News & Analysis

The JAMA Forum

Rising Prices and Health Care “Empires”

Andrew B. Bindman, MD

T
he rate of growth of health care
expenditures in the United States
in 2018 vs 2017 was actually below
the annual rate of growth of the US economy
as a whole, according to the Centers for
Medicare & Medicaid Services (CMS)
Office of the Actuary. However, this is
more of a reflection of the high annual
rate of growth in the US economy in
2018 than a slowing in health care expen-
ditures, which grew at an annual rate of
growth of 4.6%.
The average annual rate of growth
in national health care expenditures over
the past 7 years has been 4.5%. In 2018,
the United States spent $3.3 trillion on
health care, which corresponded to a
17.7% share of the US economy as a whole.
The rate of health care expenditure
growth in the United States is not coming
under control, and what is most concern-
ing is the source of this growth and what it
portends about the future health care
landscape.
Contributors to Spending Growth
There are 3 major contributors to growth
in health care expenditures: (1) the
size, age, and gender mix of the popula-
tion; (2) the intensity of service use;
and (3) the prices for products and ser-
vices. As in other industrialized countries,
population growth in the United States
is relatively low. It has averaged 0.7%
per year over the past 7 years. The CMS
estimates that the contribution of pop-
ulation factors to the annual rate of
growth of health care expenditures in
2018 was only 13%.
The CMS also estimates that health
care utilization grew on a per-capita basis,
but at a slower rate in 2018 than in 2017. It
accounted for one-third of the annual
growth in total health care expenditures.
The deceleration in the use of services
may be attributable to the increasing num-
ber of uninsured individuals, who use
health care resources at a lower rate com-
pared with the insured population. There
were 1 million more uninsured Americans
in 2018 compared with 2017.
This leaves increasing health care prices
as the major reason for the growth in health
care expenditures in 2018, accounting for
more than half (53%) of the growth in health
care expenditures between 2017 and 2018.
This was the sharpest increase of any year
since the implementation of insurance ex-
pansion in 2014 as a part of the Affordable
Care Act.
High prices for health care services
is a well-known aspect of the US health
care system. International comparisons
reveal US prices that are many times higher
than charged in European and other
high-income countries for the vast major-
ity of diagnostic and therapeutic proce-
dures. For example, outpatient computed
tomography and magnetic resonance
imaging scans are priced 4 to 5 times
higher in the United States than in the
Netherlands and Switzerland. Such price
differences are even greater for hospital-
based care. The prices for cardiac bypass,
angioplasty, hip replacement , knee
replacement, appendectomy, hysterec-
tomy, and normal delivery are all 2 to 4 times
higher in the United States than in other
industrialized countries.
Effect of Consolidation
Although the causes of the substantially
higher health care prices in the United
States compared with those of other
countries are not fully understood, one
likely factor unique to the US health care
system is the rapid consolidation of hos-
pitals and physicians. US physicians
are increasingly working for hospitals,
and hospitals are in turn merging to for-
mulate large chains. Although there is the
potential for these larger health systems
to create more efficient, integrated de-
livery systems, this does not appear to be
happening on a widespread scale. The
most visible aspect of what health system
consolidation does is limit competition,
which results in higher prices. This is
despite the fact that the vast majority of
these consolidated health systems are
nonprofit entities.
Consolidated health systems have
exhibited a range of anticompetitive
behaviors to undermine health insurers’
attempts to negotiate lower prices. One
strategy hospitals employ is to set ex-
tremely high out-of-network emergency
service prices. Threatened with the risk of
these high out-of-network costs in geo-
graphic areas where their enrollees might
use emergency services, health insurers
succumb to accepting higher in-network
prices for hospital services than they oth-
erwise would. Another anticompetitive
practice employed by health systems is

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 News & Analysis

leveraging control of the hospital market than 12 000 physicians, of antitrust viola- sufficient to reduce the potential for
in one area by requiring insurers to con- tions. The suit alleged that Sutter Health unfettered increases in health care prices.
tract with all or none of the hospitals in awas using anticompetitive practices to raise If this approach fails, policy makers
chain across regions, even if some of these health care costs. Sutter agreed to settle the may need to consider either dismantling
might be the most expensive in other mar- case by paying a fine of $575 million, to large health systems to restore competi-
kets. Such tactics undermine the ability of cease from employing anticompetitive tion or implementing price controls to
health plans to use selective contracting practices such as all or none contracting, compensate for the market failure.
and to have a state-appointed official moni-
with health care facilities to deliver higher There has been considerable public
value for their enrollees. tor compliance. The settlement stopped attention focused on the lack of com-
short of requir- petition among banking and high-tech
ing the breakup companies, but it is increasingly evident
Consolidated health systems have of Sutter Health. that this is an emerging issue in health
Time will tell care as well. And we are all paying the
exhibited a range of anticompetitive whe ther this price for it.
behaviors to undermine health high-profile case Author Affiliation: Philip R. Lee Institute for
will slow rising Health Policy Studies, University of California,
insurers’ attempts to negotiate San Francisco.
prices in Califor-
lower prices. nia or if other Corresponding Author: Andrew B. Bindman, MD
(andrew.bindman@ucsf.edu).
states will bring
Conflict of Interest Disclosure: Dr Bindman
Thus far, the federal response to the similar cases against entities that con-
reports that there was an interpersonal agreement
consolidation of physicians and hospitals solidate hospitals and physicians and use contract between the Centers for Medicare &
has been nonexistent. Most states have their size to limit competition. In many Medicaid Services and the University of California,
also done little to intervene. But the out- regions of the United States, such consoli- San Francisco, for services he provided on a
part-time basis.
come of a recent case in California might dation may already have undermined
Note: Source references are available through
signal a change. competition to the point that curbing embedded hyperlinks in the article text online.
California Attorney General Xavier some of the most egregious anticompeti-
Previous Publication: This article was previously
Becerra accused Sutter Health, a health tive practices, such as those identified published in JAMA Health Forum at
system chain of 24 hospitals and more in the Sutter Health case, will not be jamahealthforum.com.

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