The United States spent $4.9 trillion on healthcare in 2023, according to figures published last month by the federal government.
That's an increase of 7.5% relative to 2022.
What's behind this astounding spending growth?
It's largely hospital care.
That reality is a signal that our leaders need to implement policies designed to foster competition in the hospital market.
Looking at the new numbers, it's hard to believe that so much of the national health policy conversation has focused on prescription drugs in recent years.
Retail drug spending accounted for 9% of total healthcare expenditures in 2023 — the same as in 2022 and 2021.
Total spending on retail drugs did increase by 11.4%. But that increase largely reflects an uptick in prescription drug utilization, as well as a reliance on newer -- and thus more costly — medicines.
Neither of these trends should be all that troubling.
In fact, increased use of medications has been shown to decrease overall health spending by helping patients avoid more expensive forms of care like surgery and lengthy hospital stays.
The Congressional Budget Office estimates that "a 1 percent increase in the number of prescriptions filled by beneficiaries would cause Medicare's spending on medical services to fall by roughly one-fifth of 1 percent."
Now, if drug prices were rising at an unreasonable rate, the increase in spending on drugs would certainly be a concern.
But that's not what's happening.
According to the latest report from the Bureau of Labor Statistics (BLS), the price of prescription drugs rose by just 0.7% between November 2023 and last month.
Overall prices, meanwhile, increased by 2.7%.
It's also worth noting that more than 90% of the prescriptions filled each year in this country are low-cost generic drugs.
Generics can come on the market after the patents and other intellectual property protections on the brand-name drugs they're copying expire.
Now let's turn our attention to the entities that account for the largest share of our nation's health bill — hospitals. In 2023, hospitals took in nearly one of every three dollars spent on health care in this country — a total of $1.5 trillion. Spending for hospital care grew 10.4% in 2023, the fastest growth rate since 1990.
Over the last few years, the hospital sector has become more powerful, more consolidated, and less competitive.
According to one recent report from the consulting firm Deloitte, just 10 health systems control one-quarter of the nation's hospitals.
Without adequate competition, established hospitals have outsized market power that enables them to keep prices high.
During its first stint in the White House, the Trump administration tried to leverage the power of transparent pricing to boost competition in the hospital market.
It ordered hospitals to publish the prices of at least 300 "shoppable services" that patients could schedule in advance.
It also required hospitals to publish their prices in machine-readable files.
Hospitals have been slow to comply. In its second go-round, the Trump administration should hold hospitals to account on price transparency.
Rolling back certificate of need laws at the state level is another promising idea.
These laws force healthcare providers to get the government's approval before building or expanding a medical facility.
Incumbent providers often abuse the process to effectively veto the entry of competitors.
The market, not the government, should decide whether a city or region can sustain a new clinical facility.
"Site-neutral" payment reforms are yet another way to inject some competition into the hospital sector.
Right now, Medicare and other insurers often pay more for a procedure delivered in a hospital than for the same procedure in a doctor's office or ambulatory surgery center.
That makes little sense. Paying the same for equivalent procedures, regardless of where they're delivered, would help rein in health spending.
The latest health expenditure figures make it clear which areas of our health system are most in need of reform.
Until policymakers take steps to bring greater competition and transparency to the hospital sector, restraining America's ballooning healthcare bill will remain impossible.
Sally C. Pipes is president, CEO, and the Thomas W. Smith fellow in healthcare policy at the Pacific Research Institute. Her latest book is "False Premise, False Promise: The Disastrous Reality of Medicare for All," (Encounter Books 2020). Follow her on Twitter @sallypipes. Read Sally Pipes' Reports — More Here.
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