Earlier this spring, the House Ways and Means Committee confronted hospital CEOs with horror stories Americans know far too well. Chairman Jason Smith highlighted outrageous bills detached from reality, remarking that “patients [are] at the mercy of hospital empires.”

A family in California was charged $300,000 for a toddler’s snake bite. A man in Florida was billed $13,000 for an emergency CT scan. A hospital sued an Alabama woman for $37,000—the full cost of an appendix procedure plus interest, even after she faithfully paid every bill that came to her over three years.

Smith is right: Big hospital billing practices aren’t working for patients or taxpayers.

Hospital care is the largest and fastest-growing component of U.S. health spending. Since 2000, hospital prices have risen three times faster than inflation and more than twice as fast as wages. Despite technological advances and economy-wide productivity gains, hospital care remains deeply inefficient and uncoordinated. Americans are delaying care, struggling with medical bills, and facing rising premiums.

Government policy created this mess. Washington and state governments have long protected big hospital systems from competition, encouraged mergers and rewarded inefficiency. For hospitals, this “crony capitalism” means pricing power and market leverage. For patients, it means fewer choices and high costs.

In Paragon’s most recent study, we reviewed the damage caused by harmful government policies, and we made 12 recommendations to help American families pay less for better health care.

First, we need more competition.

In many states, hospitals need government approval before opening new facilities or expanding existing ones. Incumbent hospitals sit on boards in charge of granting permission. Decades of evidence show that these so-called “Certificate of Need” laws prevent new hospitals from being built, reduce access for patients and drive prices higher.

The Affordable Care Act also undermines competition with ill-considered rules and complexity. For example, the ACA limited Medicare payments for new physician-owned hospitals, a key source of competition for traditional hospitals. As a result, the growth in physician-owned hospitals came to a halt.

Second, we need to reverse payment policies that drive consolidation. A decade ago, most physicians were independent. Today, over half are employed by hospitals. Peer-reviewed studies show consolidation raises prices from 3% to as much as 29%.

One of the reasons for growing consolidation is that Medicare and Medicaid often pay more for the same service when it is delivered in a hospital setting versus an independent physician’s office. This directly raises health care costs and indirectly fuels consolidation as hospitals acquire doctors’ offices, with doctors making more as hospital employees. Congress and states should insist on the same rates for the same service in government programs.

Another payment distortion is the 340B Drug Pricing Program. It was intended to help safety-net providers by enabling them to buy drugs at deep discounts and then bill for administering them at much higher prices. 340B fuels consolidation, encouraging hospitals to acquire physician practices and outpatient facilities to further increase billing. Congress should reform 340B.

The Medicaid program—a welfare program for the most vulnerable—has become a profit center for big health care systems. Working with state officials, hospitals have designed financing schemes to fill their coffers with federal funds.

Hospitals also benefit from many other subsidies, and most are tax exempt. Everyone else pays higher taxes since most hospitals don’t.

Hospitals are on solid financial footing, which helps explain why administrative costs and executive pay keep escalating. For example, the CEO of CommonSpirit Health, which has hospitals in 18 states resulting from consecutive mergers among Catholic hospitals, paid its CEO $28 million in 2023, a sum that would surely shock the eight Sisters of Mercy who founded one of its predecessor hospitals in 1854 to care for cholera victims.

Hospital lobbyists often claim they must charge high prices because government programs underpay them. But hospitals increasingly profit from government programs while government policies shield them from competition.

The hospital lobby is powerful, and change will require overcoming their lobbying efforts to protect the status quo. A testament to that power, Senate Minority Leader Chuck Schumer recently remarked to hospital executives that they provide “the best advice” and will have “a seat at the table.” Giving hospitals a seat at the table is fine, but healthcare will remain unaffordable until the cronyism comes to a halt.

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Brian Blase is the president of the Paragon Health Institute. John R. Graham is a visiting fellow at Paragon and author of a new paper, "The Hospital Cost Crisis: How Government Policies Drive Consolidation, Undermine Competition, and Fuel Soaring Prices."

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