Abusive hospital rates are crushing small businesses in California

By Bianca Blomqvist, especially for CalMatters

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Small business owners work hard to keep their doors open while offering quality employee benefits, but rising health care costs make that harder every year.

One major driver of these costs is abuse of hospital rateswhich often goes unnoticed but is detrimental to California’s small business communities.

Large hospital systems have used their dominant market position to raise the prices they charge commercial payers, often charging them more than three times what Medicare pays for the same care.

These inflated costs fall directly 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. Almost half of the small businesses in Small Business Majority survey say rising health care premiums are putting a heavy financial burden on their businesses. Two-thirds say it is at least moderately severe.

When hospital bills continue to rise, it becomes nearly impossible for small businesses to continue providing coverage to their employees. While entrepreneurs want to treat their workers right and offer solid health benefits, they are often forced to make painful choices about wages, benefits and business growth as premiums skyrocket every year. These decisions don’t just affect employees—when small businesses cut benefits, it can cost them top talent.

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

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

Meanwhile, hospitals in the state have continued to consolidate and absorb local suppliers, reducing competition and giving large systems unchecked power to dictate prices. Market consolidation through hospital mergers ultimately raises health care costs for consumers — including small businesses.

According to RAND Healthcarehospital mergers have resulted in expected price increases ranging from 3% to 65%.

With fewer competitors, health care costs rise without a corresponding increase in the quality of care. In fact, consolidation can lead to higher mortality rates and more serious health failures.

Rural communities are particularly vulnerable to the negative impacts of health care mergers because they are more likely to experience larger than average price increases, often in outpatient services. In addition, rural community hospitals are more likely than rural independent hospitals to eliminate key services such as maternal, newborn, and surgical care.

California regulators are already playing a role in helping lower prices. California Office of Health Care Affordability was established in 2022 to reduce hospital costs and promote greater transparency. it should not be deterred when hospitals refuse to lower prices or explain their pricing structure.

We also need to see action at the federal level. During its first term, the Trump administration issued rules designed to increase price transparency and reduce costs. This was a great start, but clearly much more is needed to 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 across the country employing 7 million Californians. But they cannot thrive if health care costs continue to rise. Addressing abusive hospital pricing is essential to keeping California’s small businesses strong and ensuring every worker has access to quality, affordable care.

This article was originally published on CalMatters and is republished under Creative Commons Attribution-NonCommercial-No Derivatives license.