Are Hospitals the Enemy?

Published March 27, 2015

No. At least, probably not.

But over at Slate, Reihan Salam makes a pretty compelling case for hospitals being a major problem in terms of health care costs.

Hospitals Are Robbing Us Blind

Five years ago this week, Barack Obama signed the Affordable Care Act into law, and we’ve been debating it ever since. Like many Americans, I oppose Obamacare, and I think we ought to repeal it and replace it. Over the past few months, however, I’ve come to the conclusion that the fight over Obamacare is a distraction from a much deeper problem, which is that America’s hospitals are robbing us blind…

When you survey the health systems of other rich countries, you’ll find some that rely a bit more on private insurance markets than ours (like Switzerland) and others that rely a bit more on centralized bureaucracies (like Britain), but what you won’t find is a country where hospitals dare to charge such obscenely high prices. Avik Roy, a senior fellow at the Manhattan Institute and a conservative health reform guru, has observed that although the average hospital stay in the world’s rich countries is $6,222, it costs $18,142 in the U.S. Guess what? Spending three times as much doesn’t appear to yield three times the benefit.

As for why hospitals charge such high prices, it’s fairly simple: They do it because they can. In a competitive market, a provider who jacks up prices risks losing customers to competitors who charge less. But what if incumbent providers have the political muscle to keep competitors out of the market? What if regulators look the other way when incumbent providers buy up the competition, or even help the process along? That, in a nutshell, is the situation with America’s hospitals, as Chris Pope outlines in a recent Heritage Foundation paper on consolidation in the health care market…

An interesting read, and its worth taking the time to consider his argument. I probably lean a bit more towards the view that hospitals are simply responding to the bizarre incentives created by the third-party payer system that dominates health care today, and the desire of politicians to curry favor with powerful interests like hospitals. But there’s no doubt that under a real free market, hospitals as we know them today would probably disappear (and that’s a very good thing, by the way).