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Paduda: Why Are Hospital Costs Going Up?

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Because they can.

Joe Paduda

Joe Paduda

Health care — and more specifically, facility-based health care — is a very mature industry and, with one huge exception, exhibits all the hallmarks of such: continued widespread consolidation, shuttering of marginal locations, elimination of unprofitable business lines and centralization of core services.

The “huge exception” is margin compression and price reduction. When any other sector matures, competition becomes fierce and prices come down.

Not so in health care, where pricing is opaque at best, and more often opportunistic if not downright predatory.

Over the last 70 years, the percentage of hospitals in health systems has grown by a factor of 10. Unusual indeed is the standalone facility.

That decades-long trend continued in the 2010s, although the pace slackened somewhat, as there were fewer hospitals to acquire.

The net is this: Most health care markets are pretty consolidated, which means one or two systems have pricing power.

Those systems use that power to force ever-higher reimbursement from commercial payers and workers’ comp.

What does this mean for you?

Facility costs are going up.

Joseph Paduda is co-owner of CompPharma, a consulting firm focused on improving pharmacy programs in workers’ compensation. This column is republished with his permission from his Managed Care Matters blog.

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