Hospitals’ pricing abuse is crushing CA small businesses

By Bianca Blomquist, Special for CalMatters

This commentary was originally published by CalMatters. Sign up for their newsletters.

Guest Commentary written by

Small business owners are working hard to keep their doors open while offering employees quality benefits, but rising healthcare costs are making that harder every year. 

One major driver of these costs is hospital pricing abuse, which often goes unnoticed but is devastating to California’s small business communities.

Large hospital systems have used their market dominance to drive up the prices they charge commercial payers, often billing them more than three times what Medicare pays for the same care. 

Those inflated costs fall squarely on the shoulders of small businesses and working families through higher premiums and lower take-home pay.  

For many small business owners, offering health insurance is already one of their biggest expenses. Nearly half of small businesses in a survey by Small Business Majority say rising healthcare premiums place a major financial burden on their business. Two-thirds say it is at least a moderate burden. 

When hospital bills keep rising, it becomes nearly impossible for small firms to continue providing coverage to their employees. While entrepreneurs want to do right by their workers and offer robust health benefits, they are often forced to make painful choices about wages, benefits and business growth as premiums skyrocket each year. These decisions don’t just impact employees — when small businesses reduce benefits it can cost them top talent.

Rising hospital bills persist in part because hospitals block the transparency that drives competition and consumer choice. Hospitals often hide the true cost of care behind opaque billing practices and gag clauses that keep employers from seeing what they’re actually paying. 

And, according to Small Business Majority’s research, as many as 58% of small business owners have had hidden “facility fees” tacked onto their hospital bills. These fees allow hospitals to charge more for the same services if they are provided in a facility owned by a hospital, instead of an independent clinic.

Meanwhile, hospitals across the state have continued to consolidate and swallow up local providers, reducing competition and giving large systems unchecked power to dictate prices. Market consolidation through hospital mergers ultimately drives up healthcare costs for consumers — including small businesses. 

According to RAND Health Care, hospital mergers have resulted in estimated price increases ranging from 3% to 65%.

 With fewer competitors, healthcare costs rise without a corresponding increase in quality of care. In fact, consolidation can lead to a higher mortality rate and more major health setbacks. 

Rural communities are particularly vulnerable to the negative impacts of healthcare mergers, as they’re more likely to experience larger-than-average price increases, often in outpatient services. Additionally, rural merged hospitals are more likely than rural independent hospitals to eliminate crucial services like maternal, neonatal and surgical care.

California’s regulators are already playing a role in helping bring down prices. The California Office of Health Care Affordability was established in 2022 to lower hospital costs and promote greater transparency. It must not be deterred when hospitals refuse to lower prices or explain their pricing structure.

We also need to see action on the federal level. During his first term, the Trump administration issued rules intended to increase price transparency and bring down costs. This was a great start but clearly much more is needed to help make the cost of care more affordable for small businesses.

Small businesses are the heart of our economy, accounting for more than half of new jobs nationwide and employing 7 million Californians. But they can’t thrive if healthcare costs keep rising. Addressing hospital pricing abuse is essential for keeping California’s small businesses strong and ensuring every worker can access quality, affordable care.

This article was originally published on CalMatters and was republished under the Creative Commons Attribution-NonCommercial-NoDerivatives license.