Congress Can Cut Hospital Costs With Real Reforms

Large “nonprofit” hospital systems have spent years using tax preferences, payment rules, and market power to enrich themselves while patients and taxpayers carry the cost. Congress is finally taking a serious look at how that system works, and the U.S. House Ways and Means Committee is right to put hospital costs under the microscope.

A new analysis from the Committee for a Responsible Federal Budget shows how much money is on the table. The options include reforms that could save taxpayers hundreds of billions of dollars, lower premiums and cost-sharing for patients, and reduce the federal government’s role in subsidizing expensive hospital networks. 

Hospital Costs Are Driving Health Care Spending

CRFB notes that hospital spending is the largest single category of health care spending in the United States, accounting for roughly 31 percent of national health expenditures and 37 percent of Medicare spending. Hospital spending has also been growing rapidly, with major increases in 2023 and 2024 and continued growth projected in the years ahead. 

That pressure reaches family budgets, employer health plans, Medicare spending, and federal deficits. Higher hospital charges mean higher premiums, deductibles, and cost-sharing for patients, along with higher costs for taxpayers through Medicare, Medicaid, tax breaks, and other federal subsidies.

Congress should not treat these costs as unavoidable. Large hospital systems have built a business model around complex payment rules, aggressive consolidation, and tax benefits that often fail to deliver enough value to patients or taxpayers.

Congress Has Real Options

CRFB’s chart lays out a serious menu of reforms Congress could consider. Capping hospital prices at two times Medicare rates could save the federal government roughly $300 billion over a decade and reduce premiums and cost-sharing by almost $1 trillion. Reforming or repealing the tax-exempt status of “nonprofit” hospitals could save up to $300 billion.

Site-neutral payments are another major option because Medicare often pays more when the same service is delivered in a hospital outpatient department instead of an independent doctor’s office. CRFB estimates that adopting site-neutral payments in Medicare could save $175 billion over a decade, while applying site-neutral payments in the commercial market could raise $120 billion in federal savings and reduce premiums and cost-sharing by more than $450 billion. 

These reforms all point in the same direction. Patients should not pay more simply because a hospital bought a physician practice and changed the billing address, and taxpayers should not subsidize payment games that reward consolidation and raise costs.

“Nonprofit” Hospitals Need More Accountability

The tax-exempt status of large “nonprofit” hospitals deserves special scrutiny. These hospitals receive major tax advantages in exchange for providing community benefit. CRFB notes that research has raised serious questions about whether those benefits are large enough to justify the tax break, and estimates that the federal tax exemption for nonprofit hospitals will cost nearly $300 billion over the next decade. 

That is real money, and Congress should ask whether massive hospital systems that behave like profit-maximizing businesses should continue receiving special treatment from the tax code. Hospitals that receive public benefits should deliver clear public value.

The current system too often lets large hospital networks expand, acquire competitors, charge higher prices, and still claim special tax treatment. A taxpayer-backed advantage for powerful hospital systems is not charity.

340B and Other Hospital Subsidies Deserve Scrutiny

CRFB also points to the 340B drug program, which requires drug manufacturers to sell certain drugs at discounted prices to eligible hospitals. The problem is that those savings often do not flow through to patients or public insurers. CRFB notes that reducing Medicare reimbursements to reflect the discounts certain hospitals receive could save at least $85 billion over a decade while lowering beneficiary costs. 

Other options include replacing graduate medical education payments with a block grant, extending Medicare sequester savings by rebasing payment rates, making scheduled DSH cuts permanent, eliminating Medicare coverage of bad debt, using reference pricing in the Federal Employees Health Benefits program, and strengthening price transparency through a claims database. 

Each option deserves careful review, but Congress should not let complexity become an excuse for inaction. Hospital costs are too high, federal spending is too large, and taxpayers should not be asked to keep funding a system that rewards inefficiency and consolidation.

CFE Takeaway

Congress should rein in the hospital payment and tax rules that let large “nonprofit” hospital systems grow richer at taxpayer expense. The CRFB list gives lawmakers a strong starting point for lowering health care costs, protecting patients, and reducing federal spending.

Congress should apply a simple test. Health care policy should make care more affordable, not make politically favored hospital networks more powerful.