Yves here. If you’ve ever had the misfortune to see a hospital bill, as in what the hospital would charge a non-insured patient, “sticker shock” is too weak a term. Readers may recall I had a bilateral hip replacement (as in both at once) four years ago. I am in an old fashioned major medical plan with Cigna, as in not in a network, although Cigna routinely browbeats Cigna providers to accept Cigna network rates. I saw a few of the bills for my procedure and was party to others. My hospital charges were $144,000, which I believe was for both the five nights in the hospital and the OR. I trust that was negotiated down but I have no idea by how much. There was a huge row over the anesthesiologist charges, which the very nice anesthesiologist told me Cigna had negotiated down to IIRC $32,000 or $35,000 (there was some worry regarding how long that bill was unsettled, which is why he called to reassure me), which he was happy with since it was actually higher than his network rate. The surgeon’s charge is typically at least three times higher than the anesthesiologist’s charges.
Readers who have seen or know the rough level of major full rack rate (as in non-insured) charges, please pipe up.
By David Introcaso, a former Agency for Healthcare Research and Quality Evaluation Officer, Senior Health Policy Adviser to the House Majority Leader and co-founder of Sylk Health, and Adam Cunningham, a physician and the founder of Sylk Health, a company that publishes committed procedure prices from accredited hospitals and clinics outside the United States. Originally published at the Institute for New Economic Thinking website
In late July the Senate Finance Committee Democrats, led by Ranking Member Ron Wyden, released an ambitious 86-page Request for Information (RFI) titled “Health Coverage That Works for Everyone.” Explicitly modeled after the Finance Committee’s landmark 2008 white paper that laid the policy foundation for the Affordable Care Act (ACA), the RFI presents 71 substantive proposals across five core pillars, intended to serve as a blueprint for the next major package of federal healthcare legislation.
Our new INET Working Paper shows that despite its sweeping scope, the Senate Finance Democrats’ proposal suffers from a fatal flaw: it focuses almost exclusively on commercial health insurers and Pharmacy Benefit Managers (PBMs) while entirely ignoring hospital unit prices—the single largest driver of healthcare cost inflation and unaffordability. By treating “Big Insurance” as the sole villain, congressional lawmakers target financial intermediaries while leaving the primary source of skyrocketing healthcare costs completely untouched.
The Senate Democrats’ Blueprint
Senate Democrats structure their reforms around five policy pillars aimed at improving commercial health plan affordability, operations and regulation:
1. Establishing a Federal Public Option & Market Competition: Outlines a public health plan administered or sponsored by the federal government to compete with private insurers, examining reimbursement methodologies such as direct Secretary-level rate negotiations, Medicare benchmarking and CMS fee schedules.
2. Restricting Corporate Consolidation & Vertical Integration: Targets the integration of health plans with PBMs, specialty pharmacies, and physician practices while proposing restrictions on executive compensation, stock buybacks and hidden Third-Party Administrator (TPA) fees.
3. Dismantling Utilization Management & Coverage Barriers: Imposes strict limits on insurer prior-authorization requirements, automated claim rejections and improper initial denial rates.
4. Enhancing Consumer Affordability & Premium Protections: Seeks to cap deductibles and coinsurance, eliminate the ACA “employer firewall” and permanently enhance premium tax credit subsidies.
5. PBM Transparency & Pharmacy Market Reforms: Eliminates “spread pricing,” mandates full pass-through of manufacturer rebates to consumers and curbs steering toward insurer-owned specialty pharmacies.
While these administrative and insurance reforms address real friction points within healthcare, they deliberately side-step the foundational economic cause of unaffordability: the price of acute hospital services.
Prices Are Policy Canon: The Economic Reality of Hospital Pricing
Health economics literature has established that excessive healthcare spending is driven not by excessive utilization compared to international peers, but by exorbitant unit prices. Following Kenneth Arrow’s seminal article (1963) and Gerard Anderson’s landmark study “It’s the Prices, Stupid” (2003), hospital care stands as the single biggest proof point of market failure. Data from the Kaiser Family Foundation reveals that between 2022 and 2024, hospital care alone accounted for $277 billion or 40% of the $692 billion total increase in overall national health spending.
Decades of unchecked hospital mergers and acquisitions have created geographic monopolies across the nation. As John McDonough reminds us in his recently published “America’s Wrong Turn, US Health Care in the Neoliberal Era,” per Herfindahl-Hirschman Index (HHI) scores, over 90% of metropolitan hospital markets are now classified as highly concentrated monopolies or tight oligopolies. And as the Open Markets Institute’s Phil Longman bluntly stated in 2019“America’s health care crisis is brought to you by monopoly.”
Equipped with regional market power, dominant health systems extract commercial prices divorced from underlying production costs and/or clinical quality. RAND research demonstrates that private commercial health plans routinely pay hospitals between 250% and 500% of Medicare rates for identical inpatient and outpatient procedures, with intra-market price variation exceeding 600% for the exact same services within the same city.
