Why Paragon Gets Hospitals Wrong: Report Ignores Reality of Care Delivery

In think‑tank reports, like the one released this week by Paragon Health Institute, hospitals are often reduced to abstractions — payment rates, charts, aggregate margins and trend lines that fit into policy frameworks. In communities across the country, hospitals are something far less theoretical. They are emergency departments that must remain open 24/7. They are labor and delivery units providing critical care to moms and newborns. And they are doctors, nurses and other caregivers always there, ready to care for an emergency and something no model can predict.

The latest report from Paragon, which has targeted hospitals, relies on a long list of distorted and debunked arguments. Further, many of their recommendations would lead to reduced or closed hospital services, decreased access to care, and poorer health outcomes for patients and communities.

The following are just four ways that the report draws faulty policy conclusions from abstractions divorced from the realities of care delivery.

1. Paragon Misdiagnoses the Cost Problem and Prescribes the Wrong Fix.

Paragon treats hospital cost growth as a pricing problem disconnected from the reality hospitals operate in. In practice, hospital spending pressures are driven by input costs and care intensity. Workforce shortages, rising drug prices, supply inflation, regulatory compliance, and the need to care for patients who are older, sicker and more clinically complex explain today’s cost pressures far better than the report’s abstract theory of “falling demand.” Even the actuaries at the Centers for Medicare & Medicaid Services (CMS) acknowledged this in their most recent National Health Expenditure report when they said “non‑price factors are the driver” of increases in health spending.

To give a more specific example of the Paragon report not understanding this cost reality, they make the outrageous claim that the doctors, nurses and other clinical staff who work in our nation’s hospitals are becoming inefficient and ineffective by citing abstract productivity numbers. This reflects a basic misunderstanding of how hospital care has evolved and does disservice to the invaluable clinical professionals delivering it. Even the Bureau of Labor Statistics, where the data point comes from, acknowledges that the productivity metric does not capture outcomes or quality of care, and is confounded by the shift toward treating increasingly complex, high-acuity patients.

2. Government Payments Are Not “Subsidies;” They Reimburse Hospitals Below the Cost of Care for Essential Services.

Paragon repeatedly labels Medicare and Medicaid payments as “benefits” or “subsidies,” ignoring a basic and critical reality: These programs routinely pay below the cost of care. More than half of hospital spending is tied to patients whose coverage does not reimburse the full cost of services delivered.The report’s emphasis on Medicare “marginal profit” is particularly misleading. That metric deliberately strips out fixed costs (buildings, standby staffing, trauma capacity, and 24/7 readiness — all absolutely fundamental to providing care) and asks only whether payment exceeds the variable cost of one additional patient. It assumes hospitals operate like factories deciding whether to produce one more unit. They do not. Hospitals care for all patients, regardless of insurance status or ability to pay. The Medicare Payment Advisory Commission (MedPAC), which advises Congress, itself limits marginal profit analysis to hospitals with “excess capacity” and explicitly states it is not a measure of payment adequacy. The appropriate measure is the Medicare fee‑for‑service operating margin, which MedPAC reports at negative 12% percent in 2024. Ignoring that fact does not make it disappear.

3. The Report’s Cross‑Sector Comparisons Are Deeply Misleading.

Comparing hospitals to cars, TVs, or clothing may look clever in a chart, but it tells policymakers nothing meaningful. These comparisons do not capture the cost trajectory of labor‑intensive clinical care delivered to critically ill patients under extensive federal and state obligations. Airlines and hotels provide no better analogy. They can cancel routes, shrink capacity, raise prices based on demand, and turn away unprofitable customers. Hospitals cannot. They are committed to treating all patients regardless of ability to pay, maintaining standby capacity at all hours and continually innovating to provide cutting-edge treatment.

4. The Report Gets Rural Health Care Wrong and Communities Pay the Price.

The report’s treatment of consolidation and rural hospitals reflects a fundamental misunderstanding of both how health systems sustain care in underserved communities and the structural challenges rural hospitals face. The report dismisses rural access concerns as “lobbying rhetoric,” ignoring real evidence from the past decade. Since 2010, more than 150 rural hospitals have closed, leading to longer emergency transport times, delayed treatment for time sensitive conditions like stroke and trauma, and higher mortality rates in affected communities. Rural hospitals operate in a distinct and difficult environment — low patient volumes, high fixed costs, workforce shortages, challenging payer mix, and little leverage with commercial insurers. These challenges cannot be solved through “efficiency” alone. The appropriate policy response is targeted support, not the broad elimination of rural focused payments this report recommends. The report also mischaracterizes consolidation as inherently harmful in rural settings. In reality, system affiliation is often what keeps rural hospitals open. Health systems provide access to capital, clinical backup, cybersecurity and compliance infrastructure, and administrative scale that small standalone facilities cannot sustain on their own. For many rural communities, affiliation is not a loss of competition — it is the difference between having a hospital and having none.

It is clear from this report that Paragon isn’t focusing on the real issues facing hospitals, health systems and clinicians on the front lines of providing care each day, especially when they can curate their arguments to respond to strawman positions that don’t reflect the reality that hospitals and communities face. We will continue to set the record straight.

At the same time, America’s hospitals and health systems understand the importance of making sure high quality care is affordable and accessible. They have long been leaders in advancing meaningful solutions to complex health care challenges, including the issue of affordability. We also know that to truly make care affordable for Americans, all stakeholders, including government, commercial health insurers, drug companies, providers and patients, must work together. We are committed to doing that.