Last week, the American Hospital Association released a study by Kaufman Hall, its preferred data vendor, that took issue with methodologies used by critics of hospital consolidation:

“These findings suggest that a more comprehensive analysis of hospital M&A transactions, one that considers impacts on all patients served, broadens the focus to impacts beyond pricing, and considers the consequences if an M&A transaction is not permitted to proceed, would ensure not only competitive but also healthy hospital markets that can continue to provide the fullest possible range of services.”

The report discusses how hospital merger reviews should look beyond the potential impact on commercial insurance prices and consider what proposed transactions mean for all patients, particularly the nearly 60% of hospital patient days attributable to Medicare, Medicaid and Medicare Advantage beneficiaries whose payment rates are largely set by government programs.” Drawing on analyses of challenged and canceled transactions, the report also finds that hospitals seeking partners often serve more vulnerable communities and face greater financial pressures, and that when proposed deals do not move forward, struggling hospitals can experience significant financial deterioration that threatens services, workforce stability and access to care.”

Kaufman Hall added this disclaimer: “The findings contained in this document may contain predictions based on current data and historical trends. Any such predictions are subject to inherent risks and uncertainties. Past performance is not necessarily indicative of future results. Kaufman Hall accepts no responsibility for actual results or future events.

Also last week, a Health Affairs commentary “In 2026, States Are Leading On Health Care Affordability” noted that “Research has consistently shown that hospital prices are the largest driver of commercial health care spending growth. Hospital markets are dominated by monopolies, which enable hospitals to charge higher prices without improving quality or outcomes. State policymakers are increasingly looking for options to limit excessive hospital prices. Our research shows that capping the highest, most egregious prices charged by hospitals can meaningfully improve health care affordability while still allowing hospitals to generate a healthy margin…

A key driver of rising health care prices is consolidation in health care systems, including through hospital acquisitions of physician practices. These acquisitions, which are a form of vertical integration, increase hospital prices by 3 to 5%. This can be attributed to greater bargaining power, more intensive coding practices, and hospitals charging facility fees at what were previously independent physician practices but are now treated as “hospital outpatient departments.” To address these issues, states are increasingly considering facility fee bans or “site-neutral” policies that would cap prices for certain routine hospital outpatient services that could be provided safely in an office setting.”

Both positions are defensible.

Not for profit and public hospitals are at a disadvantage in managing their finances because they’re obligated to serve entire communities without regard to local economies or population health. Investor-owned hospitals and insurance companies have fewer restrictions and can exit markets at will.

And almost every hospital is dependent on reimbursement from commercially insured patients to offset what is the widely-accepted calculus that Medicare and Medicaid reimbursement doesn’t cover the total cost of care provided enrollees. Thus, across the hospital industry, the playbook has been straightforward: to optimize hospital finances….

• Maximize the attractiveness of hospital services that attract privately insured patients via contracting with private insurers.
• Negotiate favorable rates with private insurers to enhance cost-shifting to Medicare and Medicaid by private plans.
• Optimize leverage (scale) over insurers by consolidating hospitals, acquiring physician practices, expanding ancillary activities and deploying capital to potentially profitable ventures.
• Advocate for state and federal laws that dissuade hospital price caps, 340B cuts, site-neutral payments, unreasonable price transparency requirements and limits on private-equity partnerships.
• Assert that hospitals are efficient stewards of the public’s trust but disadvantaged by corporate insurers and drug companies that are allowed to enter and exit markets at will, price at “what the market will bear” and put shareholder profit above all else.

This scheme has worked for 40 years to enable hospitals to control at least 50% of total health spending: 31% for traditional hospital services, 12% of total physician services, and ventures, partnerships, ancillary services and post-acute services in addition. In the aggregate, hospitals are the most important cog in the healthcare wheel. They’re labor intense, capital intense, complicated businesses that enjoy public trust that’s slipping away, especially among the 25 million who work in the industry.  Complicating matters, distinctions between rural and government safety net hospitals and highly profitable investor-owned and not-for-profit systems are attracting unwanted scrutiny from regulators and in media coverage.

While Kaufman Hall raises legitimate questions about current methodologies used by state and federal regulators to assess consolidation, it does not answer the bigger question: what role should hospitals play in the U.S. system as AI-derived clinical innovation proliferates, labor and supply costs accelerate and fewer people can afford services?

It’s not clear.

• Should “hospital services” be redefined bifurcating facility-dependent inpatient services (Part A) and an expanded set of services inclusive of self-care provided in homes, schools, workplaces and virtually?
• Should “community-benefits” and “charity care” be redefined so that methodologies are consistent and gaming to receive tax benefits eliminated?
• Should hospital clinical performance be linked to improved outcomes and lower costs (affordability)?
• Should local primary care and preventive health services (inclusive of nutrition, physical and mental health, prophylactic dentistry) be integrated with hospital services to improve population health and control demand for hospital services?
• Should specialized tertiary and quaternary hospital programs be rationalized to optimize outcomes and improve efficiency?
• Should consolidated hospital systems disclose administrative costs, functions and allocation methodologies publicly?
• Should hospital boards be required to conduct scenario planning that’s comprehensive?
• Should hospital administrative services and costs be standardized to facilitate caps on spending and management performance comparisons?
• Should physician ownership of hospitals be enabled to increase competition?

And many others.

The American Hospital Association is right to be concerned about how regulators are addressing hospital consolidation and its impact on prices. And they’re right to challenge methodologies applied to questions about hospital prices and competition. But they fall short in offering a vision for the future of the health system that’s plausible, affordable and compelling. Rather, they offer a hospital-centric vision based on suspect assumptions and inadequate sensitivity to market trends not directly associated with traditional health services.

