Government Policies Fuel Soaring Hospital Costs, Experts Say

Perverse incentives and regulations have driven hospital consolidation and higher prices, according to new analysis.

Apr. 1, 2026 at 1:50pm

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A new report argues that the single largest driver of rising healthcare costs in recent years has been the hospital industry, not insurance companies or drug manufacturers. Fueled by government policies that reward hospitals for size over value, hospital spending has surged, with prices rising at the sharpest rate since 2007. Experts say distortive policies encouraging hospital mergers and acquisitions have reduced competition and allowed dominant systems to raise prices.

Why it matters

The rapid consolidation of the hospital industry has led to higher prices for patients and taxpayers, with little evidence of improved quality or efficiency. Addressing these perverse incentives could be a key step in lowering overall healthcare costs.

The details

Between 2022 and 2024, spending on hospital care amounted to $277 billion, representing 40% of the overall growth in national health expenditures. This surge outpaced spending on physician services and prescription drugs. In 2024, hospital prices rose at their sharpest rate since 2007. Nearly half of all metropolitan areas had just one or two hospital systems controlling the market for inpatient care in 2022, with hospital-to-hospital mergers in concentrated markets raising prices 6% to 65%. The surge in hospitals buying up independent physician practices has also driven up prices, with the average Medicare reimbursement for certain services 129% to 211% higher in hospitals than in independent offices.

  • Between 2022 and 2024, hospital spending grew by $277 billion.
  • In 2024, hospital prices rose at their sharpest rate since 2007.
  • By 2022, nearly half of metro areas had just one or two hospital systems controlling inpatient care.

The players

Centers for Medicare and Medicaid Services

The federal agency that oversees Medicare and Medicaid programs.

Department of Health and Human Services

The federal department responsible for public health, social services, and biomedical research.

Medicare Payment Advisory Commission

A nonpartisan congressional agency that advises Congress on issues affecting the Medicare program.

National Taxpayers Union

A nonprofit organization that advocates for taxpayer interests and limited government.

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What they’re saying

“Before drafting their next grand plan to address the crisis of affordable medical care, lawmakers should pause and take a hard look at how current government policies fuel the relentless rise in health spending they claim to oppose.”

— Alexander Ciccone, Policy and Government Affairs Manager

What’s next

Bipartisan legislation passed by the House of Representatives in 2023 would have saved taxpayers roughly $4 billion over the next decade through reforms to Medicare's reimbursement rules, but it remains to be seen if the Senate will take up similar measures.

The takeaway

Addressing the perverse incentives and regulations that have driven hospital consolidation and higher prices could be a key step in lowering overall healthcare costs for patients and taxpayers.