There’s plenty of blame to go around when it comes to the high cost of healthcare in the United States, but the leading driver often skates by with less attention: the hospital industry.
Writing in The New York Times Monday, economist Zack Cooper, who runs the Health Care Affordability Lab at Yale University, says that Americans are understandably frustrated by the high cost of health insurance, with premiums for families at times running upwards of $27,000 a year. But Cooper says the high cost of medical care at hospitals is the driving force behind soaring premiums, and that’s where we have to turn if we’re looking for ways to get a handle on spending.
“Americans receive a similar amount of care as people in other countries, but we pay much higher prices for the care we receive,” he writes. “Take hip replacements. Hospitals in the United States earn $29,000 on average for a replacement covered by private insurance and $16,000 for one covered by Medicare. In Germany, the public system of nonprofit insurers, which covers 90 percent of the population, pays hospitals $9,400.”
Cooper says that hospital prices are the main cause of the astonishing 320% increase in health insurance premiums over the last 25 years. During that time, hospital prices have risen twice as fast as drug prices and three times faster than the rate of inflation.
Hospital prices have risen so fast due to growing market power, as mergers have reduced competition, producing monopolies in some local markets. And they stay so high because hospital owners and administrators have considerable political power, as they spend more than $100 million a year on lobbying in Washington.
If politicians are serious about reining in hospital prices, they will have to regulate at least some of them, Cooper says.
“Economists generally prefer to rely on competition to determine what companies get paid,” Cooper writes. “But in hospital markets that are effective monopolies, regulation isn’t a departure from sound economics — it’s the only tool left.”