“Large hospital systems have gained enormous market power in recent years,” says health expert Sally Pipes. “That market power has enabled them to command higher prices—and sustain healthy balance sheets.”
Getty Images
A growing bipartisan consensus is emerging around one of the biggest drivers of America’s healthcare affordability crisis: hospital consolidation.
Two reports published this spring—one from the market-oriented Paragon Health Institute and another from the progressive advocacy group Families USA—arrive at remarkably similar conclusions. Large hospital systems have gained enormous market power in recent years. That market power has enabled them to command higher prices—and sustain healthy balance sheets.
That agreement matters because healthcare debates in Washington rarely produce much ideological overlap. But when organizations on opposite sides of the political spectrum identify the same problem, policymakers should pay attention.
Hospitals now account for roughly 31% of all healthcare spending in the United States, compared to about 21% for physician services and 9% for retail prescription drugs. According to the Kaiser Family Foundation, hospitals drove roughly 40% of healthcare spending growth between 2022 and 2024.
The Paragon and Families USA reports add important context to those figures.
According to Paragon, hospital prices have risen twice as fast as wages since 2000 and roughly three times faster than inflation.
Families USA found that the nation’s 15 largest hospital systems charged commercial insurers nearly three times what Medicare paid for the same services between 2018 and 2023.
Some systems charged substantially more. HCA Healthcare charged 339% of Medicare rates, while AdventHealth charged more than 400% of Medicare rates.
Both reports point to the same underlying problem: consolidation.
Families USA found that in 42 states and the District of Columbia, at least half of hospital services were controlled by five or fewer systems in 2023. In nearly half of states, just three systems controlled most hospital care.
That market concentration gives dominant hospital systems substantial leverage in negotiations with insurers, especially when insurers view those systems as essential to building viable provider networks. The result is higher reimbursement rates that ultimately flow through to employers and families in the form of higher premiums, deductibles and out-of-pocket costs.
Families USA notes that family health insurance premiums have increased more than 320% since 2000. The report also cites research estimating that rising healthcare costs have reduced worker wages by nearly $1 trillion since 2012, as employers divert compensation toward health benefits.
The Paragon report explains why hospitals have been able to consolidate the markets in which they operate.
One factor is state-level certificate-of-need laws, which require healthcare providers to obtain government approval before opening facilities, expanding services or purchasing major equipment. In practice, those laws often allow incumbent hospital systems to block or delay new competitors.
Federal policy has also contributed. Medicare pays hospitals far more than independent physician practices or ambulatory surgery centers for the exact same outpatient services.
Those payment disparities create strong incentives for hospitals to buy up physician practices and independent surgery centers. Once acquired, those facilities may be able to bill at higher hospital rates or steer patients into higher-cost hospital settings for procedures and services.
All this acquisitive activity has turned the majority of physicians into employees rather than independent operators. According to the Paragon report, just 26% of physicians worked for hospitals in 2012. By 2024, more than 55% did.
The effects have been measurable. A recent analysis from the U.S. Department of Health and Human Services found that hospital acquisition of physician practices increased physician-service prices by an average of 14%.
Together, the Paragon and Families USA reports paint a clear picture of a healthcare system in which consolidation increasingly shields hospitals from competitive pressure while driving costs steadily higher.
Just as importantly, they suggest that concern about hospital market power is no longer confined to one side of the political spectrum. Policymakers may disagree about the best remedies. But there is bipartisan agreement about the source of the problem—and who is paying for it.