Same Knee Surgery, Twice the Price: Hospital Monopolies Push Up Healthcare Costs

Every year, surgeons across the United States perform more than a million knee replacement surgeries, removing worn cartilage and installing metal and plastic components to enable smooth joint movement. Despite the widespread adoption of this procedure, the costs associated with it have remained relatively stable. However, significant price discrepancies exist among hospitals providing the same service.

For instance, in Hickory, North Carolina, Catawba Valley Medical Center charges roughly $16,000 for a knee replacement using a Blue Cross Blue Shield health plan. In contrast, Mission Hospital, located just 40 miles west in Asheville, charges around $40,000 for the same procedure, more than doubling the cost. Mission Hospital, formed through the merger of two of the largest hospitals in the region, enjoys a dominant position with little competition, allowing it to demand higher prices.

This disparity between hospitals, despite offering the same medical procedure, highlights the impact of hospital monopolies on healthcare costs. When few competitors exist, hospitals can charge more, according to health economists. Higher hospital prices ultimately lead to increased payments from patients and their insurers. These cost increases affect all patients, even those who do not require medical care, as insurers pass the expenses onto policyholders.

The connection between hospital market power and pricing has been revealed through recent data collection efforts. Since 2021, the Centers for Medicare & Medicaid Services requires hospitals to disclose their prices, enabling comprehensive data analysis, such as that provided by Serif Health. Examples of this trend can be found across the nation, such as in Melbourne, Florida, where Holmes Regional Medical Center, part of the Health First health system, charges Cigna patients twice as much as a hospital two hours away for knee replacements.

In Greeley, Colorado, Banner North Colorado Medical Center, the leading healthcare provider in Weld County, charges $20,000 more for the surgery compared to a health system in Denver. Despite arguments from the American Hospital Association that hospital mergers can improve quality and reduce costs through a sustainable environment, critics argue that the data clearly shows that hospitals with greater bargaining power tend to charge higher prices.

Economists have long suspected that the surge in hospital mergers beginning in the late 1990s played a significant role in the rising costs of U.S. healthcare. Between 2002 and 2020, over 1,000 hospital mergers occurred in the United States alone. However, the impact of healthcare monopolies on pricing remained largely overlooked until the recent federal disclosure rule.

Hospital prices and their correlation with market power have been studied extensively by economists like Yale University's Zack Cooper, who has demonstrated that hospital prices have risen faster than those in any other economic sector over the past quarter-century. Hospital consolidation has emerged as a primary driver of this trend.

Recent administrations have been divided on how to address the issue of hospital mergers. While President Donald Trump revoked a directive from former President Joe Biden in 2021, a recent FTC memo calls for a task force to examine mergers leading to higher prices and decreased quality of care. Several states have also taken action, with Minnesota passing a law in 2023 to ban anticompetitive healthcare mergers and bolster state oversight, California requiring 90-day notices of large mergers and establishing an agency to investigate their competitive effects, and Oregon enabling the state health department to block hospital acquisitions and mergers.

Despite these efforts, the overall trend of hospital mergers and acquisitions has continued unabated, with 46 mergers and acquisitions announced in the U.S. last year, including several "mega-mergers" valued at over $1 billion.