The drivers of rising costs: The price of hospitals, specialty services, and prescription drugs

By Stephen Hemsley

This is a lightly edited excerpt of testimony recently provided to the U.S. House’s Energy and Commerce, Health Subcommittee hearing titled, “Lowering Health Care Costs for All Americans: An Examination of Health Insurance Affordability.”

Today, nearly one out of every five dollars spent in our country goes toward health care. Forty years ago, it was half that rate, and it steadily climbs each decade. Overall health care spending reached approximately $5.6 trillion in 2025, up from $4.9 trillion just three years ago. The pace of spending also continues to accelerate. During the last 25 years, health care on a per-person basis has gone up 242%, climbing from $4,845 in 2000 to a projected $16,570 for 2025.

During the same 25-year period, overall inflation has risen about 87%, and, in that time, consumer goods such as clothing and consumer electronics have all gotten more affordable on a relative basis.

Hospital Pricing

America is fortunate to have some of the finest hospitals and care providers in the world. They often deliver extraordinary work in caring for people while also dealing with a range of constraints and challenges.

Yet the reality today is that hospital prices have increased nearly three times faster than inflation over the past 25 years and account for more than 30% of what America spends on health care each year.

At for-profit hospitals, pricing increases for services, not higher rates of care activity, have been the primary driver of higher overall hospital spending. And for many not-for-profit hospitals, revenue growth and multi-billion-dollar investment portfolios leave them better positioned than operating margins suggest, even as others struggle.

Surgical Procedures 

Historically, the same surgical procedures cost two to four times more in the U.S. than they do in other industrialized countries, helping to generate profit margins nearly four times greater than those of health insurers and twice those of home care and hospice providers.

Site of Service

Where these procedures are performed can be a significant driver of cost as well. Increasingly, they are taking place in lower-cost outpatient settings — especially hospital outpatient departments and ambulatory surgery centers — given the broad differentials in cost.

For example, about 1.5 million hip and knee replacements were conducted in the U.S. in 2025. The average cost of a knee replacement in a hospital setting for a person with commercial insurance was $38,000 in 2023. The average cost for the same procedure in a hospital-owned outpatient setting was about $10,000 less, while the average cost at an ambulatory surgery center was $21,800, or about 40% less overall. Research shows that shifting just these joint replacement surgeries alone into lower-cost sites of care would save the health system about $6 billion per year and about $70 billion over a decade.

Hospital Consolidation

Consolidation is further boosting hospitals’ pricing power. Between 2005 and 2022, the number of independent hospitals decreased by 36%. Today, multi-hospital systems own roughly 95% of all hospital beds in the U.S., up from 89% in 2016. In markets where ownership is highly consolidated, prices are rising even faster.

For example, in the Houston and Seattle markets, where the top three hospital systems have at least 70% of the market share, UnitedHealthcare’s costs have increased 19% and 13%, respectively, between 2020 and 2024. By contrast, in less consolidated markets like Chicago and Kansas City, our costs have increased more modestly, between 4% and 7%, respectively.

This difference in market structure translates directly into higher costs for consumers, employers, and the health care system overall. If pricing in the more consolidated markets had trended like Chicago, Houston would have seen about $618 million less in hospital spend during the same four years, and hospital spending in Seattle would have been about $142 million less during the same period.

Pricing Transparency 

Other market forces, including poor transparency, make it hard to figure out what hospitals and doctors actually charge for care. In New York City, where the three largest hospital systems account for 41% of the market share, delivering a baby by C-section costs $42,000 more at one hospital than the average cost of other academic hospitals in our UnitedHealthcare network in the same market.

These types of pricing discrepancies are unfortunately all too common and often lead patients to inadvertently choose high-cost care settings. Further, hospital acquisitions, including provider groups, lead to higher costs when consumers see those physicians, but without meaningful improvement in the quality of care.

Read the full testimony here.

Watch the full hearing here.

Stephen Hemsley is the Chairman and CEO of UnitedHealth Group.

_{*The opinions expressed in this column are those of the author and do not necessarily reflect the views of HealthPlatform.News.}