For all they care
How hospitals inflate America’s giant health-care bill
Non-profit institutions are no help
Who is to blame for America’s enormous health-care costs?
The sector accounts for almost a fifth of the country’s GDP, twice the average for wealthy countries, yet outcomes are no better.
Americans under 70 are almost twice as likely as their counterparts in similarly affluent nations to die of cardiovascular diseases.
Death rates due to other conditions like diabetes and kidney diseases are also much higher.
Most Americans point the finger at drugmakers, insurers or the middlemen between them.
Luigi Mangione, whose trial for the alleged murder of the chief executive of UnitedHealthcare, America’s biggest health insurer, will soon begin, has received donations totalling $740,000.
“He did what everyone else is just thinking,” wrote one sympathiser on Mr Mangione’s fundraising page recently.
More often overlooked are America’s hospitals, which took in $1.5trn in fees in 2023, according to the most recent government figures.
That is triple the amount spent on medications, and accounts for a third of America’s total health-care spending (see chart 1).
Since 2000 hospital prices have soared by over 250%, growing at twice the overall rate for medical care and triple the rate of inflation.
What is behind America’s soaring hospital bills?
Skewed incentives are part of the explanation.
American hospitals primarily operate a “fee-for-service” model, where insurers pay for each test or treatment, regardless of its necessity.
That encourages them to boost their revenue by delivering as many services as possible.
America’s government has for years been seeking to shift these incentives, including by aiming to move all beneficiaries of Medicare, the federal health-care programme for the elderly, to “value-based care” arrangements that reward hospitals and clinics for meeting various targets.
But as of 2023, 70% of payments to providers still followed the traditional approach.
The problem is compounded by the opacity of hospital pricing.
The cost of procedures varies widely across hospitals: a study in 2023 by KFF, a health-policy think-tank, found that the sticker price of a colonoscopy in the Atlanta area ranged from $435 to over $7,000.
But the complexity of medical billing and the nuances of reimbursement often make it difficult to compare services effectively.
Consolidation has made matters worse.
Over 1,600 hospital mergers took place between 2000 and 2020.
The share of total hospital beds controlled by chains rose from 58% to 81% over that period.
One or two hospital providers now dominate the market in many American cities (see map).
HCA Healthcare, the country’s largest chain, operates more than 180 hospitals in America with a total capacity of close to 50,000 beds.
Mergers have brought the benefits of scale to the hospital industry, but little of that has been passed on to patients.
HCA’s return on capital, for example, rose from 10% in 2004 to 15% in 2024.
Research shows that hospital mergers tend to raise prices for patients with private insurance, without providing better care.
Larger hospital chains often use their market power to secure higher prices from insurers.
Consolidation has not only occurred through hospital mergers.
Between 2012 and 2022, the share of doctors affiliated with hospitals rose from 29% to 41%.
In theory, uniting different aspects of a patient’s treatment in one system could improve care.
In practice, though, prices frequently rise after hospitals acquire doctors’ practices, while quality remains stagnant.
What is more, Medicare and private insurers tend to pay extra for services provided in hospitals rather than in independent doctors’ offices, motivating integrated health-care providers to encourage more costly inpatient care.
Growing ownership of hospitals by private-equity (PE) firms is also sometimes viewed as a nefarious influence.
In a study published in 2023, Sneha Kannan of Harvard Medical School and her co-authors showed that patients are at greater risk of falls, new infections and other harm during hospital stays after the facility is acquired by a PE firm.
In May last year Steward Health Care, a chain previously owned by a PE firm, declared bankruptcy and put all its 31 hospitals up for sale.
In January, Prospect Medical Holdings, another PE-backed chain with 16 hospitals, followed suit.
In both instances, lawmakers have blamed management and PE owners for making short-sighted financial decisions that undermined patients’ care.
Still, PE firms own less than a tenth of America’s 6,000 or so hospitals.
The biggest number, making up close to half, are owned by non-profits (see chart 2).
Kaiser Permanente, one large non-profit provider, operates 40 hospitals and over 600 clinics, with some 25,000 doctors in its network.
It offers health insurance, too. CommonSpirit Health, a chain operated by a religious charity, has 142 hospitals, making it the third-biggest chain in the country after HCA and the Veterans Health Administration, run by the federal government.
Yet non-profit ownership has been little help when it comes to keeping control of costs.
Many of these hospitals behave like their for-profit cousins.
For universities, hospital fees often make up a big share of their income.
At Stanford University, 63% of operating revenue in fiscal 2024 came from health services provided to the public.
At the University of Chicago, patient services contributed 56%.
UPMC, affiliated with the University of Pittsburgh, owns a for-profit insurer, a venture-capital fund and five for-profit hospitals overseas.
Non-profit hospitals spend less on charitable care for needy patients than for-profit ones, and richer non-profits provide proportionally less than poorer ones, points out Ge Bai of Johns Hopkins University.
For every $100 of expenses incurred, non-profit hospitals spent $2.30 on charitable care, on average, compared with $3.80 spent by for-profit hospitals.
Meanwhile, non-profit hospitals enjoy various advantages: they pay little tax and can issue bonds at preferred rates, among other things.
There are signs that Donald Trump’s administration intends to take at least some steps towards reforming America’s troubled hospital system.
Last month the president issued an executive order instructing federal agencies to “rapidly implement and enforce” rules introduced during his first administration that would require hospitals to improve the transparency of their prices.
Industry analysts also expect Republican lawmakers to push for “site-neutrality”, which would require Medicare to pay the same rate for services whether they are provided in a hospital or a doctor’s clinic.
Disruption could be another remedy.
In November General Catalyst, a venture-capital firm, acquired Summa Health, a hospital chain based in Ohio.
It believes that it can use technology to “reshape and improve the future of health-care delivery”.
America’s long-suffering patients should wish it luck.
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