Washington Is Targeting the Wrong Health Care Cost Drivers | RealClearHealth
Washington Is Targeting the Wrong Health Care Cost Drivers
Brenda Destro
RCH
July 27, 2026
Martha Dominguez de Gouveia
America has a health care affordability problem. Families feel it not only in premiums and deductibles, but also in how costs can affect access to care, the quality of that care, and the success of the health outcomes. And there is a growing fear that the doctor they want may not be taking new patients and the nearest hospital may not always be there when they need it.
Understanding how to address these concerns of Americans is not a simple task. Yet, too often, government offers quick fixes or a simple policy response to remedy a problem. Even if it has an impact on the problem – like Obamacare – it can often end up creating new issues
The Centers for Medicare & Medicaid Services’ newly proposed hospital outpatient rule is the latest example. The agency is proposing to reduce Medicare payments for drugs acquired through the 340B Drug Pricing Program from average sales price plus 6 percent to average sales price minus 33.4 percent. CMS is also proposing to expand site-neutral payment policies for certain services provided in grandfathered off-campus hospital outpatient departments.
The proposals are being framed as affordability measures. That is understandable at first glance. No one should defend inflated prices, opaque billing, or payment systems that reward inefficiency. But lowering hospital reimbursement rates is not the same thing as lowering health care costs, nor does it address the impact on other concerns such as access and health outcomes
Most hospitals are alike. They are expected to remain open 24 hours a day, seven days a week, and to serve patients regardless of ability to pay. Those obligations are expensive. Labor is the largest cost hospitals carry because hospitals are labor-intensive by design. A full-service hospital needs to be fully staffed around the clock. That is not waste. It is the cost of maintaining access
Their ability to recover costs, however, varies widely.
Large corporate hospital systems operate in concentrated markets that allow them to charge private insurers higher rates. They can realize operating margins of 10-15%. In contrast, about one-third of hospitals are barely breaking even and another third are in the red.
These are rural hospitals, safety-net institutions, and teaching hospitals that have much lower operating margins of 4-5%. They primarily serve older patients covered by Medicare and Medicaid that often pay less than the cost of delivering care and have fewer privately insured patients to offset loses
In fact, more than 40 percent of rural hospitals are operating at a loss, and hundreds are vulnerable to closure. Safety-net hospitals face the same pressure in different forms, absorbing higher levels of uncompensated care and facing negative operating margins more than three times higher than hospitals as a whole. When those hospitals cut services, the community suffers, yet much of the affordability debate continues to treat all these hospitals as though there are obvious places to find savings. It also misses significant additional pressure points facing hospitals and patients.
Families are paying more for health insurance coverage, and hospitals are grappling with administrative overhead, billing complexity, and insurer market concentration that is reaching antitrust levels. In many markets, small nonprofit and rural hospitals negotiate with dominant insurance carriers from a position of weakness. Even large hospitals in metropolitan areas have their challenges.
In 2024, 97% of metropolitan level commercial health insurance markets were highly concentrated. In nearly half of those markets a single insurer controlled at least 50% of the market. Metropolitan hospital systems cannot just walk away from the largest payer in town and leave patients without access
If Washington wants to lower health care costs without weakening access to care and health outcomes, it should therefore start by reducing the administrative burden insurers impose on care delivery. Prior authorization should be faster, more transparent, and limited to cases where it improves value rather than simply delaying care. Denials should be tracked and reported in ways that allow patients and regulators to see which plans are creating barriers to medically necessary treatment
Policymakers should also demand clearer accountability across the entire system for the decisions that determine what patients pay and whether they can obtain timely care. That means more visibility into coverage denials, insurer networks, drug formularies, cost-sharing rules, and the administrative processes that delay treatment. Patients deserve to know why care is unaffordable or inaccessible, not just what charge appears on a bill after the fact
Health care costs too much. Families deserve relief. Seniors deserve lower out-of-pocket costs. Taxpayers deserve value. But nonprofit, rural, and safety-net hospitals are not the reason care has become unaffordable. They are often the institutions absorbing the consequences of a broken system
Lowering costs should mean making care more affordable and more accessible without compromising quality. And it should not punish patients by making hospitals or any provider less able to keep their doors open
Brenda Destro, Ph.D. served as the Acting Assistant Secretary for Planning and Evaluation at the U.S. Department of Health and Human Services (HHS) from 2018-2021 and was previously a Senior Public Health Advisor to the Senate Committee on Health, Education, Labor, and Pensions (HELP)
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