Every stakeholder in the health system—including hospitals and physicians—face heightened pressure to eliminate unnecessary utilization and costs due to willful or unknowing fraud. Just as insurer prior authorization practices have been frustrating to providers, unnecessary care is confounding to regulators and employers. The use of agentic AI tools to examine appropriateness of tests, procedures, medications and visits will exponentially change how “quality of care” is defined and regulated, and how its delivered. It’s a big deal everywhere, especially in Medicaid programs.

It started as a simple question. Who are the biggest health care companies in the United States?

If you rank the ten largest health care companies in America by revenue, you will not find a single hospital system or drugmaker. Not Pfizer, not Eli Lilly, not the Mayo Clinic or HCA. Every company in the top ten is a middleman, and together they take in about $2.6 trillion a year.

Above is a list showing how much of every dollar of revenue each company keeps as net income. Then read about what these companies actually do.

Three of these companies are insurers that swallowed pharmacy benefit managers: UnitedHealth owns Optum Rx; CVS owns Caremark and Aetna; and Cigna owns Express Scripts. Three are drug distributors that move pills from the factory to the pharmacy and touch almost none of them. Three more are built on Medicare and Medicaid managed care. Every one of them sits between the people who deliver care and the money that pays for it.

McKesson, Cencora and Cardinal Health each keep somewhere between half a cent and a penny of profit on every dollar of revenue. Cencora reported $294 billion in sales in fiscal 2024 and $1.5 billion in profit. That is a rounding error as a margin. And yet all three rank among the thirty largest companies in the world.

No other rich country works this way

The sheer size of these companies is another distinctly American feature of the system. On the 2026 Fortune Global 500, UnitedHealth ranks fourth in the world, ahead of Apple; McKesson is seventh; CVS is ninth; and Cigna, where I worked for 15 years, ranks 14th in the U.S. and 21st in the world. Every health care company near the top of the global list is an American intermediary in one way or another. There is no foreign health care business of any nature that comes close.

The closest thing another country has to one of our giants is Allianz, in Germany. Allianz is the largest insurance company in Europe. But it is a general insurer built on property, life and asset management, and health is a minor line. Even at home, Allianz is only the third largest health insurer in Germany. There, roughly nine in ten people are covered by nonprofit sickness funds, which are barred by law from operating as for profit and must send any surplus in funds back into the system.

And then there are Britain’s National Health Service (NHS), which is funded by taxes; Canada’s single-payer system financed through the provinces; and Japan’s nonprofit insurance system based on a standardized national fee schedule.

None of these countries built the kind of for-profit middleman layer that exists in the U.S., where some of those companies have grown into the largest corporations in the world. Pharmacy benefit managers are also a uniquely American creation, which helps explain why that entire category of health care giant does not exist elsewhere.

What the middleman layer costs

The United States spent $5.3 trillion on health care in 2024. That was the first year the country ever crossed $5 trillion, and it is the most recent year with actual figures rather than projections. (The Centers for Medicare and Medicaid Services estimates total U.S. health spending will reach $6 trillion this year.)

A large share of that money never reaches care and instead is consumed by the U.S. health care system’s complicated administration and payment systems.

In 2021, the United States spent $925 per person on health administration, meaning the overhead of insurers and government programs. The average wealthy country spent $245. That gap of $680 a person accounts for about 12% of the entire difference between what America spends on health and what its peers spend. As a share of the total, administration eats about 7.6% of U.S. health spending against 3.8% across comparable nations. We devote twice the share of every health dollar to running our absurd machinery.

The $925 figure counts insurer and government overhead and does not include what hospitals and doctors spend on billing, coding and prior authorization just to get paid. When those costs are included, estimates put total administrative spending between 15% and 25% of all U.S. health care spending — or, based on 2024 spending, roughly $800 billion to $1.3 trillion a year.

The countries with the leanest administrative spending tend to be those (you guessed it!) with the fewest middlemen.

Middlemen spend to keep the status quo

I know how a system this profitable defends itself because I used to help do it. Back at my old gig at Cigna, my team and I wrote talking points for lobbyists to use with lawmakers, and we doled out campaign cash to candidates we liked.

The health sector spent $743.9 million lobbying the federal government in 2024, more than any other sector of the economy and the only one to clear $700 million. UnitedHealth alone spent $16.6 million in the 2024 election cycle. The insurance industry’s trade group, AHIP, and the biggest insurance conglomerates pour tens of millions more into the same effort year after year, and the pharmacy benefit managers keep their own operation running through another insurance industry funded trade group called the Pharmaceutical Care Management Association (PCMA), whose spending has roughly doubled since 2022.

That spending helps protect Medicare Advantage payments, fight efforts to rein in pharmacy benefit managers and oppose proposals that would move the country toward universal coverage. Compared with the $70 billion in combined profit of the seven biggest for-profit insurers last year, the lobbying bill is relatively small.

The price of “choice”

The industry says all of this is the price of “choice,” which they want folks to believe is sacred. It is the argument insurers and their allies reach for every time Congress looks at a single-payer bill or public option or any other approach, for that matter, that could move us closer to reining in the worst abuses of the industry.

Americans say they want to choose their own doctor and their own hospital, but that is exactly the kind of choice the middleman system can take away through narrow networks and prior authorization. What the industry defends instead is the choice among insurers. And for most working people, even that choice is made by an employer. We pay hundreds of billions of dollars a year to run a marketplace of middlemen, and in return we get narrower networks and more denials than patients face in the countries that never built the marketplace at all.

Depending on the results of the next two election cycles, Congress will almost certainly debate how to restructure health care again, with the familiar goals of lowering costs, expanding coverage and improving care. But any serious attempt to do that will have to confront the enormous middleman industry the current system has created and allowed to flourish.