For decades, hospital services price inflation has been rising sharply, up 220% since 2000, far above overall inflation and inflation for general medical care services, along with pretty much everything else.

American Enterprise Institute’s Mark J. Perry, has carefully tracked this disheartening spike, noting that more government intervention leads to higher costs, especially for so-called non-tradeables—hospital stays and college tuition, e.g. services that are individualized.

One significant reason why hospital costs have risen so high is a shell game healthcare providers play to charge the government—and thus, taxpayers—more. The federal government subsidizes hospital monopolies by paying higher reimbursements to physician practices and outpatient facilities when they merge with hospitals. 

Medicare pays hospital-owned facilities significantly higher rates—between 106% and 217% more—than independent medical practices and other outpatient facilities for the exact same services, including chemotherapy, cardiac imaging, and colonoscopies. Commercial insurers also pay higher rates for hospital-owned facilities in many cases.

The old economic adage teaches that if you tax something you get less of it, and if you subsidize you get less of it. As Independent Women’s Voice noted in a coalition letter this spring, these disproportionately higher payments create an enormous incentive for hospitals to acquire independent practices and charge patients and taxpayers high prices.

Perry also notes that the goods and services with a sharp drop in pricing since 2000 are the ones with fierce marketplace competition. 

The Alliance for Site Neutral Payment Reform notes that Congress has recognized the negative consequences this policy has on patients, taxpayers, and businesses and included a site-neutral payment provision in the Bipartisan Budget Act of 2015.

The Committee for a Responsible Federal Budget issued a report finding that site-neutral payments would save taxpayers more than $153 billion in Medicare spending over the next decade, and reduce premiums and cost-sharing for Medicare beneficiaries by $94 billion. Overall, CFRB believes site-neutral payments would reduce total national health expenditures by a range of $346 to $672 billion and reduce the federal budget deficit by a range of $217 to $279 billion.

In an age of ballooning deficits and debt, this is low-hanging fruit for patients and taxpayers.