Hospital care is the largest driver of U.S. health prices

SUMMARY: Drug pricing is the political controversy of the moment, but hospitals cost the health care system far more. Retail drug spending represents 10% of U.S. health care spending, while hospital and doctor services consume about half of spending.

Private insurance plans pay hospitals, on average, 241% of what Medicare pays for the same services — and those rates vary widely from hospital to hospital, according to a new report by the RAND Corporation.

Hospital and Surgery Costs. Total health care spending in America was approximately $3.5-trillion in 2017 and about 32% of that amount — or $1.1-trillion — was spent on hospital services. Hospital costs averaged $3,949 per day and each hospital stay cost an average of $15,734.

Hospitals receive $1 out of every $3 spent on health care, and the United States is projected to spend about $1.3 trillion for hospital care alone in 2019. Collectively, hospitals boast a margin of 8 percent, a level higher than margins in the pharmacy industry or the insurance industry. Across America’s acute care hospitals, total revenues exceeded expenses by more than $64 billion in 2016, according to a Center for American Progress analysis. Experiences among individual hospitals vary, however, and about one-quarter of both for-profit and not-for-profit hospitals lost money in 2016.

Many hospitals are able to sustain profits and high prices because of their market power, which has grown as competition has dwindled and providers have consolidated through mergers and acquisitions. While the high expenditures in some regions of the country are at least partly explained by local input costs, utilization, or medical practice style, price variation is responsible for most of the geographic variation in expenditures among people with private insurance

Hospital profitability has risen to its highest levels in decades, boosted by the nation’s rebound from the Great Recession and the Affordable Care Act’s expansion of health coverage.

The health care costs that are hitting patients’ pocketbooks hardest aren’t the same ones that are driving health care spending through the roof, meaning that political action to address costs may be somewhat divorced from our long-term problems.

Why aren’t politicians talking about the costs of hospitals? Because the media is fixated on drug companies.

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