It's hospital prices, stupid

Hospital prices are the largest contributor to overall health care spending, and lowering them would make health care more affordable.


A recent Gallup poll found that the availability and affordability of health care top the list of voters' worries. Yet while candidates are engaged in a vigorous debate over health care coverage, few are talking about why health care is increasingly unaffordable and unavailable, which is that the prices for health care services in the United States are higher than in other countries, and rising. Higher prices translate into higher premiums, higher taxes for government-financed care, and higher out-of-pocket costs, leading to a crisis of affordability that leaves many Americans unable to pay for and get the care they need.

No wonder voters are worried.

But what to do about higher and rising health care prices is largely absent from the public debate so far, except for a general agreement among candidates across the political spectrum that prescription drug prices need to be brought down (although they haven't been able to agree on how to do this). Lowering prescription prices surely will help make health care more affordable and available. But to really make a difference, one would have to take on the prices charged by U.S. hospitals, because hospital prices are the largest contributor to overall health care spending.

The late economist Uwe Reinhardt once wrote, “It's prices, stupid,” in explaining why U.S. health care costs so much. If he were still with us, he might say it's hospital pricing, stupid, that makes care unaffordable and unavailable for millions.

According to a recent Sept. 5 analysis by Kaiser Health News, “hospitals are by far the biggest cost in our $3.5 trillion health care system, where spending is growing faster than the gross domestic product, inflation and wage growth. Spending on hospitals represents 44% of personal expenses for the privately insured, according to the Rand Corp.” Hospital prices are not only taxing people's personal budgets and driving overall system-wide spending, they are almost impossible to predict or decipher, even for the most educated patient.

To be sure, hospitals get a lot of bad press. Stories abound about hospitals charging hundreds of dollars for Band-Aids and Tylenol, for charging uninsured patients higher prices than those with insurance, for suing and garnishing wages from poor and uninsured patients for unpaid bills they couldn't afford in the first place, and for the sticker shock of patients receiving unanticipated and extraordinarily expensive bills for hospital care. Many hospitals are engaged in a “health care arms race,” opening diagnostic and specialized treatment centers and spending millions in advertising to drive patients to them and, in some cases, pressuring their employed physicians to refer patients to them. Hospitals also are buying up physician practices and creating mega-systems that allow them to drive up prices and create more demand for their services.

Such bad press can result in individual hospitals changing their practices. For instance, a Sept. 10 story in Kaiser Health News about the University of Virginia Health System filing tens of thousands of lawsuits against poor patients for unpaid bills resulted in the hospital changing its patient assistance and debt collection practices.

Yet for the most part, despite the negative press, the hospital industry resists systemic changes in its pricing, collections, acquisitions, and other practices that drive up costs. It successfully sued the federal government to stop implementation of a rule that would have halted the charging of “facility fees” for services provided in physician practices owned by hospitals. It seeks to halt the administration's efforts to require disclosure of negotiated rates with payers. It argues that market consolidation is good for patients, providing better and more coordinated care, even if it leads to higher prices.

Why, then, do elected officials and candidates for office let hospitals get away with it? “Because a web of ties binds politicians to the health care system,” Kaiser News Service reported in its Sept. 5 analysis. “Every senator, virtually every congressman and every mayor of every large city has a powerful hospital system in his or her district. And those hospitals are as politically untouchable as soybean growers in Iowa or oil producers in Texas. As hospitals and hospital systems have consolidated, they have become the biggest employers in numerous cities and states. They have replaced manufacturing as the hometown industry in a number of Rust Belt cities, including Cleveland and Pittsburgh.”

Taking on hospitals may seem like political suicide for politicians. The degree of public concern about hospital pricing may force them to reconsider, however, because unless they address excessive hospital pricing, lack of transparency and clarity in hospital bills, predatory collection practices, and anticompetitive consolidation, health care will increasingly become unaffordable and unavailable, the number-one worry of voters. At some point, no industry is immune from pressure to change its practices, or from enactment of policies to require it to do so, when voters rise up to demand that the people they elect act on their top concerns.