“Large hospital systems have gained tremendous market power in recent years,” says health expert Sally Pipes. “That market power has enabled them to command higher prices and maintain healthy balance sheets.”
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A growing bipartisan consensus is emerging around one of the biggest drivers of America’s health care affordability crisis: hospital consolidation.
Two reports published this spring—one from the market Paragon Health Institute and another from the progressive advocacy group US families— to reach strikingly similar conclusions. Large hospital systems have gained enormous market power in recent years. This market power has enabled them to command higher prices and maintain healthy balance sheets.
This agreement matters because health care debates in Washington rarely produce much ideological overlap. But when organizations on opposite sides of the political spectrum identify the same problem, policymakers should pay attention.
Hospitals now represent approx 31% of all health care spending in the United States, compared to approx 21% for medical services and 9% for retail prescription drugs. According to the Kaiser Family Foundation, hospitals led by approx 40% increase in health spending between 2022 and 2024;
The Paragon and Families USA reports add important context to this evidence.
According to Modelhospital prices have risen twice as fast as wages since 2000 and about three times as fast as inflation.
Families USA found that the nation’s 15 largest hospital systems charge nearly as much as commercial insurers thrice what Medicare paid for the same services between 2018 and 2023;
Some systems charge much more. HCA Healthcare Billing 339% of Medicare rates, while AdventHealth charges more than 400% of Medicare rates.
Both reports point to the same underlying problem: consolidation.
US Families found that in 42 states and the District of Columbia, at least half of hospital services were controlled by five or fewer systems in 2023. In nearly half of states, just three systems controlled most hospital care.
This market concentration gives the dominant hospital systems substantial leverage in negotiations with insurers, especially when insurers view these systems as essential to creating viable provider networks. The result is higher reimbursement rates that ultimately trickle down to employers and families in the form of higher premiums, deductibles and out-of-pocket costs.
Families USA notes that family health insurance premiums have increased more than 320% since 2000. The report also cites research that estimates rising health care costs have reduced workers’ wages by nearly $1 trillion since 2012as employers divert compensation toward health benefits.
The Paragon report explains why hospitals have been able to consolidate the markets in which they operate.
One factor is the state level certificate of need lawswhich require health care providers to obtain government approval before opening facilities, expanding services or purchasing major equipment. In practice, these laws often allow existing hospital systems to block or delay new competitors.
Federal policy also contributed. Medicare pays the hospitals much more from independent practices or ambulatory surgery centers for the exact same outpatient services.
These payment differences create strong incentives for hospitals to purchase practices and independent surgery centers. Once acquired, these facilities may be able to charge higher hospital fees or refer patients to higher-cost hospital settings for procedures and services.
All this for-profit activity has turned the majority of doctors into employees rather than independent operators. According to the Paragon report, just 26% of doctors who worked in hospitals in 2012. By 2024, more than 55% did.
The effects were measurable. A recent analysis by the U.S. Department of Health and Human Services found that acquisitions of hospital practices increased the prices of physician services on average 14%.
Together, the Paragon and Families USA reports paint a clear picture of a health care system in which consolidation increasingly shields hospitals from competitive pressure while driving costs steadily higher.
Equally important, they suggest that concern about hospital market power is no longer confined to one side of the political spectrum. Policymakers may disagree about the best solutions. But there is bipartisan agreement on the source of the problem — and who is paying for it.
