New data shows hospitals are responsible for escalating health care prices, due to the lack of market incentives to curb costs.
A growing number of Americans are having difficulty paying their medical bills, due to rising health care prices. In response, some states are using tax dollars to help consumers pay off big medical bills, and others are reviving laws that hold relatives responsible for unpaid bills. Recently, the Biden administration proposed a rule that would erase medical debt from credit reports.
The Buckeye Institute published a policy paper titled “How Higher Hospital Costs Lead to Higher Prices,” by Rea Hederman, Jr., which found rising hospital charges are the main cost driver, accounting for 30 percent of all spending in the health care sector, on May 17.
Industry Consolidation
Factors contributing to hospital costs include the consolidation of hospitals, pricing power due to keeping lower-cost competitors out of local markets, and the acquisition of private physician groups by health systems.
Hospitals continue to expand their facilities even though hospital bed occupancy has plummeted by 30 percent, the publication states.
Hederman finds no end to rising hospital costs in sight. Hederman points to the example of a $2 billion expansion of Wexner Medical Center at Ohio State University despite declining hospital bed occupancy, and increasing telemedicine and outpatient care. The cost of debt to fund such projects has risen dramatically in the last four years—costs ultimately passed down to patients, insurers, and taxpayers, says Hederman.
Privately Insured Pay Costs
A RAND study found hospitals bill commercial insurers nearly 277 percent of what they charge Medicare, according to Hederman. Insurers pass that cost on in the form of higher premiums and deductibles, and narrow networks, says Hederman.
All of these expenditures and hospital profits have not resulted in higher quality care for Americans, Hederman points out.
“When companies are competing, they are trying to deliver products that people want to use and want to pay for,” wrote Hederman. “With massive consolidations and physician buyouts, that competition is sorely lacking in the hospital industry.”
Hederman says that hospitals take full advantage of misguided government mandates giving them pricing power.
No ‘Real Market’
Legislators from both sides of the aisle have acknowledged escalating hospital prices and are conducting reviews. Wisconsin state Rep. Jimmy Anderson (D-Fitchburg), who is disabled, introduced legislation in the state assembly to eliminate medical jargon in hospital bills, but it got no traction.
In 2019, the Trump administration issued price transparency requirements to “increase competition among hospitals, group health plans, and health insurance issuers…[and] require that pricing information be made publicly available.”
The results of price transparency have been mixed. The Centers for Medicare and Medicaid Services (CMS) found 30 percent of hospitals violating price transparency requirements, and the Biden administration tried to crack down on non-compliant hospitals.
“For a market to be free, you need a price signal, you need information,” wrote Hederman “If you’re trying to figure out hospital pricing for an optional surgery, a lot of the time you simply don’t get the full picture. That means we don’t have a real market in health care. We need to enforce price transparency.”
Billion Doller Non-Profits
Since many of these hospitals are non-profits and pay no property tax, they should have legislative oversight, points out Hederman. “That’s not interfering in the market. If you’re getting major tax benefits from the government, there should be oversight,” said Hederman.
Large hospital complexes have become billion-dollar enterprises and out-compete private practices that lack the non-profit advantage. Municipalities also lose out on property tax revenues when hospitals use large chunks of land.
Due to the massive role hospitals play in medical spending, policymakers must address expansion and exorbitant spending while enacting cost-benefit practices, the report concludes.
“It’s important that we use transparent pricing and good policies to give power to consumers, and we need to inject new competition,” said Hederman. “Competition is how we get better prices and better products.”
What States Can Do
Escalating health care costs is the reason The Heartland Institute, which co-publishes Health Care News, is updating its American Health Care Plan, introduced in 2021.
“The best place to fix escalating health care prices is at the state and local level,” said Matt Dean, Heartland senior fellow in health care policy outreach. “There are many things that can increase competition, empower consumers, and make health care entities like hospitals more responsive to the people they are supposed to serve. Health care should not be driven by how much money you can extract from the public, with the government’s help.
Ashley Bateman (bateman.ae@googlemail.com) writes from Virginia.