The real reason health care and education costs are soaring

OPINION:

Next week, Congress will take an important step toward addressing one of the most pressing issues facing Americans today: the rising cost of health care.

As part of a broader series of hearings on health care affordability, the House Committee on Energy and Commerce and the House Committee on Ways and Means will convene Jan. 22 to examine why medical bills and insurance premiums keep climbing.

For all Americans, including single-salary households, families with small children and older Americans living on fixed incomes, these hearings come at a critical moment. As lawmakers begin this work, however, they must be careful to examine the correct side of the equal sign.

Identifying insurers as the primary drivers of health care cost increases is like blaming student loan providers for the soaring price of college. In both cases, the lender or payer sits on one side of the equation. They write the checks.

The real price-setters, however, are on the other side of the equal sign. In higher education, that’s colleges and universities, because they set tuition prices. In health care, it is hospitals and health care systems, because they set the prices for their services.

Mathematically, health care costs originate in the prices that hospitals charge insurers. When a hospital bills $15,000 for a routine diagnostic colonoscopy that takes 45 minutes or charges $75 for a single Advil, those costs do not disappear. They flow directly through to premiums, taxes and patient bills.

Hospitals, many of which operate as nonprofit institutions, have come to resemble nonprofit colleges in a troubling way. Like many elite universities that sit atop massive endowments while continuing to raise tuition, large hospital systems have accumulated enormous financial reserves even as they charge ever-increasing prices for basic care.

At both colleges and hospitals, nonprofit status has not prevented aggressive pricing; it has often coincided with it. America’s hospital systems have turned into the Ivy League of medicine, with massive endowments, billion-dollar buildings and zero price discipline. Just like the colleges that cry poor and charge students $90,000 a year in tuition, America’s hospitals have forgotten the meaning of “not-for-profit.”

Over the past 25 years, hospital prices have risen far faster than inflation or wages, and hospital services now account for nearly one-third of all U.S. health care spending. These increases are not driven primarily by breakthroughs in quality or outcomes. They are driven by market power. As hospital systems consolidate, competition fades and prices become untethered from costs.

Insurers are left with two untenable choices: either pay what dominant hospitals demand and raise premiums, or face exclusion from those hospitals’ networks and leave customers with decreased access to care, often right in their own neighborhoods. In both cases, Americans lose and hospitals win.

The Jan. 22 hearings represent an important opportunity to get this story right. Congressional oversight is essential, but confronting the entities that process the payments gets you only so far. Real reform will come from confronting the entities that set the prices.

Insurers and pharmaceutical companies are far from innocent in the American health care cost equation, and real reforms are necessary for those industries. It remains simple economics, however, that hospital prices are the first domino in this equation.

If Congress wants to consider legislative and regulatory action to lower health care costs, then it should focus on hospital monopoly price gouging first and foremost. If you don’t fix that, you can’t lower insurance premiums.

• Terry Schilling is the president of American Principles Project. Follow him on X @Schilling1776.