The British news magazine is on point as to the inefficiency of hospitals
My favorite news magazine, The Economist, had a great article on U.S. healthcare in its March 22, 2025 edition. The title said it all: “For all they care: How hospitals inflate America’s giant healthcare bill.” It is a subject I write about often and The Economist told it as well as anyone could. Let’s summarize what the magazine wrote and I will give you a few additional insights.
As The Economist asks, who is to blame for the enormous costs in the American healthcare system, which are twice the average of other wealthy countries and yet outcomes are no better (actually far worse)? As the magazine notes, many point to drug makers and health plans. But The Economist featured hospitals as the major culprit.
The Economist calls attention to the following key facts:
- Hospitals took in $1.5 trillion in fees in 2023, which is triple the amount spent on drugs. Hospitals are about one-third of America’s healthcare spending.
- Since 2000, hospital prices have soared over 250%, growing at twice the rate of overall medical care and three times the rate of inflation.
The Economist blames the huge hospital bill on a few things.
- Hospitals continue to operate primarily on a fee-for-service (FFS) model. As I always say, the more they provide, whether it is needed or not, the more they get paid. The magazine notes that the Centers for Medicare and Medicaid Services (CMS) is trying to move to a value-based reimbursement system, but 70% of hospital payments remain FFS ones.
- Hospitals have incredibly opaque pricing and therefore prices across hospitals vary widely. It is difficult to compare prices, even with some reform already in place. As it notes, the healthcare policy group KFF found that a colonoscopy in the Atlanta area could range from $435 to over $7,000 in 2023.
- Consolidation in the hospital industry has driven up prices, not lowered them. Also, quality has not improved. Over 1,600 consolidations occurred between 2000 and 2020. One or two providers now dominate in many American cities. Chains now control 81% of beds. And The Economist notes, too, that more and more doctors are now owned by hospitals and health systems, which further increases prices.
- Private equity (PE) hospital ownership is also noted as having a potentially nefarious effect. The Economist cite some prominent failures once PE firms took over.
- Hospitals are paid more for services that can be performed at cheaper places of service.
- The magazine also notes that neither for-profit nor non-profit hospitals keep prices in check and non-profits actually spend less on charity care. As well, more well-heeled hospitals spend less than poorer ones. This despite major tax advantages non-profit hospitals have at the local, state, and federal levels.
What are the solutions? Here are some from The Economist.
- The magazine endorses President Trump’s efforts to expand price transparency in the hospital world. The Trump 45 rule was a good step, but further regulations and penalty enforcement are needed. under Trump 47. The president has already anounced an executive order on the subject.
- Site neutral payments should be put in place. This is where payments for services common between physician offices, independent ambulatory centers, off-campus hospital facilities, and outpatient hospital facilities are all reimbursed the same — no more favoritism for hospitals. This would massively lower outlays on hospitals. This could become part of a budget reconciliation measure and be phased in over time. I note the move would save dollars not only for Medicare but in the commercial world as such rates are primarily based on a percentage of Medicare.
- Technological innovation could also improve healthcare delivery and lower costs. I would note that some innovative hospitals are using technology to furnish hospital services at home at a much cheaper price and in a safer way.
While The Economist did not mention this one, savings could be found by forcing hospitals to become efficient and limit their administrative costs. The Third Way has found that efficient hospitals can make money from both Medicaid and Medicare. If that is the case, commercial rates, which are dramatically higher than Medicare, could come down a great deal and save the employer coverage system. Reforms here could include uniform payment rates across lines of business, administrative caps, greater price transparency, and site neutrality.
The Economist article: https://www.economist.com/business/2025/03/20/how-hospitals-inflate-americas-giant-health-care-bill
#hospitals #healthcare #medicare #medicaid #commercial
— Marc S. Ryan
