The Situation for US Hospitals is Financially Unsustainable
US healthcare performs very poorly compared with healthcare in other developed countries. Held up against 10 nations that we usually compare ourselves with, we are dead last on overall performance.
Source: “Mirror, Mirror 2024: A Portrait of the Failing U.S. Health System. Comparing Performance in 10 Nations. The Commonwealth Fund.
And it is not because we don’t spend enough money on healthcare – our health system is just really inefficient. When looking at performance vs. spending, US is by far the health system with the poorest performance, yet by far the most expensive health system.
Source: “Mirror, Mirror 2024: A Portrait of the Failing U.S. Health System. Comparing Performance in 10 Nations. The Commonwealth Fund.
In April this year, the House Ways and Means Committee held a hearing with CEOs from four of the largest US health systems. The hearing became a comprehensive assault on US hospitals, claiming they were the primary driver of US healthcare costs. Meanwhile, the average hospital in the US in August last year had a 1% operating margin. Hospital closures have reached record levels. The following month, Blue Cross Blue Shield started distributing payments tied to a $2.67 billion healthcare settlement from a 2013 class-action lawsuit alleging that its health insurance plans violated antitrust laws. On top of this, medical device monopolies are driving up healthcare costs and ongoing litigation against medical device monopolies is exposing deep-seated, anti-competitive behaviors and monopolistic strategies within the medical device sector.
The reality is that times are tough for U.S. hospitals. Prices keep going up, but reimbursement does not. As a result, insurance companies make more money, healthcare technology companies make more money, and pharmaceutical companies make more money. Only the provider loses: The average hospital in the U.S. in August last year had a 1% operating margin. Hospital closures have reached record levels. And who loses when the provider loses: The patient. With the kind of market concentration we see in medical technology markets, two things happen: Providers (hospitals and doctors) have less and less real choice over what they buy—and prices go up. Hospitals are facing a triple-threat: Decreasing reimbursements, rising operational costs, and a pivot
toward outpatient care models. And ultimately, this lack of financial sustainability leading to an increase in hospital closures and widespread workforce layoffs.
Record-level hospital closures, political/financial pressure from things like the One Big Beautiful Bill Act are resulting in reduced access to critical care and risk of permanent service line shutdowns and compromised quality of care. The lack of financial sustainability for hospitals is not a math problem. It is a patient care problem.
Insurance premiums are escalating - year-over-year premium increases continue to outpace wage growth, significantly reducing disposable income for families. We are in the middle of a medical debt crisis, with healthcare expenses remain the primary driver of personal bankruptcy
filings in the United States. Structural inefficiencies and systemic failures are increasingly
transferred directly to the patient, creating barriers to necessary care – lack of access is becoming a real problem.
The financial pressure on hospitals is coming from recent federal legislation, from operational challenges, from structural shifts in healthcare that result in hospitals losing their most profitable service lines to surgery centers – and it comes from new technology and medtech monopolies.
Every year, new medical technologies are launched. As a result, doctors always have new technology available to them, so that patients can get the best treatment possible. This sounds like a great win-win situation. However, there is a dangerous imbalance in the medical technology market, where some suppliers of medical technology act as monopolists that deprive hospitals of financial control and physicians of real choice. The concentration of pharmaceutical and medical technology supplies within relatively few large global corporations is a big problem in healthcare. More precisely, the abuse of monopoly positions to drive higher profits is very costly for hospitals that are already operating on thin margins.
While bundling arrangements might seem to provide benefits to physicians and to hospitals, the practice harms hospitals when they pay higher prices and physicians when they have less choice. Importantly, bundling is illegal when it’s used to block competitors and claim higher profits. Hospitals and physicians should take a more active role in addressing these dynamics. Monopolies are a serious threat to the ability of the physician to choose the technology they want to use.
For hospitals, monopolies mean higher costs. When hospitals have to pay a higher price for a new product, the problem is not really the price of that particular product. The problem is that the current market dynamics favor the supplier – in every case – at the cost of the patient and the hospital’s ability to provide optimal care. If we want to solve this problem, we have to fix the market dynamics. Through a re-engineering of the market dynamics, we have to force the market to favor who this is all about: The patient.
In the US healthcare supply chain, monopolistic behavior is systematic, not exceptional. And the hospitals and physicians who suffer from monopolistic behavior refuse to speak up. Why? As usual, the answer is found when you follow the money: Healthcare distribution systems with GPOs and IDNs often favor established manufacturer dominance over competition, providers have become passive contributors to industry profit cycles rather than acting as active stewards of procurement and patient care, and current incentives emphasize profit maximization and rebate capture at the expense of patient-centered clinical outcomes.
Recent legal decisions against antitrust practices have served to hold global healthcare behemoths accountable for their market behavior. This is an important first step toward rebalancing a system where the financial gravity has drifted away from the bedside: When monopoly tactics lose their “business as usual” cover, competition has room to breathe, prices have a reason to behave, and hospitals regain dollars that can be reinvested in staffing, access, technology, and safer, more consistent care.
With a 1% average operating margin, the financial situation for US hospitals is bad. The pressure is intensified by imbalances in the healthcare supply chain and monopolistic behavior. And recent reimbursement challenges are making things worse. Most healthcare executives are expecting things to get worse and hospital and service line closures to grew significantly over the next years. The threat to US hospitals is becoming existential – and this is likely to reduce our ability to provide proper care for all patients who need it.