Hospitals account for nearly one third (31%) of total health care spending—$1.5 trillion in 2023—with expenditures projected to rise rapidly through 2032, contributing to higher costs for families, employers, Medicare, Medicaid, and other public payers. In the past, policymakers have looked to reduce spending on hospital care as part of broader efforts to make health care more affordable and reduce the federal deficit and national debt. For example, Republican lawmakers recently floated a number of proposals that could directly or indirectly affect the more than 6,000 hospitals across the country, including major reductions in Medicaid spending, reductions in Medicare spending for uncompensated care and bad debt, establishing site-neutral payments that would achieve Medicare savings by aligning payment rates for a given service across different sites of care, and eliminating federal tax-exempt status for nonprofit hospitals.
Reducing federal spending on hospital care would inevitably involve tradeoffs. On the one hand, doing so could reduce the federal deficit, help offset the cost of a tax bill or other policy priorities, and promote efficiencies. Some options that reduce Medicare reimbursement may also lead to lower beneficiary cost-sharing requirements and premiums. On the other hand, reducing federal payments to hospitals could shift costs onto patients and lead hospitals to offer fewer services—which may result in patients not getting need care—or poorer quality of care. Absorbing reductions in federal spending could be especially challenging for hospitals that are financially vulnerable, such as rural and safety-net hospitals.
National Spending on Hospital Care
Spending on hospital care totaled $1.5 trillion in 2023, representing nearly one third (31%) of national health expenditures in that year. Spending on hospital care was the single largest source of national health expenditures in 2023. Hospital care includes both inpatient services and outpatient services (like imaging services or surgical procedures that do not require an overnight stay). Other categories that account for a large share of national health expenditures include spending on physician and clinical services (20%) and retail prescription drugs (9%).
Spending by Payer
Private health insurance accounted for more than a third of spending on hospital care in 2023 (37%), followed by Medicare (25%) and Medicaid (19%). Private insurance includes coverage offered by employers and insurance purchased through the Affordable Care Act (ACA) health insurance Marketplaces and elsewhere. The federal government subsidizes private insurance through favorable tax treatment for employer-sponsored coverage and through subsidies for coverage purchased through the Marketplaces.
Medicare spending—which is financed by the federal government—includes hospital care provided by traditional Medicare and Medicare Advantage plans. Medicaid spending—which is jointly financed by states and the federal government—includes hospital care provided by fee-for-service Medicaid and Medicaid managed care plans. Federal, state, and local governments also cover hospital spending through other programs, such as the Veterans Health Administration, which is administered by the federal government.
Patient out-of-pocket spending accounted for a relatively small share of hospital spending (3%), though individuals also contribute to hospital spending through health insurance premiums, taxes, and lower wages.
Market Concentration and Consolidation
One or two health systems controlled the entire market for inpatient hospital care in nearly half of metropolitan areas in 2023. Consolidation may allow providers to operate more efficiently and help struggling providers keep their doors open in underserved areas, but it often reduces competition. A substantial body of evidence has found that consolidation can contribute to higher prices, with unclear effects on quality. One or two health systems provided all of the inpatient care in nearly half (47%) of metropolitan areas and at least 75% of the inpatient care in most metropolitan areas (83%) in 2023. Both cases meet the definition of a highly concentrated market based on thresholds in current antitrust guidelines (see below).
The number of health systems in a given metropolitan area tends to increase with the population of the region. For example, regions with four or more health systems accounted for 33% of all metropolitan areas but 77% of the U.S. population living in metropolitan areas.
Hospitals account for more than 4% of all U.S. workers. Hospitals employed 6.7 million individuals in 2023, making them the sixth largest employer in the country when comparing different industry subsectors. Hospitals followed educational services; food services and drinking places; professional, scientific, and technical services; administrative and support services; and ambulatory health care services in employment rankings. Physicians and other employees in the ambulatory health care services subsector may have close ties to hospitals in some instances (e.g., be owned by the same system as a hospital or see patients at a hospital).
Hospitals accounted for at least 5.0% of total employment in 17 states in 2023 and represented 7.8% of total employment in West Virginia, which was the highest percentage across states.