Skip to content
Search

Latest Stories

Top Stories

Breaking the rules of health care: Getting the quality of care you pay for

Hospital

Hospitals use their size and numbers to maximize profits without improving patient care, writes Pearl.

Chris Jongkind/Getty Images

Why does The Fulcrum feature regular columns on health care in America?

U.S. health care spending grew 9.7 percent in 2020, reaching $4.1 trillion — 19.7 percent of the gross domestic product. Over the long term this is clearly unsustainable. If The Fulcrum is going to fulfill our mission as a place for informed discussions on repairing our democracy, we need to foster conversations on this vital segment of the economy. Maximizing the quality and reducing the cost of American medicine not only will make people's lives better, but will also generate dollars needed to invest in education, eliminating poverty or other critical areas. This series on breaking the rules aims to achieve that goal and spotlights the essential role the government will need to play.

Pearl is a clinical professor of plastic surgery at the Stanford University School of Medicine and is on the faculty of the Stanford Graduate School of Business. He is a former CEO of The Permanente Medical Group.

As consumers, we typically assume there’s a positive correlation between price and quality. We expect the $40 toaster to have distinct advantages over the $20 model and the luxury sedan to have superior engineering compared to the midrange option.

Sign up for The Fulcrum newsletter

But when it comes to inpatient care, this assumption proves dead wrong. High-priced hospitals don’t necessarily deliver higher-quality care. That’s because of an unwritten rule that hospital administrators and their boards dutifully follow.


Hospitals maximize profits by monopolizing markets

For most of the 20th century, hospitals based their prices on the cost of providing care. When prices went up, the added revenue went to hiring more support staff, recruiting top physicians and buying new technologies. That’s why patients (and their insurance companies) didn’t mind paying more for better quality. Back then, they got what they paid for.

Toward the turn of the century, however, for-profit health insurers began exerting greater influence over the industry with a goal of earning outsized profits for shareholders. They did this, in part, by cutting hospital costs and imposing restrictions on care delivery. Hospital leaders countered, buying up competing hospitals to gain greater leverage and market control. Once communities were left with only one hospital or health system, insurers were left with no choice but to pay the asking rate.

Hospital consolidation shows no signs of slowing down

Between 2000 and 2012, nearly 900 hospital mergers and acquisitions were announced. Over the next three year, another 1,600 hospital mergers and takeovers took place. These numbers continue to grow.

The 40 largest health systems now own 2,073 hospitals, roughly one-third of all emergency and acute-care facilities in the United States. The top 10 health systems own one-sixth of all hospitals and combine for $226.7 billion in net patient revenues.

Today, inpatient care is the single largest contributor to healthcare costs in the United States, accounting for 31 percent of the total. Monopolistic hospital pricing helps explain why health care spending has increased 35-fold over the past 40 years, from $353 per person in 1970 to more than $12,531 in 2020. Yet, despite soaring costs, few Americans today get what they pay for. In fact, the U.S. ranks last among wealthy nations in practically every measure of quality and performance.

Two recent studies shed light on how hospitals — and the doctors who work there — use their size and numbers to maximize profits without improving patient care.

Quality suffers without competition

Last month, a Yale-Harvard research collaboration for the National Bureau of Economic Research found that expensive hospitals (priced 52% higher than average) reduced patient mortality by a mere 1 percent.

But researchers identified a huge difference in the death rate when they compared high-priced hospitals in competitive markets versus those in non-competitive ones.

In places where hospitals vie for patients, higher prices correlated with a 47 percent lower mortality for time-sensitive medical problems like heart attacks. In concentrated markets (with only one hospital system), higher prices had “no detectable effect on mortality.”

This finding makes sense. When patients have a choice to go elsewhere, hospitals that raise prices must improve care. To attract patients, competing hospitals use higher revenues to hire more nurses and support staff — or launch disease-management programs and other quality-improvement efforts.

By contrast, for-profit hospitals in monopolistic markets use higher revenues to cushion their bottom lines. Nonprofit monopolies in non-competitive areas are more likely to use the added dollars from higher prices to construct ornate buildings with beautiful lobbies that resemble luxury hotels.

Physicians also use market control to increase prices

Radiologists, ER doctors and others who work full time for hospitals have, themselves, figured out how to benefit from the unwritten rule of market control.

A study published in JAMA Internal Medicine examined the difference in hospital pricing when anesthesiologists join physician management companies that are backed by private equity (a growing trend in hospitals). Researchers found out that when private equity is involved, prices paid to anesthesia practitioners increased by a whopping 26 percent.

You can’t run a hospital without anesthesiologists or ER physicians. Thus, when they band together, hospitals must meet their demands. It takes clout to jack up prices without improving quality and these hospital-based doctors have plenty of it.

The added costs get passed on to purchasers and patients the following year.

How to get what we pay for

To break this harmful rule — and help patients get better care at more affordable prices — here are two practical steps governmental agencies could take.

