Why Are Hospital Bills so High in the U.S. Health Care System?

 Why Are Hospital Bills so High in the U.S. Health Care System?

Americans will spend over $4 trillion on health care this year, and it’s projected to rise to more than $6 trillion in the next seven years. Health care costs are growing faster than the economy, and a big portion of those bills is paid by employers and those with commercial insurance coverage.

High premiums also mean that employers have to keep worrying about how they’ll pay for their company plans.

Over the last three decades, the cost of American medical care has more than doubled even after accounting for inflation. The burden has fallen on private employers and those with individual insurance policies.

The Medicare program sets the rates it will pay based on hospital costs, but private payers have to negotiate with every hospital and doctor. A lack of competition is a big part of the problem. Much of the Charlotte region, for example, is dominated by three hospital systems.

Another problem is that insurance companies may not even be motivated to rein in costs for many large, self-insured company plans because they earn a percentage of the bill. Over the past 30 years, hospital systems have been consolidating rapidly, merging with other hospitals and buying up physician practices.

When hospitals consolidate, prices go up. On average, private insurance plans pay 247% of what Medicare pays. That’s just the national average. North Carolina hospitals charge private payers 273% of Medicare rates.

Hospitals argue consolidation isn’t the problem. Cody Hand, a senior executive with the North Carolina Hospital Association, admits prices for private payers are high, but hospitals have to charge them more because Medicare pays too little.

Another reason prices are high is that hospitals have to spend a lot on salaries and equipment. American doctors and nurses earn more than their counterparts in other wealthy countries. Specialists here make an average of $316,000 a year, and that’s more than twice as much as the average compensation in nine comparable countries. 

Studies show large hospital systems are also responsible for pushing up some physician charges. When they buy up doctor practices, hospitals often tack an additional fee onto the doctor’s bill. Hospitals say that additional fee helps cover the cost of operations.

Buying up doctors’ offices can also be very lucrative for large hospitals because those doctors then refer their patients back to the hospital for lab tests and procedures. Big players can push up costs. Even if they do good things with that income, like investing in medical research.

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