The cost of healthcare in America is a major worry, and most of the costs fall onto hospitals. They account for almost one-third of overall healthcare spending, taking $1.5 trillion in fees in 2023—double that of medications. Hospital costs have grown more than 250% since the year 2000, nearly twice the pace of inflation. This is in great part due to the fee-for-service system, by which hospitals bill for every test and procedure, regardless of necessity. Despite efforts to shift to value-based care, payments are still largely made under this outdated system, keeping costs high.
Consolidation of hospitals has also contributed to the problem. Hospital chains have grown by merging with other institutions, giving them more leeway to set higher prices without necessarily improving the care provided. Private equity firms have also entered the hospital industry, sometimes making money-focused decisions that prioritize profit over patient well-being. Although they do not own many hospitals, studies have found their presence lowers the quality of care. Medicare and private insurers pay extra for hospital services compared to independent doctors' offices.
Attempts to reform the system persist, such as new legislation requiring hospitals to be more transparent with prices. Some legislators are also advocating "site-neutrality" policies, in which Medicare would pay the same regardless of where a service is delivered. There are even some investors and technology companies that are looking at how to disrupt the sector and lower costs. But for the time being, the U.S. hospital system is still a major contributor to high healthcare costs, with many patients facing costly and challenging medical bills.
How hospitals inflate America’s giant health-care bill. (2025, March 20). Business | For all they care. Retrieved from [URL] https://www.economist.com/business/2025/03/20/how-hospitals-inflate-americas-giant-health-care-bill
The fee-for-service model seems to be at the heart of the issue here. When hospitals are incentivized to bill for every test and procedure, it's no surprise that costs have skyrocketed, especially when consolidation gives them more pricing power. It's troubling that patients are paying the price financially and in terms of care quality. Site neutrality and price transparency sound like essential steps, but I wonder if they will be enough to shift such a deeply entrenched system. Could tech-driven solutions or alternative care models help push the change faster?
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ReplyDeleteThis post highlights a crucial issue in the U.S. healthcare system: hospital costs are out of control. The fee-for-service model encourages unnecessary procedures, while consolidation and private equity involvement drive up prices without improving outcomes. Payers and policymakers need to prioritize value-based care and enforce site-neutral payment reforms. Without serious change, patients will keep bearing the brunt of a system designed more for profit than health.
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