Congressional Affordability Fix Must Hold Hospitals Accountable

The nation's top hospital lobbyist testified before the House last week for the third in a series of hearings on healthcare affordability.

According to a recent poll from KFF (f/k/a Kaiser Family Foundation), a little less than half of Americans say they have trouble affording healthcare.

Over one-third have skipped or delayed needed treatment in the past year because of cost concerns.

The lobbyist attempted to downplay hospitals' role in driving health costs upward.

The facts tell a different story.

Hospitals account for nearly one-third of all healthcare spending — more than any other sector. They were responsible for 40% of the growth in health expenditures between 2022 and 2024.

In other words, the healthcare affordability crisis is, to a significant extent, a hospital affordability crisis.

Prices make that clear.

According to an analysis by economist Mark Perry, the price of hospital services has surged by 256% since 2000. Average hourly wages during that period increased by less than half as much — 118.5%.

Hospitals haven't achieved that pricing power by accident. Public policy has helped them do it.

Consider the 340B Drug Pricing Program. Congress established it in 1992 to help safety-net hospitals better care for low-income and uninsured patients.

In 2010, participating hospitals spent $6.6 billion on drugs through the program. By 2024, that figure had skyrocketed to a whopping $81 billion.

The program requires drug makers to sell medicines at significant discounts to participating hospitals. The facilities then sell those drugs to patients and payers at significant mark-ups, with the idea that they'll reinvest their profits in charity care.

Too often, that's not what happens. The majority of hospitals enrolled in 340B are not located in medically underserved areas.

And rather than pass their savings on to patients, many 340B hospitals charge insurers full price and keep the spread. By one estimate, 65% provide lower-than-average levels of charity care.

The program has become a profit center for hospitals — not a safety net.

Many hospitals use those profits to buy up competing private physician practices and outpatient clinics.

Those acquisitions reduce competition and limit where patients can seek care.

Lawmakers ought to consider requiring hospitals to use 340B revenue to expand access to care for low-income and uninsured patients — not to bankroll consolidation.

That consolidation is already shaping the healthcare landscape. Roughly half of the nation's doctors work for a hospital system today, up from less than 30% in 2012.

And as care increasingly migrates into hospital settings, costs go up.

Medicare pays far more for the same service when delivered in a hospital outpatient department than when provided in an independent physician's office or ambulatory surgery center.

So as hospitals consolidate local markets, swallow up formerly independent clinics, and charge higher hospital rates, patients and payers alike find themselves facing higher bills.

Co-pays and coinsurance are typically figured on those higher rates, to the detriment of patients. Insurers, meanwhile, compensate for those higher prices by raising premiums. And patients get hit again.

Site-neutral payment reform would end this distortion. If Medicare paid the same rate for the same service regardless of where it is delivered, hospitals would lose a key incentive to acquire independent practices and clinics.

They'd also lose the payment premium that they're using to consolidate markets.

The upshot would be more competition, more providers for patients to choose from, and ultimately lower prices.

Reforming 340B and adopting site-neutral payments would strike at two of the biggest policy-driven advantages hospitals enjoy — and help make health care more affordable in the long run.