Rampant consolidation in health care has resulted in higher prices for patients. This consolidation — whether by private equity firms or other large health systems — has not resulted in higher quality care, and in some cases, it has made care quality worse.
In September, Ellen MacInnis, a nurse at St. Elizabeth’s Medical Center in Boston, trekked to Washington, D.C., to testify before a Senate committee about the extreme cost-savings measures mandated by the hospital’s parent company, the now-bankrupt Steward Health Care. The private equity-backed company had been busy buying up hospitals and doctors’ groups, then putting the squeeze on them to maximize profits.
The then-CEO of Steward Health Care was called to testify before the Senate Health, Education, Labor and Pensions Committee. He refused and resigned soon after.
Many Steward hospitals have been or will be sold. But unchecked hospital consolidation remains a threat, and when hospitals acquire physician practices, clinics, or other hospitals, patients almost invariably end up paying higher prices.
The saga of Kyunghee Lee, a retired dry cleaner and seamstress in northeast Ohio, is a textbook example. For years, NPR reported, she received annual injections at her doctor’s office to relieve her arthritis, at a cost of $30.
Four years ago, her doctor’s office moved one floor up in the same building. Same doctor, same shots. But the cost of her injections rose more than tenfold, to $354. Why? Because of an increasingly prevalent practice called “hospital consolidation.”
Unbeknownst to Lee, her doctor’s practice had been bought by a hospital system. Her bill now included the acquiring hospital’s “facility fee” of over $1,200 (most of which Medicare — i.e., taxpayers — paid).
You might ask: For what facility, exactly? After all, it was the same building as before.
Lee’s situation happens every day in this country. And it is time for it to stop.
Under current law, Medicare pays two to three times more for routine treatments administered in a hospital-owned outpatient clinic than it does for those in an independent doctor’s office. In many situations, paying hospitals more makes sense. Hospital systems must be built to move fast and contend with constant crises, which require a higher level of resources to do the job well. But profit-maximizing hospitals, advised by astute financial engineers, have sought to capitalize on this difference even for routine services where this does not apply.
Today, large hospital systems are increasingly buying up small physician practices, changing the sign on the door, and often tripling the amount that they can bill patients for the exact same procedures, including routine, run-of-the-mill services that are easily and safely performed outside of a hospital setting.
Not only are hospitals buying private practices to take advantage of this billing loophole, but they are also seeking to “consolidate” with smaller hospitals, which limits patients’ options and squeezes them into paying higher prices. Hospital chains often promote consolidation to employers, patients, and taxpayers to increase coordination, improve quality of care, and lower costs. But these claims are dubious. A substantial body of evidence shows that prices go up without corresponding increases in the quality of care.
This is a problem throughout the United States. About 90% of metropolitan hospital markets in the United States are highly concentrated, and more than 52% of physicians work under one of these consolidated hospital systems.
When a physician’s office is acquired by a hospital system, prices for the same services increase by 14% on average. For some services, it’s much higher. A study released by the Leukemia & Lymphoma Society found that cancer patients with multiple myeloma are charged $2,029 in out-of-pocket costs for the same treatment that can be administered in an independent doctor’s office for $809.
There is no doubt that this behavior hurts consumers. It thwarts the usual market forces that would discipline costs, and the current regulatory environment has proven too weak or passive to curb this abuse. It is time for Congress to close some of these loopholes.
Thankfully, even in today’s highly polarized Washington, there is bipartisan support to address costs by advancing what’s called site-neutral payment reform—which would ensure patients pay the same price for routine services regardless of whether they’re provided in a hospital-owned physician’s office. One such bill — the Lower Costs, More Transparency Act — passed the House of Representatives in late 2023 with overwhelming bipartisan support. And there is room for Congress to go even further and enact comprehensive site-neutral payment reforms that could save Medicare more than $150 billion over the next decade.
That number ought to make all of us stop in our tracks. It’s a level of savings that would help lower health care costs, which have been rising faster than inflation.
The words “site-neutral payment reform” might not roll off your tongue. But we hope that soon, they might. Curbing hospital payment abuse will increase access to desperately needed health care and create a more sustainable and fiscally responsible system. At a time when both Democrats and Republicans agree on this point, let’s not waste our chance to push back on this predatory behavior.
Laura and John Arnold are co-founders and co-chairs of Arnold Ventures, a philanthropy that supports research to understand the root causes of America’s most persistent and pressing problems, as well as evidence-based solutions to address them.