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#6 CLAIM: Hospital care is expensive – that’s just the way it is.


It is true that hospital care is the most expensive type of care.

About 1/3 of the $2 trillion that Americans will spend on health care this year will go to hospitals. By definition, hospitals see sicker patients and perform more complicated and expensive procedures than doctors do at their offices. But why are hospital patients’ bills increasing – and by such a huge amount: 90% over the past decade, from $462 billion in 1997 to $873 billion in 2005?!

Americans aren’t spending more time in the hospital – it’s just costing us more when we do.

One might say, “Well, sure – as energy costs, prescription and technology costs, and doctors’ wages rise, so will the costs of running a large medical facility.” But health care costs are rising faster than general inflation, and hospitals are an important piece of this.

Hospitals are incapable of getting their costs under control. = FALSE

Medical errors contribute to hospital costs:
400,000 drug-related injuries occur in hospitals alone and cost $3.5 billion a year.

Overhead contributes to hospital costs:

  • deadly cycleA serious nursing shortage in the US means that in order to have nursing staff, nurses must be paid overtime. Long hours in stressful understaffed environments keeps more people from entering the field – extending the shortage and driving up costs.
  • Most hospitals feel that rather than specialize in a few types of surgery or procedures, in order to compete for patients they must have the equipment needed for every possible type of diagnosis and treatment, thereby increasing capital costs and requiring more specialists on staff.
  • As technology advances, new equipment (scanners, drugs, etc.) has to be purchased.
  • To help deal with these costs and to limit competition, hospitals are increasingly merging into ever-bigger private systems that cost a lot to administer.

In fact, hospitals’ overhead costs have been dropping in recent years. Furthermore, US hospitals posted profit margins that reached a six-year high in 2004 with similar findings predicted for 2005.

So if hospital expenses are decreasing, and, as some claim, they can increasingly put the squeeze on insurers for higher reimbursements, then why are patient bills getting larger?

In some cases hospitals are engaging in outright fraud:

  • Overbilling Medicare: In 2005, Iasis Healthcare, a company that operates hospitals in 5 states, was indicted for using millions of Medicare and Medicaid doctors to illegally pay physicians. America’s largest hospital firm, Columbia/HCA, paid a $1.7 billion settlement for overbilling Medicare in 2003.
  • The country’s second largest hospital firm, Tenet (then known as NME), paid a $1 billion settlement for fraud and abuse charges and 7 guilty pleas on felony charges between 1994-1997, and has since been under investigation for massive billing fraud and performing hundreds of unnecessary heart operations.
  • The dominant rehab hospital chain, HealthSouth, agreed to settle a $2.7 billion claim for overstated earnings from 1996 to 2003.

The CEOs of these 3 companies were forced out, but only after a severance package of $324 million, $111 million, and $112 million respectively.


All of these trends are worse at for-profit hospitals , currently 13% of U.S. hospitals. There, charges are 19% higher than non-profits and administration takes up 34% of costs rather than the 24.5% at non-profits.

  • For example, when hospital chain HCA went private in 2007 it had to pay an extra $361 million just towards the interest on the company’s debt: $16 billion in new debt and $11.7 billion in existing debt. To comfort shareholders, HCA bragged about its 7% increase in average patient prices, higher revenue from managed care companies and higher volumes of sicker, more profitable patients.
  • At the same time that for-profits spend more on overhead and executive salaries, their payroll costs for clinical personnel are 7% lower than at non-profits, which may explain why death rates at for-profit hospitals are higher: despite all the spending there’s less medical staff.
  • Community Health Systems Inc., the largest publicly-traded hospital operator in the U.S., is projecting that its revenue in 2008 will be less than Wall Street expected, but that its profits will be on target. Upon the announcement, share prices in the corporation dropped. Arguably, being able to maintain profits despite decreasing revenues is a sign of efficiency. Shouldn’t the market reward this? Perhaps it’s spooked by CHS’ increased spending on bad debt. Or maybe insiders fear how profits may be being boosted: false claims.