A tale of two health systems: the threat of hospital consolidation

Report punts affordability crisis on hospitals

Hospitals and health systems play a major role in the healthcare affordability crisis because of consolidated markets, the report indicated.

Just five or fewer health systems controlled at least half of all hospital care by 2023 in 43 states and Washington D.C., it showed. In almost half of all states, that figure fell to only three health systems.

Most of these health systems charged significantly more than the Medicare rate for the same service. In the analysis, the 15 largest health systems charged, on average, 2.82 times as much as Medicare paid.

These health systems also earned an average of over $22 million in net income per hospital per year, the analysis found.

But the biggest health system earned the most, the analysis emphasized. Individual hospitals owned by a health system generated almost 10 times more annual net income ($27.7 million) than independent hospitals at the time ($3.0 million).

Rural independent hospitals earned the least average net income at $2.3 million.

Among the largest and most expensive health systems, according to the analysis, were:

• HCA Healthcare, which charged an average of 339% of the Medicare rate for hospital services, generating $70.3 million in annual net income per hospital.
• CommonSpirit Health, which charged an average of 306% of the Medicare rate, generating $17.4 million.
• Tenet Healthcare, which charged an average of 312% of the Medicare rate, generating $24.2 million.
• AdventHealth, which charged an average of 401% of the Medicare rate, generating $38.4 million.

Notably, these are a mix of for- and nonprofit organizations, which both charge high prices, the analysis stated. In fact, nonprofit hospitals in the study charged nearly as much as for-profit hospitals at 276% of the Medicare rate versus 297%, respectively.

Hospitals and payers negotiate reimbursement rates in closed-door negotiations, but consolidation looms large.

The analysis indicates "almost no competition left…which means that hospital systems have the upper hand in negotiations, which is why we're seeing such higher pricing increases compared to what Medicare is reimbursing," said Sophia Tripoli, lead author of the analysis and senior director for health policy at Families USA, in a media briefing.

Can't let hospital chains 'plead poverty'

Many of the CEOs of the health systems called out in the Families USA report recently testified before Congress, fielding questions about healthcare affordability. The finance leaders largely justified their prices, citing rising costs, a sicker population and burdensome regulations.

But Congress shouldn't let large health systems "plead poverty as an excuse to overcharge patients," Wright said.

"We need rhetoric to be matched with real action," he said in the media briefing. "Unfortunately, this Congress has been focused on cutting care, not costs."

Instead of facing healthcare affordability head-on, the government has made massive cuts to Medicaid and the Affordable Care Act's Marketplaces, leaving millions of Americans without insurance to afford care. Federal funding cuts also disproportionately affect independent, rural and safety-net hospitals, he said.

Changes to Medicaid and Marketplace eligibility and other policies in H.R. 1, also known as the One Big Beautiful Bill Act, will reduce Medicaid funding by about $1 trillion. Hospitals are expected to collectively lose $68.6 billion over the next two years under these changes, healthcare improvement company Premier Inc. reports. But those that treat large Medicaid populations will feel a deeper sting, even with a $50 billion fund to bolster rural healthcare during the transition.

It is this strategy that has led to a widening gap between large hospital systems and smaller, independent hospitals, which are less likely to engage in anticompetitive practices that inflate prices.

 Yet, independent hospitals are going to be disproportionately harmed by Medicaid cuts and other policy changes, according to Wright.

"So, consumers are getting the worst of both worlds from Congress' cuts and its action on costs," he said.

Hospitals: What the report gets wrong

But hospitals and health systems are just as much caught in the middle of this affordability crisis, according to the American Hospital Association. In a statement to RevCycle Management, an AHA spokesperson said that hospitals are "largely price takers, not price setters, navigating rates set by government programs and negotiated by insurers."

They added that the report is "long on rhetoric and short on reality," especially using Medicare reimbursement rates as a benchmark for healthcare prices. Medicare rates are "chronically low," the AHA spokesperson said, paying just 83 cents for every dollar hospitals spend on patient care, according to the group's own data.

The American Medical Association has also reported a steep decline in Medicare payments, totaling 33% from 2001 through 2025 after adjusting for inflation in practice costs.

Commercial payers frequently use Medicare rates as a benchmark for their own rate negotiations. Common insurer practices, like denying more claims and requiring prior authorizations, are also contributing to higher healthcare costs and clinician burden, the AHA stated.

Yet, the report "completely lets commercial insurers and other critical stakeholders off the hook for driving up premiums and costs," the spokesperson said.

Hospital mergers and acquisitions have also become a tool to sustain access to care, the AHA told Congress late last month. Facing strong financial headwinds and severe workforce shortages, partnerships have become necessary to maintain services and expand access, particularly in rural areas where more hospitals are in financial distress, the group explained.

"If we’re serious about lowering costs, we should focus on strengthening care delivery and access -- not recycling tired narratives that miss how the health care system actually works," the AHA spokesperson stated.

Momentum builds to address affordability

But the report adds to a growing body of literature on healthcare consolidation and affordability, which is becoming too big for lawmakers to ignore, Families USA contended.

"We need them to understand what the root drivers of why care is getting so expensive in this country," Tripoli said. "And that's exactly what this report helps to reinforce…that we know that hospital consolidation is resulting in high prices, pushing up premiums, pushing up out-of-pocket costs, resulting in stagnant wages for workers across the country."

Legislative and policy recommendations supported by Families USA have also been getting attention at the federal level, including a site-neutral payment methodology.

Congress has yet to act on site-neutral payment legislation, but CMS finalized a rule in November 2025 that expanded site-neutral payments for drug administration services. The agency expects Medicare to save $11 billion over the next decade with this payment policy.

Families USA also backs bipartisan legislation that would prohibit anticompetitive behavior between hospital systems and health plans, address vertical integration in healthcare and require greater price transparency for hospitals and payers.

The group also called for more extreme reform, limiting the maximum price or price growth rate of hospital services to a percentage of the Medicare rate. Oregon and Washington have implemented healthcare price caps in some plans, while Vermont and Indiana are actively seeking to cap hospital prices in commercial markets.

If Congress does not act on these reforms, especially amid the largest cut to the Medicaid program, more Americans will "land in financial distress from excessive hospital bills, and ultimately people will get sicker or lose their lives from delayed care," said Adam Fox, deputy director of the Colorado Consumer Health Initiative.

Hospitals and health systems say this type of reform, could threaten their financial stability. But industry groups like the AHA want to see changes for their patients. AHA recently told Congress that it could focus on reducing regulatory and administrative waste, supporting care transformation and bolstering population health, particularly for the chronically ill.  

From state-backed reforms to the recent Congressional hearing, the momentum is there for real change to hospital pricing, Wright added.

"We know this fight is not for the faint of heart," he said. "Hospitals are, and the health industry in general, big institution players and well-resourced. These are not easy fights, but healthcare affordability is the major concern of Americans. And if you're going to take that seriously, then you need to follow the money throughout the healthcare system."

Jacqueline LaPointe is a graduate of Brandeis University and King's College London. She has been writing about healthcare finance and revenue cycle management since 2016.