Hospital prices are the leading driver of the 320 percent increase in insurance premiums that Americans have experienced over the past 25 years. Since 2000, prices at hospitals have grown faster than prices in virtually any other sector of the economy. They have grown three times as fast as inflation and twice as fast as prescription drugs and doctor visits.
The reason hospital prices are so high: hospitals’ accumulation of market power, which brings them more bargaining heft when they negotiate prices with insurers. Since 2000, there have been more than 1,300 hospital mergers among the nation’s approximately 5,000 hospitals. When hospitals that were once competitors merge, prices go up, often by double-digit percentages, with no measurable improvement in patient outcomes. Even though we rely on competition to determine hospital prices, 21 percent of hospitals are effectively monopolies — they have no competitor within a 30-minute drive — and an additional 24 percent face only one competitor.
Insurers, in the business of making money, pass on higher hospital prices to their customers in the form of higher premiums. Hospitals argue that their mergers create jobs, but my research shows they destroy more jobs in their communities than they create. That’s because in our employer-based health care system, higher hospital prices — and, by extension, higher insurance premiums — make it more costly for companies to keep workers employed. The workers losing their jobs are usually those earning less than $100,000 a year — one reason hospital mergers fuel income inequality.
What we spend on health care is a function of the volume of care that gets provided and the price of that care. There’s a reason insurers have adopted policies that target volume, like prior authorizations, high out-of-pocket costs and claims denials: They are incentivized to lower health spending, but in many markets don’t have the ability to put meaningful pressure on hospital prices.
Politicians from both parties have called for reining in insurance denials. They’re right to. Such denials, and the bureaucratic processes that accompany them, are stressful for patients, and, in the worst cases, lead to patients missing out on lifesaving care. Likewise, research shows the high out-of-pocket costs included in many insurance plans can drive up death rates. We need to lower out-of-pocket costs and make insurance less bureaucratic. However, unless we pair such reforms with a focus on addressing hospitals’ rising prices, rolling back insurer restrictions on care risks driving growth in health spending that, in turn, will slow economic growth and drive job losses among low-wage workers.
