Chairman Smith to Hospital System CEOs: The Prices You Charge Patients Are Borderline Extortion

WASHINGTON, D.C. - Ways and Means Committee Chairman Jason Smith (MO-08) delivered the following opening statement at a hearing with hospital system CEOs:

As prepared for delivery.

Good morning, and I would like to thank each of our witnesses for voluntarily agreeing to appear before the Committee this morning.

Today's hearing is a continuation of this committee's larger effort to get to the root causes of why health care is so outrageously expensive for patients and why so many Americans lack access to health care.

CEOs representing some of the nation's largest hospital empires are before us. But let me be clear, the entire health care system, hospitals, insurance companies, drug manufacturers, pharmacy middlemen, all bear responsibility for the high costs patients face.

First, hospitals, and in particular, the doctors, nurses, and medical professionals who work there, treat vulnerable, sick Americans, and do it with some of the most advanced medicine in the world. Our communities are better off with hospitals in them, but large health systems have taken advantage of that reality. The corporatization of American hospitals means that our local hospitals and physicians have been replaced by mega-corporations that put quarterly earnings over quality care and grow larger simply for the sake of growing larger.

Hospitals with more than 100 beds have a higher profit margin than Delta Air Lines, Target, or Disney. Turns out charging an arm and a leg for health care is more lucrative than the Happiest Place on Earth.

When CEOs of some of the largest health insurance companies came before this committee earlier this year, they pointed the finger at hospitals as the culprit. This committee isn't interested in hearing about how the high prices your businesses charge are someone else's fault. The blame game didn't work with insurers, and it won't work today.

Simply put, hospitals are charging an insane amount for care. Hospital prices have skyrocketed 300 percent in just over two decades - more than any other sector of our economy.

Hospital consolidation and mergers, that lead to ever-growing market power, are fueling the borderline extortionary prices hospitals charge patients.

Today, there are forty-five hundred hospitals, and 2,000 of them have undergone a merger. The result is that today, 90 percent of hospital beds are part of a health system.

The pace and scale of mergers have led to market concentration that puts patients at the mercy of hospital empires.

When hospitals have no competition, it's no wonder that the sky seems to be the limit for prices.

A family in California was charged nearly $300,000 to treat their toddler's snakebite.

A man in Florida had an emergency CT scan that the hospital billed for $13,000. A follow-up scan at a different location cost him only $79.

Another Alabama woman was sued for the full cost of her appendix procedure plus interest, nearly $37,000, after faithfully paying the bill every month for three years. She told her husband that the burden of the lawsuit was so great that she wished she had passed away at the hospital rather than deal with the lawsuit.

Those stories illustrate how these systems prey on patients who have few options for care in their time of need.

Patients are not getting better care for the higher prices either. Study after study found that hospital mergers are not generally associated with better health.

In rural America, hospital mergers may sustain access in some communities, but I have seen firsthand how profit-seeking health systems view struggling rural hospitals as nothing more than a gateway to more patient referrals. It's no wonder rural Americans are sicker, have higher rates of chronic disease, and die earlier as a result.

What's worse, a complex set of legal loopholes and open-ended taxpayer subsidies, manipulated by sophisticated hospitals, have become a key part of a business model that fuels ever-larger systems, eliminates competition, and drives higher prices.

Urban hospital chains double dip and classify themselves as both urban for higher wage index reimbursements and then reclassify as rural for another set of government benefits. That's absurd.

One example that this Committee has been focused on is the 10 percent of new residency slots that Congress set aside in 2020 for rural hospitals.

Of the 120 slots allocated to rural hospitals, only 30 have actually gone to truly rural communities. In total, urban hospitals have taken 97 percent of all new residency slots, far more than Congress intended.

It's unacceptable for large, wealthy, urban hospitals to take what rightfully belongs to truly rural communities when those communities already suffer for lack of access to care.

Regardless of a hospital's geography, we've seen health systems leverage payment differentials between hospital-owned clinics and independent physician offices to direct more money to their corporate coffers. The higher reimbursement for hospital-owned clinics incentivizes consolidation and encourages hospitals to buy up more independent practices. It's no wonder today half of U.S. physicians are employed by larger systems like hospitals.

"Unsurprisingly, this business practice also raises costs for patients receiving the exact same service. For example:

• An ultrasound costs $164 when provided by a physician. It costs $339 at a hospital outpatient department.
• A biopsy costs about $150 when performed by a physician. It costs $800 at a hospital outpatient department.
  

Congress - including this Committee - has taken efforts to right this wrong and ensure patients and taxpayers pay lower prices for the same service with the same quality. But every time we try to advance these so-called "site-neutral" policies, big hospitals fight us tooth and nail.

For-profit hospitals are legally required to put shareholders over patients, but so-called "non-profit" hospitals rarely act much different. Tax-exempt hospitals deliver charity care that is consistently worth less than the tax break they receive. These "non-profit" hospitals receive a $28 billion tax break while only spending roughly $16 billion on charity care. The difference fuels a spending spree totally unrelated to providing health care, like real estate investments, stadium naming rights, green energy initiatives, and political activism.

Large hospital systems also manipulate the 340B drug pricing program to keep steep drug discounts for themselves instead of passing the savings to low-income patients. There is little evidence that the $290 billion in discounts given to hospitals under the 340B program since Obamacare was ever reinvested in patients. Even worse, there is evidence that hospital abuse of 340B actually directly led to increases in Obamacare premiums.

Today, I expect we will hear how from these hospital executives their opinion on how insurers and drug makers contribute to the unaffordable cost of health care. But this committee will be asking - and expects answers - to why hospital prices make up by far the largest share of the insurance premium increases that grew three times faster than earnings.

This hearing is not the end of the road for our investigation into the unaffordable cost of health care. The American people are fed up with outrageous prices that seem artificially high. They are right: hospital prices are unjustified. This Committee will continue to fight to lower health care costs for working families. The first step is to get answers and expose the truth, and that's exactly why you all are here today.