Who Controls Hospital Costs?

The cost of healthcare is a significant concern for many people, and hospital costs are a major contributor to overall healthcare spending. In the United States, healthcare spending has risen sharply, with the country now having the most expensive healthcare in the world. This has placed a growing financial burden on patients, with hospital costs per inpatient day varying significantly across the country. While the US federal and state governments have implemented some measures to regulate hospital pricing and increase price transparency, there are still concerns about the lack of direct regulation and negotiation of prices compared to other large and wealthy nations. With hospitals facing financial pressures and the rising cost of healthcare impacting affordability for individuals, the question of whether the government should do more to control hospital costs is a pressing issue.

Hospital pricing transparency

To address this problem, the US government has implemented initiatives to increase hospital pricing transparency. Starting January 1, 2021, hospitals operating in the United States are required to provide clear and accessible pricing information online. This information must be presented in two ways: as a comprehensive machine-readable file with all items and services, and as a display of shoppable services in a consumer-friendly format. This enables consumers to compare prices across hospitals and estimate the cost of care before seeking treatment.

The Centers for Medicare & Medicaid Services (CMS) plays a crucial role in enforcing hospital price transparency. CMS audits hospitals and investigates complaints submitted by consumers. Hospitals that fail to comply with the transparency requirements may face civil monetary penalties. CMS has also sought public input on improving compliance and ensuring the accuracy and completeness of hospital pricing data.

While these measures are a step in the right direction, more needs to be done to address the underlying issues of healthcare costs in the United States. Maryland has implemented innovative approaches, such as "all-payer rate setting," where the state sets the prices hospitals can charge. This method has helped reduce long-term costs and incentivizes reducing recidivism. Additionally, state governments can play a significant role in controlling healthcare spending through various strategies, including promoting competition, reducing prices, and addressing overall spending.

Healthcare spending growth

The rising healthcare costs have significant implications for the nation's fiscal health and households' budgets. To address this issue, various strategies have been proposed and implemented. For instance, California has set a healthcare spending target to ensure that healthcare spending does not outpace income growth, aiming for a target of 3.5% in 2025, reducing to 3% by 2029. The Office of Health Care Affordability (OHCA) in California will play a crucial role in collecting, analyzing, and reporting data on healthcare expenditures, as well as enforcing these spending targets.

At the federal level, the Hospital Price Transparency rule, effective January 1, 2021, mandates hospitals to provide clear and accessible pricing information online. This initiative aims to empower consumers to make informed choices, compare prices, and estimate costs before receiving care. Additionally, the Centers for Medicare and Medicaid Services (CMS) have projected healthcare spending trends, with growth expected to remain steady through 2017. During this period, growth in private health expenditures was anticipated to rebound, peaking in 2009 before decelerating.

While federal action on healthcare spending growth faces barriers, state governments have pursued various strategies to control spending. For example, Maryland has implemented the "all-payer rate setting" policy, allowing the state to set prices for healthcare services. The state also piloted the Maryland Total Cost of Care Model, which includes initiatives such as the Hospital Payment Program and the Care Redesign Program, aiming to incentivize cost reduction and efficient care management. These state-level initiatives demonstrate a more direct approach to addressing healthcare spending growth.

Government regulation of healthcare costs

The US federal and state governments have been criticised for doing less to directly regulate or negotiate prices paid for medical services or prescription drugs compared to other large and wealthy nations. Healthcare costs in the US have been rising sharply over the last several decades, with the country now having the most expensive healthcare in the world. In 2021, the US spent approximately $12,914 per person on healthcare, almost double the amount of the second most expensive country. Despite these high costs, life expectancy in the US is extremely low compared to other developed countries.

The US government has implemented some measures to control healthcare costs. For example, the Hospital Price Transparency rule, which came into effect on January 1, 2021, requires hospitals to provide clear and accessible pricing information online about the items and services they offer. This allows patients to compare prices across hospitals and estimate the cost of care before seeking treatment. Additionally, the Inflation Reduction Act of 2022 targets Medicare drug spending through government negotiation of drug prices and is expected to reduce Medicare costs.