The ACA’s Historic Legacy: Subsidized Indifference and the ERISA Chokehold
The omission of hospital pricing in the Senate Democrats’ RFI repeats a major historical misstep of the ACA era. Rather than reining in provider pricing power, federal health policy historically relied on government tax credits and premium subsidies to absorb inflated hospital rates. As legal and economic scholars have documented, the ACA’s consolidation incentives—such as Accountable Care Organizations (ACOs)—further accelerated hospital acquisitions of physician practices, thereby further entrenching market power. Federal policy created a regime of so called “subsidized indifference” where government subsidies insulated consumers from sticker shock while enabling hospital monopolies to continue raising unit prices without constraint.
This price inflation dynamic places employer-sponsored insurance (ESI) and self-insured health plans governed by the Employee Retirement Income Security Act (ERISA) in a chokehold. Under ERISA, plan sponsors have an explicit statutory fiduciary duty to manage plan assets prudently for their workers. When negotiating with dominant regional health systems, self-insured employers unavoidably confront extreme bargaining asymmetry. Hospital monopolies routinely force payers into anticompetitive contracting provisions, including:
· “All-or-Nothing” Network Clauses: Forcing insurers to include every facility in a hospital network regardless of price or quality.
· Anti-Tiering and Anti-Steering Provisions: Preventing employers from financially incentivizing workers to choose lower-cost, high-quality providers.
· Gag Clauses: Sealing negotiated contract prices and blocking transparency.
Because a dominant hospital system can threaten to walk out of a network, rendering an employer’s health plan unmarketable to local workers, ERISA plan sponsors are forced to absorb exorbitant prices. The downstream consequences including compounding premium inflation, skyrocketing deductibles and stagnant wages cannibalize household budgets and exacerbate health deficits. For these reasons Nobel Prize-winning economist Angus Deaton argued in 2020, “the [healthcare] industry is a cancer at the heart of the economy.”
Simple price transparency or disclosure mandates cannot solve this structural failure. Transparency without market discipline or a viable alternative leaves self-insured plans captive to regional monopoly power.
The Political Economy of Healthcare Reform
Why would congressional lawmakers draft a 71-page reform blueprint that completely ignores hospital pricing? The answer likely lies in the political economy of health policy.
Scrutinizing commercial health insurers, PBMs, and pharmaceutical manufacturers is politically expedient. Out-of-state corporate intermediaries are safe political targets. By contrast, hospital systems are typically among the largest private employers and political powerhouses in every congressional district and state. Local hospital executives, trustees, and board members hold substantial community influence, making federal lawmakers hesitant to challenge hospital revenue models or impose rate discipline. Ignoring the hospital sector ensures that any legislative reform will fail to achieve true affordability. Squeezing insurer administrative margins or capping PBM rebates while hospital unit prices continue to escalate at multiples of inflation merely reshuffles dollars within a broken framework.
Core Recommendations: Restoring Market Discipline and Structural Price Control
To deliver genuine health care affordability, federal legislative proposals must confront hospital pricing directly. In our response to the Finance Democrats RFI, we outline several concrete legal and market-based reforms that are necessary to establish price discipline and create a functioning hospital market.
1. Establish External Reference Pricing (ERP) Benchmarks: Establish upper price limits anchored to international reference prices. This strategy mimics CMS’ recently finalized Global Benchmark for Efficient Drug Pricing (GLOBE) model designed to exploit prescription drug pricing from 19 economically comparable nations to calculate domestic benchmarks.
2. Leverage ERISA Fiduciary Duties: Strengthen statutory enforcement under ERISA to empower plan sponsors and beneficiaries to challenge exorbitant, uncompetitive hospital charges as breaches of fiduciary duty.
3. Target Anticompetitive Hospital Contracting: Enact federal prohibitions against “all-or-nothing” clauses, anti-steering/anti-tiering restrictions, and data gag clauses in provider contracts to give self-insured ERISA plans genuine leverage in rate negotiations.
4. Leverage Public Option Rate Setting: Deploy federal public option rate-setting mechanisms to mandate hospital payment ceilings indexed to Medicare rates thereby restricting market-dominant health systems from cost-shifting to private payers.
5. State Innovation Waivers (Section 1332): Empower states through ACA Section 1332 state innovation waivers to implement reference pricing frameworks and global hospital budgeting options.
Conclusion
The proposal from the Senate Finance Democrats offers a pivotal opportunity to reshape federal healthcare policy. However, reform efforts will remain incomplete as long as policy focuses exclusively on insurance intermediaries while insulating consolidated hospital systems from price scrutiny. Achieving meaningful affordability reform demands tackling hospital prices by combining external reference benchmarking with enforceable price discipline if we expect to dismantle or at least rein in the primary engine of cost inflation across the provider-payer continuum.