Powerful hospital corporations in the United States — even nonprofit ones — have adopted practices to maximize revenue that hurt patients and contribute to out-of-control health care costs, according to a new report from the health care advocacy group Families USA.
“This paper exposes how the corporate hospital business model has fundamentally transformed into one that favors monopolies and setting high prices at the expense of our health,” said Frederick Isasi, executive director of Families USA, in a press release from the group. “It’s time for us to address these pricing abuses head on.”
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According to the report, one major driver of high health care prices has been consolidation of the health care sector in recent decades. Many major regional hospital systems have grown enormously, acquiring hospitals and medical practices — so much that in some markets, meaningful competition no longer exists. This allows hospital corporations to charge even higher prices for procedures, fueling even more revenue and expansion. And while major hospital corporations are taking steps to maximize their revenue, they aren’t taking the steps they should to reduce hospital-acquired infections — which kill 72,000 people each year in the United States — or to provide timely and effective care, the report alleges.
Just since 2015, the report notes, U.S. hospital prices have increased by as much as 31% in some cases, and have increased overall at over four times the growth rate of workers’ paychecks. In practice, this means that people who have employer-sponsored health insurance or buy their insurance directly are absorbing the higher costs of hospital care — in the form of higher premiums, copayments, and out-of-pocket spending.
The report notes that out-of-control health care spending at this level is a uniquely American phenomenon, giving example to back up this assertion. In Australia — which has a public insurance program for all citizens and legal residents — the average price for an MRI (magnetic resonance imaging) is $215 in U.S. dollars. In Switzerland, which has a heavily regulated system of private insurance and some of the highest health care spending outside the United States, the average cost of an MRI is $503. But in the united States, the average cost of an MRI is $1,475.
Cost comparisons within the United States also show the harmful pricing effects of market consolidation, as outlined in the report. Commercial insurance prices — what a health insurer actually pays for services — are almost twice as high in less competitive markets like Florida, South Carolina, Tennessee, and West Virginia, compared with more competitive markets like Arkansas, Michigan, and Rhode Island. As one stark example, the average cost of a knee replacement in Tucson, Arizona — a fairly competitive market — is $21,976, while in Sacramento, California — not a very competitive market — it’s about $60,000.
Many hospitals, the report notes, were given tax-exempt nonprofit status decades ago, when they provided a large amount of free care to poor people and were staffed largely by volunteers. In 2016, though, nonprofit hospital systems accounted for seven out of the 10 highest operating margins among all U.S. hospital systems — with each taking in $163 million more than it spent on patient care services. While this money wasn’t distributed to shareholders — since nonprofits don’t have any — it was spent, in part, on executive salaries, lobbying, and political contributions. In 2018, hospitals and nursing homes spent over $100 million on lobbying and about $30 million on campaign contributions, according to the report. And in 2019, the CEO of one large nonprofit hospital corporation received $21.6 million in compensation.
While it paints a bleak picture of out-of-control costs and pricing abuses, the report also suggests several ways that the health care system can be improved to help control hospital prices and improve patient care. These potential solutions include efforts to improve price transparency, limit anti-competitive behavior in negotiations between hospital systems and health insurers, and increase oversight through state-based affordability boards.
But right now, the trends aren’t moving in the right direction, according to the report. “With each year that passes, hospital corporations consolidate, charge higher prices, consume more of our nation’s economic activity and increase their political power,” the report concludes. “Given the entrenched interests of hospital corporations to maintain the status quo, it will require a consumer-driven movement to make needed policy changes. It is time to act if we are truly going to ensure the health care system serves the needs of our nation’s families.”
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