Sally Pipes: "Why Hospital Prices Keep Rising—And How Competition Can Help"

The following is an excerpt from an article by Sally Pipes, Founder and Chair of the Benjamin Rush Institute, published in Forbes. Click here to read the full article in your browser.

Prescription drug prices fell 3.1% over the past year, the sharpest annual decline in more than six decades, according to new data from the federal Bureau of Labor Statistics. Hospital prices, meanwhile, rose 5.2%.

Yet the vast majority of Washington policymakers focus their time and attention on reducing drug prices, not hospital costs.

It’s easy to see why. Just like “Big Tobacco” in the 90s, “Big Pharma” has become a boogeyman in both parties. As research has shown, tobacco kills and drugs save lives. By contrast, voters tend to look favorably on their local hospitals.

But if lawmakers want to actually bring down healthcare costs, they’ll need to take on the hospital conglomerates that are disproportionately driving medical inflation. That won’t require statist price controls. But it will require redoubling efforts to cut red tape, boost transparency and promote the market competition that leads to lower prices.

Americans spent about $1.6 trillion on hospital care in 2024, according to the latest available federal data. That was about 31% of total healthcare spending of $5.7 trillion—considerably more than the $1.1 trillion spent on physician and clinical services, and nearly four times the $467 billion spent on prescription drugs.

Hospitals don’t merely account for the plurality of America’s healthcare spending. They’re also raising prices faster than almost anyone else in the healthcare industry. Between 2000 and 2022, hospital service prices rose by more than 220%, far outpacing the general inflation rate of 74% and the overall healthcare inflation rate of 130% over the same period, according to researchers at Rice University’s Baker Institute for Public Policy.

Hospitals are charging ever steeper prices, in large part, as a result of big health systems acquiring smaller facilities. Between 2016 and 2024, there were nearly 500 hospital mergers, acquisitions and other changes of ownership, according to a recent UnitedHealth Group analysis. By 2024, nearly half of metropolitan hospital markets were controlled by just one or two health systems.

This has left insurers and patients with fewer alternatives—and large hospital systems with enormous leverage when setting prices. It should come as little surprise, then, that hospital mergers within individual markets have been linked to price increases of 20% to 50%.

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