By Kevin Stone, Heartland Insitute

Hospital construction is experiencing a boom as the trend of consolidation of medical facilities continues, particularly in urban centers, even as most markets are experiencing net closures.

An October 27 article in Becker’s Hospital Review, for example, cited 13 hospital construction projects in 2025 worth at least $1 billion each.  IBIS World, in an October report, attributed the construction boom to pent-up demand during the pandemic.

“Contractors who saw a dwindling backlog during this time have enjoyed a resurgence in bidding and a ramping up of both new construction and remodeling jobs, spurred in part by rising hospital occupancy and the lure of federal tax incentives for energy-efficient upgrades,” reports the publication.

Green Upgrades, and More

As an example of the trend, the University of Michigan health care system recently completed a $920 million hospital to replace an older facility. The new facility features all private rooms, which has been an extra expense, Medicare Part A and some private plans do not cover.

“Energy-efficient upgrades” were another reason to replace the older facility.

“Michigan Medicine leaders prioritized environmental sustainability when designing the pavilion, including use of construction materials, water- and energy-efficient infrastructure and other key factors to reduce greenhouse gas emissions and the health care carbon footprint,” stated the news release.

Urban Consolidation

Most of the construction has been taking place in dense urban areas. A February 2025 report by KFF found between 2017 and 2023, rural areas lost a net of 50 hospitals, while a net 13 hospitals closed in urban centers.

Meanwhile, hospital competition in urban areas has been plummeting. The KFF report finds that only one or two health systems controlled the entire market for inpatient hospital care in nearly half of metropolitan areas as of 2023.

ACA Fallout

Obamacare is to blame for the lopsided development, says Eric Novack, M.D., an orthopedic doctor in an independent practice in Arizona.

“ACA was, by design, a law that promoted consolidation,” said Novack. “I, and others, spoke regularly and frequently of the reality that the system structurally made it almost impossible for small hospital groups or solo hospitals – especially rural – to survive, and we were belittled and lambasted by ACA bill supporters and consultants who were shilling for insurers and hospitals. As the distance from point of care to decision maker grows – none of the C suite ever live in the small towns or get affected by service line closures at more urban hospitals – the system serves only to sustain and feed itself.”

It is increasingly getting hard for smaller rural hospitals to compete with highly integrated large urban facilities, says Roger Stark, M.D., a retired physician, author, and policy analyst.

“The issue of rural hospitals is complex,” said Stark.  “In this day and age of specialty medicine, rural hospitals really can’t compete with major medical facilities that have all of the specialties, such as cancer and cardiac treatments.”

Patient Care, Secondary

The subsidized, not-for-profit model is often cited as a primary reason for the growing disconnect between health systems and the citizens they are meant to serve, says Novack.

“Outdated not-for-profit status of the majority of hospital beds in the USA and funding mechanisms, plus use it or lose it (or if you build it, they will come) mentality, plus political clout, are all more important today than actual care,” said Novack.

“Not-for-profit hospital status, once a good thing, has been corrupted beyond recognition like the rest of the tax-deductible entity rules and laws,” said Novack. “It’s a circular self-licking ice cream cone of graft, self-importance, and politics.”

Not-for-Profit, Profits

Novack says there are multiple ways hospital corporations spend money under the banner of charity.

“Hospitals, which are large employers, threaten service cuts and job losses to obtain bonds and permits for huge building projects which they say will serve community needs and offer huge local employment for construction,” said Novack.

“They promise ‘charity care’ but manage the books in such a way as to always deliver less care than tax benefit to feed the endowment and C suite,” said Novack. “They forever nickel-and-dime and cut doctor payments while pleading poverty and regulatory restrictions that they wrote for this exact purpose, resulting in claims of less ‘productivity’ and so claiming need to justify more foreign doctors at lower pay and on visas that make it impossible for them to complain, for fear of being sent home.”

Novack asks, “Are all players in the ecosystem equally bad? Nope- but they all have made a series of compromises to get where they are, and those compromises add up.”

The Myth of Competition

Incentives drive the market, which raises the question of whether there is such a thing as hospital competition, says Stark.

“Hospitals don’t compete in a true free market, but hospitals do compete aggressively for patients,” said Stark. “That is a major reason why hospitals remodel and build new facilities. Image and comfort are important. In a very real sense, the most important area in a large hospital is the OB suite. This is considered the gateway for family-introduction to the facility. The other two important areas are the lobby and the ER. Hence, you see huge fish tanks, grand pianos, and massive furniture in the main waiting rooms.”

Is it smart to support hospital construction if it leads to consolidation?

“Consolidation is really driven by ever-decreasing reimbursements from Medicare, Medicaid, and private insurance while the number of hospital administrators has skyrocketed,” said Stark. “The data is pretty clear now that hospital consolidation decreases competition, may or may not provide more efficiency, and does not decrease a community’s health care costs.

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Kevin Stone (kevin.s.stone@gmail.com) writes from Arlington, Texas.

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