Fight over hospital prices heats up

As healthcare costs continue to climb, hospital prices are coming under increased scrutiny, with a focus on a range of concerns including provider consolidation, rising prices for outpatient treatment and upcoding.

Healthcare expenditures jumped to $5.3 trillion in 2024, up 7.2% compared with the previous year, according to CMS. Total healthcare expenditures accounted for 18% of the country’s gross domestic product. Hospital expenditures topped $1.6 trillion in 2024, an increase of almost 9% when compared with 2023.

AHIP, a trade association representing health insurers, has ramped up its criticism of hospitals and health systems as the culprits for high U.S. healthcare costs. “Many hospital systems continue to raise their prices at rates that dwarf inflation,” Chris Bond, spokesman for AHIP, said in a statement. “The hospital industry should stop the anticompetitive consolidation, opaque billing practices and unaffordable price hikes that continue to drive Americans’ premium costs higher.”

Aaron Wesolowski, vice president of research strategy and policy communications for the American Hospital Association (AHA), counters that “hospitals are generally not price setters; they’re price takers.” The price of hospitals’ services is often set by CMS, Wesolowski says, and hospitals are also “subject to negotiations with insurers.” The reimbursement rates for providers, particularly from Medicare or Medicaid, are often below the actual cost of care, he says. Labor costs accounted for 60% of hospital expenses in 2025, Wesolowski says, and advanced treatments and expensive drugs also continue to increase costs, he said.

Hospital consolidation

Many experts say hospital mergers and acquisitions have been a major factor in driving up hospital prices. “It’s simple economics — anytime there is a monopoly or some where close to a monopoly market, it’s going to have an impact on prices. It takes away the incentive to limit price increases,” says Jack Hoadley, Ph.D., research professor emeritus in the Health Policy Institute of Georgetown University’s McCourt School of Public Policy.

According to Yale University’s Health Care Affordability Lab, hospital prices tripled between 2000 and 2023, an increase much greater than prices for prescription drugs and physicians’ services. Market consolidation is one of the key drivers for hospital cost growth, according to the Yale lab. According to its calculation, 429 (32%) of the 1,331 hospital system mergers between 2000 and 2025 have taken place in areas of the U.S. where, according to conventional economic theories about consolidation and pricing power, the resulting decrease in competition would increase hospital pricing. From 2000 to 2025, Pennsylvania, Connecticut and Tennessee experienced the largest increases in hospital concentration in the nation, the Yale lab found.

But Wesolowski at AHA says consolidation can be “a lifeline, especially for struggling rural hospitals.” And although some hospitals are doing well financially, others are in “really difficult financial shape,” says Christine Monahan, J.D., an assistant research professor and faculty member at the Center on Health Insurance Reforms at Georgetown.

The past 20 years have brought about 1,300 mergers, yet the Federal Trade Commission took enforcement action in just 13 cases. “Regulators simply don’t have the bandwidth to investigate the thousands of hospital mergers and other transactions happening every year. Until they do, ongoing hospital consolidation will continue to push up the price of healthcare for people in communities across the country,” says Zack Cooper, Ph.D., M.Sc., an associate professor of public health and of economics at Yale University and director of the Health Care Affordability Lab.

Given the lack of federal action, some states are increasing their oversight of mergers and acquisitions, as well as private equity activity in healthcare. At least 42 bills in more than 20 states and the District of Columbia were enacted to address healthcare competition and consolidation last year, according to the National Conference of State Legislatures.

Physician practices

It’s not just hospitals that are consolidating. Health systems are also buying up doctors’ practices or outpatient clinics. Because smaller mergers and acquisitions are not reviewed by the Federal Trade Commission, a hospital system might buy a small number of physicians’ practices, then later buy up more and more, said Mark Miller, Ph.D., executive vice president of healthcare for Arnold Ventures. Close to half (47%) of physicians were employed by or affiliated with hospital systems in 2024, up from less than 30% in 2012, according to a Government Accountability Office report issued in September 2025.

If physicians’ practices or outpatient clinics are part of a hospital-based health system, they may charge an outpatient facility fee, said Monahan. A patient who undergoes an annual wellness examination or a mammogram may be charged an additional fee, even if the service is not performed in a hospital setting. When consumers receive a bill for such fees, it can “cause a lot of consternation,” she said. CMS has taken steps to impose “site neutrality” to equalize payments for services regardless of the setting. In November 2025, it issued its 2026 Hospital Outpatient Prospective Payment System rule to expand to drug administration services performed at certain categories of hospital outpatient facilities. Some states, notably Indiana, have enacted laws and regulations aimed at leveling payment for services across settings.

Brown University reported findings in Health Affairs Scholar late last year that commercial insurers would have saved $72.10 per commercially insured person in 2022 if prices for approximately 2,500 services had been capped at 150% of Medicare payment in hospital, office and ambulatory surgery center settings. Those savings would have added up to more than $10 billion.

Upcoding

Hospitals have also been criticized for allegedly assigning higher billing codes or more severe diagnoses than a patient’s condition actually warranted. Blue Health Intelligence — owned by 17 Blue Cross Blue Shield plans and the Blue Cross Blue Shield Association — found that the use of artificial intelligence (AI) might be behind a wave of this “upcoding” by hospitals. The researchers, using commercial inpatient claims from Blue Cross Blue Shield plans that included 62 million members, found about a 9% increase in inpatient costs per member from 2023 to 2024. Approximately 20% of that increase could be attributed to higher coding intensity, even though increased care was not provided. The culprit seemed to be the use of generative AI with patients’ electronic health records, tied to the way AI listened to physicians and to the claims billing process. For example, Blue Health Intelligence saw an increase in maternity cases coded as acute posthemorrhagic anemia, but there was not a corresponding increase in blood transfusions, which would be a typical treatment, says James Luke Chalker, MBA, chief product officer at Blue Health Intelligence. More intense coding can result in increased reimbursement rates for hospitals.

Blue Health Intelligence saw “discord between coding and care,” Chalker said. The use of AI “currently is inflationary,” he said. The coding changes seem to be most likely made by large academic research hospitals and more technically advanced systems, he said.

Health insurers have also been accused of using a version of upcoding in the Medicare Advantage (MA) program. CMS risk-adjusts payments to MA plans, so plans can increase revenue when patients are deemed sicker. UnitedHealth Group’s billing and coding practices came under investigation from the Department of Justice and the Senate. A report issued by Sen. Chuck
Grassley, an Iowa Republican, detailed some of the insurer’s alleged practices, including at-home risk assessments by nurse practitioners to systematically increase risk scores and payment.

Insurers have pushed back against hospitals and other providers with strict prior authorization requirements, Monahan notes. In a kind of arms race, health systems have built up their own internal systems to navigate the demands, delays and denials of insurers, Wesolowski says. Hospitals have “staff dedicated to it,” he says. “It increases the administrative costs of hospitals.”