Don’t Blame Medicare for Rising Medical Bills

This price gap continues to increase, with private plan costs rising at nearly double the rate of general inflation.

The escalating prices for healthcare services are borne by the middle-class families who rely on employer-sponsored insurance. The cost of healthcare for a typical middle-class family of four with a preferred provider organization (PPO) plan reached $30,260 in 2022. This burden on families has been rising rapidly, outpacing their ability to pay.

The myth perpetuated by monopolistic hospitals, healthcare providers, and private insurers is the notion that they charge higher prices to private insurers to offset losses from Medicare and Medicaid patients. However, studies have shown that there is no correlation between what hospitals receive for treating Medicare and Medicaid patients and what they charge other patients. Hospitals do not uniformly raise prices for privately insured patients when Medicare and Medicaid rates decrease, nor do they lower prices when reimbursement rates increase.

It seems the root cause of rising prices is the increasing monopoly power of hospitals. In highly concentrated hospital markets, where competition is limited, hospitals can charge significantly higher prices to private insurers because they face little competition. The article emphasizes that approximately 80 percent of U.S. hospital markets are now highly concentrated.

The myth of cost shifting serves the interests of powerful players in the healthcare industry. Monopolistic hospitals use it to shift blame onto the government for their price gouging practices. Additionally, many hospitals enjoy nonprofit status and tax exemptions, claiming that the difference between reimbursements from government payers and the prices they charge private insurers constitutes their community benefit. This allows them to avoid paying taxes while not fulfilling their obligations to the public.

To address the issue of rising healthcare prices, the article suggests several solutions. First, antitrust enforcement should be strengthened to prevent hospital mergers that reduce competition. Legislation granting the Federal Trade Commission the authority to take antitrust actions against nonprofit hospitals is recommended. State attorneys general and regulators should crack down on anticompetitive behavior by monopolistic hospitals.

Furthermore, regulation is needed to prevent practices that suppress competition, such as noncompete clauses for healthcare professionals and unnecessary licensing requirements for new entrants into healthcare markets.

However, antitrust enforcement alone cannot solve the problem. It advocates for outlawing price discrimination in healthcare, calling for equal pricing regardless of the patient's insurance status. The focus should be on delivering high-quality care efficiently and effectively, rather than on monopolistic market power.

The myth that hospitals charge higher prices to private insurers to offset losses from Medicare and Medicaid patients. Instead, it argues that rising healthcare prices are driven by increasing monopoly power. Addressing this issue requires a combination of antitrust enforcement, regulation, and the elimination of price discrimination in healthcare.

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