Taxpayers Should Not Subsidize Hospital Empires

Hospital giants went before the U.S. House Ways and Means Committee and showed why Washington’s health care affordability debate should start with the hospital industry. The system pays hospitals more, taxes many of them less, shields them from competition, and then asks patients and taxpayers to cover the bill.

The hearing featured CEOs from some of the nation’s largest health systems, including major for-profit and tax-exempt hospital chains. Under questioning from Ways and Means Committee Chairman Jason Smith, hospital executives acknowledged that Medicare often pays more for the same service when it is delivered in a hospital-owned facility instead of an independent physician office, yet they declined to support legislation equalizing those payments at the lower physician-office rate.

That exchange captured the core problem. Hospitals have built a business model around legal loopholes, payment distortions, tax preferences, and consolidation, leaving patients and taxpayers with higher bills while independent doctors get squeezed and large hospital systems keep expanding.

Hospitals Should Not Get Paid More for the Same Care

Site-neutral payment reform follows a simple principle: the same service should receive the same payment, regardless of whether it is delivered in a hospital-owned outpatient department or an independent doctor’s office.

At the Ways and Means hearing, Chairman Smith asked hospital CEOs whether a senior’s Medicare bill for a standard X-ray would be higher in a hospital-owned clinic than at a local doctor’s office. The CEOs raised their hands. He then asked whether their hospitals made more revenue from that arrangement, and the CEOs again raised their hands. When he asked whether they would support equalizing payments at the doctor rate, no hands went up.

Rep. Jodey Arrington pressed the same point from a fiscal angle, noting that Presidents Obama, Biden, and Trump all included site-neutral payment reforms in budget proposals because the idea can save patients and taxpayers billions. When Arrington asked whether the CEOs supported site-neutral reform as a common-sense way to help save the system, no hands went up.

A patient-centered health care system would not reward hospitals for buying independent practices and charging more for the same care. Washington created this pricing advantage, and Congress should end it.

Paragon Institute’s recent report, “The Hospital Cost Crisis,” explains why the problem keeps getting worse. Paragon argues that federal and state policies have reshaped hospitals into large systems protected from normal competition, with hospital prices rising far faster than inflation and wages while hospital spending now accounts for a large share of overall health care costs.

The policy answer is not another subsidy. Congress should enact site-neutral payment reform so Medicare stops rewarding hospital acquisition of independent physician practices. Paragon’s report points to the same reform as a way to reduce consolidation incentives, strengthen Medicare, and save seniors and taxpayers money.

The Nonprofit Hospital Model Needs Scrutiny

The hearing exposed the gap between nonprofit status and nonprofit behavior.

Tax-exempt hospitals receive major benefits because they are supposed to provide charity care and community benefits. Yet many large nonprofit systems now resemble major corporations, with investment portfolios, large executive compensation packages, real estate holdings, political activity, and branding deals far removed from bedside care.

Rep. Lloyd Smucker put that issue directly to the witnesses, asking whether there is much difference between the way for-profit and nonprofit hospitals operate. HCA Healthcare CEO Sam Hazen, who led the for-profit system represented at the hearing, answered, “The short answer is no.” Smucker later questioned CommonSpirit CEO Wright Lassiter III about the system’s publicly traded securities, including hundreds of millions of dollars in investments and gains.

In a Washington Post op-ed, Scott Hodge argues that many nonprofit hospitals operate like big businesses. Hodge points to nonprofit hospitals’ massive industry footprint, large tax-free earnings, and substantial tax benefits as evidence that the nonprofit label does not guarantee affordability or charity care.

Those tax benefits should come with accountability. If tax-exempt hospitals are not providing charity care and clear patient benefits commensurate with their tax advantages, Congress should revisit the rules.

Rep. Kevin Hern highlighted the transparency problem behind nonprofit hospital tax benefits. He asked whether large systems such as New York-Presbyterian report community benefit spending facility by facility or across the system on one Form 990. New York-Presbyterian CEO Dr. Brian Donley said the system reports under federal guidelines as one facility, making it harder for the IRS, patients, and local communities to know whether a specific tax-exempt hospital is actually providing enough charity care to justify its tax break.

Paragon reaches a similar conclusion. Its report recommends stronger IRS oversight in the short term and, over the long term, tying tax-exempt status to measurable charity care instead of vague community benefit claims.

Rural Loopholes Should Serve Rural Patients

The hearing also highlighted how hospital systems exploit rural designations. Rep. Carol Miller asked New York-Presbyterian’s CEO why several of its campuses are classified as rural despite their proximity to New York City. Donley acknowledged that New York-Presbyterian does not consider itself geographically rural but said it qualifies under CMS rules.

Rural health care needs real support. Rural hospitals face serious challenges, including maternity unit closures, workforce shortages, and long travel distances for basic care, but urban systems should not be able to use regulatory loopholes to access benefits intended for rural communities.

Rep. Randy Feenstra underscored the real rural access issue during his questioning on maternity care. He pressed witnesses on how the hub-and-spoke model can preserve maternal care in rural communities, and ECU Health CEO Dr. Michael Waldrum described how rural facilities can keep care close to home while relying on a larger hub for specialized services.

The contrast is important. Rural policy should help rural patients, rural mothers, and rural communities. It should not become another loophole that lets urban hospital systems capture benefits meant for areas with limited access to care.

Hospital Consolidation Has Raised Prices

The hospital lobby often claims that consolidation improves efficiency, but patients and employers have seen a different result.

Ways and Means Republicans noted that roughly 2,000 hospital mergers over two decades have left one or two hospital systems controlling access to care in about half of U.S. metropolitan regions. The committee also cited higher prices for patients and lower wages for employees with employer-sponsored health insurance as employers spend more compensation on premiums.

Rep. David Kustoff pressed New York-Presbyterian’s CEO on the facility-fee problem by comparing the Medicare payment for a colonoscopy at an ambulatory surgical center with the much higher facility fee paid to a hospital. Donley conceded there are opportunities to look at places where things “aren’t reasonable,” which is exactly why Congress should act.

Rep. Aaron Bean put the broader pricing problem in plain terms, calling hospitals the “new heavyweight champion of rising prices.” Bean pointed to decades of public benefits, including tax-exempt status, rural designations, higher reimbursements, and consolidation, and argued that the industry responded by raising prices.

Paragon’s report explains how policy drives that outcome. Certificate-of-need laws restrict competition. Medicare payment rules reward hospitals for buying independent practices. Subsidy streams, tax benefits, and programs such as 340B often strengthen incumbent hospital systems rather than patients.

Congress should stop feeding the consolidation machine and then acting surprised when prices rise.

CFE Takeaway

The Ways and Means hearing made clear that Washington has built too many hospital policies around institutions instead of patients.

Chairman Smith, Rep. Arrington, Rep. Smucker, Rep. Hern, Rep. Miller, Rep. Feenstra, Rep. Kustoff, and Rep. Bean each exposed a different part of the same problem: hospital policy is riddled with payment distortions, tax preferences, weak reporting rules, rural loopholes, and consolidation incentives that raise costs and weaken competition.

Congress should move toward site-neutral payments, stronger price transparency, tighter oversight of tax-exempt hospitals, 340B reform, and subsidy rules that target real patient need. Taxpayers should not be asked to subsidize hospital empires that charge more for the same care, buy up competitors, exploit rural loopholes, and then resist reforms that would lower costs.

Hospitals have an essential role in American health care. That role does not entitle large systems to permanent protection from competition, accountability, or basic fiscal discipline.