However, there are still concerns about the lack of government regulation of healthcare costs in the US. Hospitals face financial pressures due to persistent cost growth, inadequate reimbursement, and shifting care patterns driven by policy changes and an ageing population with more complex chronic conditions. There are also issues with hospitals overcharging patients, with some facing lawsuits and default judgments for incorrect billing.

Some have called for more government intervention in regulating healthcare prices. For instance, Congress could authorize the government to start directly regulating hospital and healthcare pricing by implementing profit margin caps on the cost of care. Maryland has implemented "all-payer rate setting," which allows the state to set the prices hospitals can charge for care. While this approach may not solve the high cost of healthcare in the US, it could help reverse the inflation trend.

Healthcare costs and insurance

Healthcare costs in the United States have been rising sharply over the last few decades. In 1970, the US spent approximately $1,951 per capita on healthcare, which rose to around $12,914 per person in 2021—almost double that of the second most expensive country. By 2022, the amount spent on health had tripled to $4.5 trillion. This increase in spending can be attributed to several factors, including the rising intensity and use of healthcare services, labour costs, socioeconomic conditions, and lifestyle factors.

The US federal and state governments have been criticised for doing less to directly regulate or negotiate prices for medical services and prescription drugs compared to other large and wealthy nations. The lack of price regulation has resulted in hospitals charging significantly higher prices for the same brand-name prescription drugs, hospital procedures, and physician care than other countries. Additionally, hospitals in the US have been accused of overcharging patients and submitting inflated claims to insurance companies and government health programs like Medicare and TRICARE.

To address these issues, some states have started implementing measures to control healthcare cost growth, with support from the federal government's AHEAD model. However, the impact of these measures is limited as states can only regulate a subset of private health insurance plans. The federal government has also introduced price transparency requirements, which mandate hospitals to provide clear and accessible pricing information online. This allows patients to compare prices across hospitals and estimate the cost of care before seeking treatment. Despite these efforts, healthcare costs in the US remain high, and further regulation and negotiation by the government may be necessary to drive down prices.

The high cost of healthcare in the US has significant implications for individuals, particularly those without insurance. Uninsured patients or those with out-of-network insurance plans often face inflated prices and limited bargaining power in the healthcare market. This can result in financial vulnerability and difficulty affording essential medical care. Obamacare has helped to improve access to healthcare for some individuals, but further reforms may be needed to ensure that healthcare is affordable and accessible to all.

Healthcare costs and socioeconomic conditions

Hospital pricing in the United States has been described as "broken", with hospital markups ranging from 100% to as high as 1000%. For example, an acetaminophen tablet that costs 1.5 cents per tablet online can cost $1.50 at a hospital. While the US government has attempted to address this issue, for instance, by requiring hospitals to provide clear pricing information online, critics argue that the penalties for non-compliance are too low to be effective.

Socioeconomic factors play a significant role in healthcare costs and access. People from lower socioeconomic backgrounds may have limited access to healthcare due to financial constraints and longer wait times. This can lead to increased morbidity and further reductions in access to care, creating a downward spiral. Lower socioeconomic status (SES) is associated with poorer health outcomes and reduced access to healthcare, particularly for older adults. Income, education, occupation, and wealth are all factors that contribute to an individual's socioeconomic status and can impact their ability to access and utilize healthcare services effectively.

Racial and ethnic disparities are also evident, with Black people and other minority groups often facing barriers to accessing quality healthcare. Studies have found evidence of bias, stereotyping, and prejudice in the healthcare system, contributing to racial disparities in health outcomes. Additionally, minority groups may be disproportionately represented in lower socioeconomic ranks, further exacerbating the challenges they face in accessing healthcare.

Socioeconomic conditions can also influence an individual's health status and healthcare needs. For example, people living in polluted environments or those with limited access to healthy food and adequate housing may have poorer health outcomes, requiring more healthcare services. Education plays a role in an individual's ability to effectively utilize healthcare services and make informed health decisions.

Addressing these socioeconomic disparities and improving access to healthcare for vulnerable populations require a combination of grassroots interventions, policy changes, and systems-level approaches. By targeting the underlying socioeconomic factors that impact healthcare costs and access, it is possible to improve health outcomes and reduce the financial burden on individuals and society as a whole.

Frequently asked questions