The Hidden Tax on the Middle Class: Soaring Hospital Costs
By Demetrio J. Aguila III

Miffed about stagnant wages? The hospital down the street may be the culprit.

Spending on hospital care eclipsed $1.5 trillion in 2023, the latest year for which there's data -- more than any other provider category. That represents an increase of more than 10% over the previous year.

It's no wonder the cost of covering a family of four through a workplace plan has surpassed $35,000. That's approaching half of the median household's income.

Insurers tend to get the blame for surging costs. But premiums are rising because hospitals are raising prices without restraint. Since 2006, hospital prices have increased more than twice as much as prices for physician services and insurance. 

High-quality, low-cost care is available outside big hospitals. Employers -- and beneficiaries -- just need to seek it out.

Hospitals have been able to hike prices because they've eliminated much of their competition. From 1998 through 2021, there were nearly 2,000 hospital mergers. And between 2019 and 2024, hospitals snapped up 7,600 physician practices. More than half of all doctors now work for hospitals or health systems. 

Today, the ten largest hospital systems control nearly one-fourth of hospital beds nationwide. The largest hospital system by bed count had more operating revenue than Netflix and Uber in 2023.

Hospital giants' massive market share -- as well as a persistent refusal to transparently disclose their prices -- empowers them to charge exorbitant rates. 

One study found that a hip MRI cost nearly ten times more at a hospital than at an independent imaging center. Hospitals frequently charge $5,000 for a colonoscopy -- more than triple the $1,500 the same procedure costs at a typical independent physician practice. A mammogram can cost over six times more at a hospital. 

The only difference is the setting. Same physicians, same procedures, same outcomes -- yet drastically different pricing.

Hospitals benefit from structural advantages, too. Medicare pays hospitals as much as 3.6 times what it pays independent practices for the same care. Private insurers generally follow Medicare's example and pay a premium to hospitals.

From 2001 to 2022, Medicare payments to hospitals rose more than 60%. The cost of operating a physician practice increased by about 40%. During that period, Medicare payments to physicians increased by just 10%. Those discrepancies make it difficult for independent doctors to compete.

Many hospitals are also tax-exempt. They roll these profits into multibillion-dollar endowments.

Businesses that purchase conventional health coverage have little way to avoid hospitals' price-gouging, since insurers -- not the employers themselves -- negotiate reimbursement rates, set provider networks, and manage claims data. 

But the 20% of small companies and 80% of large companies that "self-insure" -- meaning they pay for their employees' health care directly -- have an escape hatch.

Historically, self-insured employers have outsourced their decision-making. Most employers don't even have access to their own employees' aggregated, anonymized claims data. 

There's nothing stopping them from reclaiming and analyzing their claims data and asserting more control over the decision-making process. 

Instead of defaulting into insurers' established provider networks, employers could contract directly with lower-cost independent physician practices. 

Research conducted by healthcare consulting firm Avalere found that total Medicare expenditures in 2022 for beneficiaries treated by independent physicians across five specialties were roughly $3,000 lower, on average, than for beneficiaries treated by hospital-affiliated physicians. The former group also spent less time in the hospital and visited the emergency room less.

Ballooning healthcare costs pose an existential threat to American businesses and workers. They're crowding out wage increases and making life harder and harder for the middle class. Redirecting care to independent practices could save billions -- and yield better health outcomes.

Demetrio J. Aguila, III, MD, is a world-renowned peripheral nerve surgeon based in Omaha, Nebraska. Dr. Aguila is an Air Force veteran who serves as the Leader of the Nebraska Chapter of the Free Market Medical Association. This piece initially appeared in RealClearHealth.