It is a time-honored theme in science fiction and horror movies. The small, seemingly harmless creature that grows and grows until it is so powerful, no one can stop it and it wreaks damage far and wide. This is an apt description of where we find ourselves with our nation’s hospital system. It is an out-of-control behemoth that is too big to tame and is destroying everything in its path.
As any regular reader of this blog knows, we are the only industrialized nation in the world that does not offer universal health care to its citizens. Instead, we have a patchwork system of private insurance and governmental programs that force us to spend more than any other country, despite leaving millions without insurance or access to health care. Even those of us fortunate enough to have access to health care don’t experience the quality of health outcomes that residents of other industrialized countries do. In 2023, we spent $4.9 trillion on health care. That is $14,000 for every man, woman and child and represents 17.6% of our gross domestic product. In short, we pay the most and get the least when it comes to health care. Where is all that money going and why aren’t we getting what we are paying for? Look to our hospitals for the answer.
There was a time when there was a locally owned hospital in almost every town. People relied on it to provide care and it did so at reasonable prices. Most of the hospitals were non-profit. They paid no taxes but, in return, provided free or discounted health care to those without the resources to pay for it. It was neighbor helping neighbor. That time is a far cry from where we find ourselves today.
The small, locally-owned hospital is a thing of the past. It has been either bought out or driven into bankruptcy by large chain hospitals. Over the past 20 years, there have been nearly 1,600 mergers among hospitals. Most of those were acquisitions of smaller hospitals by larger ones or by an existing chain. As a result hospitals are among the largest businesses in the United States. Most of them retain their non-profit status to the tune of tax exemptions worth $37.4 billion each year. Gone, however, are the days when they provided free or reduced cost care. Nowadays, they may hold a job fair or offer some seminars but we are not getting much for the billions of dollars in taxes we forego each year. Annual salaries for the executives of these non-profit entities are often well in excess of $1M.
With great economic consolidation comes great economic power. With great economic power comes higher prices. This principle of economics certainly holds true when it comes to our hospitals. Hospitals receive almost 1/3 of all of the health spending in the United States each year and the rate of increase in their prices is twice the rate of inflation.
And what are their prices? How much does Hospital A charge for a C-section and how does that compare to the charges at Hospital B? For many years, there was no way to find out. Hospitals did not publish their charges. They often had separate confidential agreements with each major health insurer in which prices were individually negotiated. They contended these pricing agreements were trade secrets. Recently, the federal government has required hospitals to disclose their prices in a manner easily discovered by consumers. Not all hospitals have followed the law and published their prices and some that have have made it difficult to find them. To the extent consumers make use of health savings accounts and direct their own health care spending, it is essential to be able to compare prices. Hospital secrecy prevents price comparisons.
What is clear is that hospitals, even non-profit hospitals, are in the business of making money and maximizing income. This means cutting costs when possible and keeping prices as high as possible. Reducing competition allows hospitals to increase their charges without fear of a competitor undercutting them. Reducing competition also reduces the incentive for hospitals to provide better care.
So here we are. Competition among hospitals is going down as consolidation continues to proceed. Prices are going up at twice the rate of inflation. At the same time, care is either getting worse or at least not getting better. People, especially those in rural areas, are being left without easily accessible care.
The prospects for a favorable change for patients is grim. The monster is so large and so powerful that it can swat away attempts to reduce charges or to provide better care. Only the federal government has the power to address these problems, but party divisions and pricey hospital lobbyists make effective governmental action unlikely. I wish I could be more optimistic but I cannot. Sorrry.
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