1. Expand DOJ regulation of hospitals. When a single health system buys up all the hospitals in town, the Department of Justice has the authority to enforce anti-competition laws. The department did so successfully in 2020 when it sued Sutter Health for price gouging, leading to a $575 million antitrust settlement with the state of California. But most hospital mergers get approved with little pushback and no mandate to improve quality or make care more affordable. When hospitals merge with the intent to raise prices, the DOJ must step up enforcement and start reversing the status quo.

2. Create a hospital quality scorecard. For years, the Centers for Medicare & Medicaid Services have collected some hospital data (called Quality Measures) for the sake of determining hospital payments. In simplest terms, financial penalties are imposed when patients suffer a medical error or are discharged prematurely. But this information is far from comprehensive. A better CMS solution would require hospitals and electronic health record companies to open their application programming interfaces so that artificial intelligence software could conduct a much deeper analysis of patient health records. CMS could then publish a definitive hospital “quality scorecard” that would allow patients and commercial insurers to compare hospital prices with quality outcomes and patient safety records.

Of course, hospitals have clout with elected officials, and they will vigorously oppose these measures. But, as a voter, you can play your part. First, check out this spreadsheet from Yale University’s Tobin Center for Economic Policy. Its author, Yale economist Zach Cooper, explains how to know if you’re in a consolidated hospital market: “You should be concerned about hospitals with a Herfindahl Hirschman Index (HHI) of greater than 4,000.”

Second, if you want higher quality medical care, ask your state representative and senator whether they support the two action steps outlined in this article. Then remember their answers when you head to the voting booth this fall.

Read More

Bridging Hearts in a Divided America

In preparation for U.S. President-elect Donald Trump's second inauguration in Washington, D.C., security measures have been significantly heightened around the U.S. Capitol and its surroundings on January 18, 2025.

(Photo by Celal Gunes/Anadolu via Getty Images)

Bridging Hearts in a Divided America

This story is part of the We the Peopleseries, elevating the voices and visibility of the persons most affected by the decisions of elected officials. In this installment, we share the hopes and concerns of people as Donald Trump returns to the White House.

An Arctic blast is gripping the nation’s capital this Inauguration Day, which coincides with Martin Luther King Jr. Day. A rare occurrence since this federal holiday was instituted in 1983. Temperatures are in the single digits, and Donald J. Trump is taking the oath of office inside the Capitol Rotunda instead of being on the steps of the Capitol, making him less visible to his fans who traveled to Washington D.C. for this momentous occasion. What an emblematic scenario for such a unique political moment in history.

Keep ReadingShow less
King's Birmingham Jail Letter in Our Digital Times

Civil Rights Ldr. Rev. Martin Luther King Jr. speaking into mike after being released fr. prison for leading boycott.

(Photo by Donald Uhrbrock/Getty Images)

King's Birmingham Jail Letter in Our Digital Times

Sixty-two years after Rev. Dr. Martin Luther King’s pen touches paper in a Birmingham jail cell, I contemplate the walls that still divide us. Walls constructed in concrete to enclose Alabama jails, but in Silicon Valley, designed code, algorithms, and newsfeeds. King's legacy and prophetic words from that jail cell pierce our digital age with renewed urgency.

The words of that infamous letter burned with holy discontent – not just anger at injustice, but a more profound spiritual yearning for a beloved community. Witnessing our social fabric fray in digital spaces, I, too, feel that same holy discontent in my spirit. King wrote to white clergymen who called his methods "unwise and untimely." When I scroll through my social media feeds, I see modern versions of King's "white moderate" – those who prefer the absence of tension to the presence of truth. These are the people who click "like" on posts about racial harmony while scrolling past videos of police brutality. They share MLK quotes about dreams while sleeping through our contemporary nightmares.

Keep ReadingShow less
The arc of the moral universe doesn’t bend itself

"Stone of Hope" statue, Martin Luther King Jr. Memorial, Sunday, January 19, 2014.

(Photo by Nikki Kahn/The Washington Post via Getty Images)

The arc of the moral universe doesn’t bend itself

“The arc of the moral universe is long, but it bends toward justice.” The Rev. Martin Luther King Jr.’s familiar words, inscribed on his monument in Washington, D.C., now raise the question: Is that true?

A moral universe must, by its very definition, span both space and time. Yet where is the justice for the thousands upon thousands of innocent lives lost over the past year — whether from violence between Ukraine and Russia, or toward Israelis or Palestinians, or in West Darfur? Where is the justice for the hundreds of thousands of “disappeared” in Mexico, Syria, Sri Lanka, and other parts of the world? Where is the justice for the billions of people today increasingly bearing the brunt of climate change, suffering from the longstanding polluting practices of other communities or other countries? Is the “arc” bending the wrong way?

Keep ReadingShow less
A Republic, if we can keep it

American Religious and Civil Rights leader Dr Martin Luther King Jr (1929 - 1968) addresses the crowd on the steps of the Lincoln Memorial during the March on Washington, Washington DC, August 28, 1963.

(Photo by PhotoQuest/Getty Images)

A Republic, if we can keep it

Part XXXIV: An Open Letter to President Trump from the American People

Dear President Trump,

Keep ReadingShow less