Hospital consolidations and ‘nonprofit’ tax breaks are driving up medical costs

Everybody talks about the cost of health care as if it is one single thing. But in our complicated system, many elements contribute to our health care affordability crisis, and some are bigger problems than others. Spending on hospital care accounted for 40% of the growth in national health spending between 2022 and 2024. And when the providers who set those rising prices consolidate their power, families, employers, and taxpayers get squeezed even more.

Over the past few decades, major hospital chains have merged with competing providers and become local monopolies. Since 1998, there have been nearly 1,600 mergers among these systems. It’s no surprise that the Federal Trade Commission now considers 90% of hospital markets highly concentrated.

If a hospital wants the legal privileges of being nonprofit, it should have to earn them every year.

And it’s not just large systems acquiring each other. They have gobbled up doctors’ offices too. Between 2013 and 2018, the share of hospital-owned physician practices more than doubled, and by 2020, more than half of physicians worked directly for a hospital or for a practice owned by one.

This is a problem because these big health systems then use that market power to charge more. Leading budget experts found that after a hospital buys a physician practice, the price of services such as MRI scans, drug infusions, and chemotherapy rises by two to three times their prior cost, and the overall price of health care services increases 14%. One patient saw the out-of-pocket expense of arthritis treatments rise over 1,000% after her outpatient clinic was acquired by a hospital. Despite these increased costs, government research has also shown that hospital mergers do not improve quality.

Another problem is just plain abuse of the tax code. Many of the largest hospital systems are legally “nonprofit,” which makes them tax-exempt, despite behaving like corporate conglomerates. In New York, the vast majority of hospitals are tax-exempt because they ostensibly provide charity care. The result is a substantial public subsidy, estimated as a $9.4 million windfall per hospital.

New York Presbyterian shows how this model can be exploited. Reporting indicates that less than 1% of the services it provides are charitable in nature, yet the institution retains the tax advantages of a nonprofit. In 2021 it recorded roughly $1.5 billion in profits and an operating margin of 17.4%. Its CEO compensation reached almost $11 million per year. It even had resources to sponsor the New York Mets.

This is not just a New York story. Most hospitals claim nonprofit status, but leadership compensation can reach the tens of millions. Those packages persist because the IRS grants large tax benefits and the standards for keeping them are weak. The Lown Institute has documented a wide gap between tax breaks received and community benefit delivered, estimating that fair share deficits in 20 states total $11.5 billion per year. Meanwhile, executives travel on private jets.

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And the care can be anything but caring. Several of the California hospitals in the CommonSpirit Health nonprofit system were disciplined by federal and state officials in 2022, 2023, and 2024 for moving deceased patients to an off-site morgue, where they were stored and even allowed to decompose for months — or in some cases years — without notifying the families.

This is a governance failure. If a hospital wants the legal privileges of being nonprofit, it should have to earn them every year by providing a real, transparent community benefit, meaningful charity care, and outcomes that justify public support. If it wants to operate like a profit-maximizing corporation, then it should pay taxes like one.

Congress already has a starting point. The Senate Health, Education, Labor, and Pensions Committee issued a report on the overuse of charitable designations by nonprofit hospitals and recommended greater federal scrutiny and possible changes in the tax code. That scrutiny should be paired with payment reform, especially site-neutral payments, and stronger antitrust enforcement in markets the FTC already calls highly concentrated.

The status quo is a quiet transfer of wealth from patients, workers, and taxpayers to consolidated hospital systems that can raise prices, claim tax exemptions, and restrict competition. The goal is not to punish hospitals. It is to achieve affordability by restoring the validity of nonprofit status and the power of competitive markets.