We talk a lot about the cost of medicine, the rising costs of Medicaid and Medicare and entitlements. Polling shows that health care remains a top priority for Americans, and yet there's very little discussion about hospitals and hospital costs.
The political discussion around health care centers around topics like drug pricing, 340B pricing, and Pharmacy Benefit Managers (PBMs). But one thing, even here on the pages of ReaClearHealth, we don't focus on enough is hospitals. This is true even though we’re in the midst of a hospital cost crisis. So, when we're talking about Medicaid, Medicare, national and state budgets, drug prices, and the overall cost of health care, we have to talk about hospitals.
What's the most expensive thing Americans spend on health care? Everybody says drugs, right? But the truth is that drugs are only about a dime on the dollar, 10% of the U.S. healthcare expense. Hospitals are about 30% to 35%, by far the biggest piece of the pie. And over the last 25 years, hospital prices have risen, ready for this, 250%. And that's triple the rate of general economic inflation – so, that’s a big price increase based on a big gross number.
What’s more, 60% of all the hospitals in the U.S. are not-for-profit hospitals. And you'd think they would do a better job relative to making sure that the resources are directed at charity care and people with poor insurance or no insurance. However, that’s not the case. There's a thing called the fair share deficit. And last year, about 80% of nonprofit hospitals spent less on financial assistance and community investment than on the estimated value of their tax breaks. In other words, 80% of the money they get through public tax breaks is not being used to assist those most needy in our society. Now, what does that 80% mean? That 80% equals, don't jump out of your chair, $25.7 billion. And that's enough to pay off the medical debt of everyone in California, Texas, New York, and Pennsylvania combined. That’s an enormous number not being spent as it is supposed to be spent.
Perhaps the big headline here is that not-for-profit hospitals are behaving like for-profit entities. And why is that? Because hospitals are paid on a fee-for-service basis. Insurers pay for each test or treatment or each procedure – so hospitals have an incentive to deliver as many services as possible rather than focusing on the outcome of patients. And that's misaligned. It's got to change, and it creates all sorts of bad behaviors.
You have to ask yourself if hospitals are 30% to 35% of our entire health care spend in this country, why isn’t the public debate focused on hospitals? Could it be politics?
That's definitely part of it. I recently interviewed former FDA official Peter Pitts on my WBAL Sunday show. Pitts told my listeners that In New York, where he lives, the NY hospital associations contributed almost $26 million to political action committees. What's wrong with that picture? Not-for-profit hospitals are donating money – tens of millions of dollars just in New York alone to politicians. Perhaps it's not surprising that they're getting what they paid for.
To change the public discussion, we've got to prioritize transparency and accountability for not-for-profit hospitals. Transparency is the law, and hospitals aren't following the law. We have to align incentives with patient outcomes rather than the volume of services provided.
We have to empower watchdog agencies on the federal and state levels to audit and regulate hospital spending. There has to be a much firmer hand on the wheel to make sure these hospitals are doing what they are supposed to do. The hospital cost crisis is evident. It's wrong. It needs to change.
That seems to be common sense.
