The Real Reason Healthcare Costs Keep Rising

Article is by Joseph Jenkins, as seen on

All across America, big hospital systems are buying up or partnering with smaller hospitals. According to Health Care Cost Institute data, that makes for monopolistic market power and higher costs for employers.

Here’s a striking example of how this works:

Robert Talford was admitted for a one-night stay to Carolinas Medical Center (CMC) in Charlotte, NC and exited owing $14, 419. This included a single night room charge of $5,556 plus the cost of the medications he was given. Talford responded by suing CMC, demanding that their charges be reasonable.

The North Carolina Court of Appeals ruled in his favor, concluding that the hospital should be made to itemize its charges and prove them reasonable. But the Supreme Court of North Carolina overturned the lower court, ruling that as long as the hospital could show that its prices were in line with what other hospitals were charging for similar services, the charges were “reasonable” and met industry standards. Not surprisingly, practically all of the leading hospitals in North Carolina lined up behind CMC.

Monopoly in action

Varying degrees of market clout is also the reason healthcare pricing varies so widely across geographic regions.

The ability of North Carolina’s hospitals to abuse their market power is mirrored across the U.S. The December 2015 publication of “The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured” provides a detailed examination of nearly 28% of the private employer insurance claims filed nationwide between 2007 and 2011.

Using Health Care Cost Institute data from Aetna, Humana and United Healthcare, the researchers from the University of Pennsylvania, Yale, Carnegie Melon and the London School of Economics demonstrate that the chief driver of healthcare costs is not rising standards of care, the provision of services to poor communities, the adoption of new drugs and innovative medical technologies—or any other frequently cited reason to justify bloated healthcare pricing. The chief reason medical costs continue to rise, the report states, is hospitals’ growing monopoly in their local communities.

Varying degrees of market clout is also the reason healthcare pricing varies so widely across geographic regions. The report concludes that employers and their employees are being held captive to monopoly pricing divorced from the underlying cost basis.

Author Joseph Jenkins, M.D., J.D., possesses an extensive background in health policy and management and has served as chief executive of a public health company.