areas, according to research from KFF.
Hospitals are also buying up physician practices. A recent Government Accountability Office report found that 47% of the nation’s doctors are employed or affiliated with a hospital system — up from 30% in 2012.
As the GAO report notes, “several studies found increased Medicare spending due to services being provided in more expensive hospital-based settings and increases to prices paid by commercial insurers.”
One analysis in the journal Inquiry found that a “10-percentage-point increase in vertical integration [between hospitals and physician practices] was associated with a 1.0% price increase for primary care, a 0.6% increase for orthopedics, and a 0.5% increase for cardiology.”
SALLY PIPES: ENHANCED OBAMACARE SUBSIDIES ARE GONE. THEY DESERVE TO STAY THAT WAY
Such findings are intuitive. When a hospital buys up a competing inpatient facility or acquires a physician practice across town, it gains leverage to raise prices.
The data show that hospitals are the most expensive component of America’s healthcare system. And they’re growing more expensive by the day. Competition and price transparency have the power to arrest that trend.
Sally C. Pipes is president, CEO, and Thomas W. Smith fellow in health care policy at the Pacific Research Institute. Her latest book is The World’s Medicine Chest: How America Achieved Pharmaceutical Supremacy—and How to Keep It. Follow her on X @sallypipes.