Hospitals receive $1 out of every $3 spent on health care,³ and the United States is projected to spend about $1.3 trillion for hospital care alone in 2019. Collectively, hospitals boast a margin of 8 percent, a level higher than margins in the pharmacy industry or the insurance industry. Across America’s acute care hospitals, total revenues exceeded expenses by more than $64 billion in 2016, according to a Center for American Progress analysis. Experiences among individual hospitals vary, however, and about one-quarter of both for-profit and not-for-profit hospitals lost money in 2016.

Many hospitals are able to sustain profits and high prices because of their market power, which has grown as competition has dwindled and providers have consolidated through mergers and acquisitions. While the high expenditures in some regions of the country are at least partly explained by local input costs, utilization, or medical practice style, price variation is responsible for most of the geographic variation in expenditures among people with private insurance.

Commercial insurers are estimated to pay about twice what Medicare does for hospital care. Across all payers, hospitals receive reimbursement averaging about 134 percent of what Medicare pays, according to CAP analysis detailed in this report. High prices do not always indicate better quality; in fact, they often mask inefficiencies in the hospital business.

The first portion of this report examines trends in hospital profits and pricing variation across geographic areas and payers. The second portion describes policy options to rein in the high cost of hospital care. A summary of these recommendations are as follows:

• End abusive hospital billing practices, including surprise billing and excessive charges
• Implement reference pricing to incentivize patients and put pressure on providers
• Implement rate regulation, setting or capping all payers’ rates closer to costs
• Call for more public information on hospital pricing
• Enforce more antitrust measures for the hospital industry
• Impose site neutrality for payments

While most patients do not pay hospitals directly for the full cost of their care, those with private insurance are footing the bill for higher prices through higher insurance premiums and rising deductibles. Taming the overall growth of health care costs requires action to lower the prices Americans pay for hospital care.

Hospital profits are soaring

Hospital profitability has risen to its highest levels in decades, boosted by the nation’s rebound from the Great Recession and the Affordable Care Act’s expansion of health coverage. A common measure of hospital profitability is the total margin, which is the difference between revenues and expenses relative to revenues, considering all the hospital’s business activity. As of 2016, the total margin across the hospital industry was 7.8 percent. The industry’s operating margin—which measures the expenses and revenues that are directly associated with patient care—was 6.7 percent. 

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