Garrett Hardin popularized the idea of a tragedy of the commons in a 1968 Science essay carrying that title.[1]
It describes a situation in which individuals with unlimited access to a public resource act in their own self-interest and ultimately deplete it.
Hardin used grazing on a public pasture to make his point. Imagine a village green — a common — open to all farmers for grazing their herds. Acting rationally, each farmer keeps adding to their herd until the pasture is overgrazed and ruined. The grass dies. Everyone loses, hence the tragedy.[2]
In the U.S. healthcare system, the commons is American healthcare dollars. The “farmers” in Hardin’s example are all stakeholders in the health system — hospitals, physicians, payers, employers, pharma, device manufacturers and government — and they act rationally and in their own self-interest to expand their profits and/or maintain financial sustainability.
This healthcare tragedy is happening now. Affordability and access (scarcity) for hospital and physician services are approaching crisis levels, especially in rural markets.
CMS actuaries estimated that from 2014 to 2023, national health expenditures increased by almost 77%. Medicare and Medicaid cost the federal government about $1.8 trillion, representing over 26% of total federal spending and being a primary contributor to the federal debt.
At some point, there will not be enough healthcare dollars to sustain each party’s
revenue levels, and everyone loses.
Prepare for rate controls
Few believe that health insurers, health systems, pharma and others will voluntarily collaborate and sacrifice profitability to slow the rate of increase in national healthcare expenditures. Thus, any solution will likely be a combination of regulations, enforcement shortages and new technologies — all subject to intense lobbying by these stakeholders to seek to dilute, block or delay.
A small but growing group of states are moving toward imposing caps or limits, often tied to Medicare rates. In 2017, Oregon passed legislation that enabled the state’s public employee health benefits plan to set payments for all hospital services at 200% of Medicare. Similar legislation has been proposed in other states.
In a recent report, Becky Hultberg, president of the Hospital Association of Oregon, said these price controls will result in “a cascade of service closures, hospital consolidations, or hospital closures.”[3] In 2024, its fifth year, about half of Oregon’s hospitals were losing money.
“More than two-thirds report lacking sufficient resources to sustain essential patient services, and 70% are struggling to make ends meet,” the report states.
Oregon’s experience reinforces a key conclusion of the Senate Republicans’ Joint Economic Committee: “Price controls can lower prices for some consumers yet also cause shortages (that) lead to arbitrary rationing and, over time, reduce product innovation and quality.”[4]
For example, Medicaid is a rate-regulated program notorious for its woefully inadequate fee schedule, as demonstrated in a study in Health Affairs in which 25% of primary care physicians provided 86% of the care.[5] In other words, Medicaid’s rates have created a scarcity and access problem — a predictable outcome of the tragedy of the commons.
Health systems are not immune
Health systems are aggregators of clinical knowledge and capital that deliver a broad range of treatments to patients. The essential clinical expertise includes hospital-based physicians, primary care providers, specialists, nurses and techs, most of whom are in short supply and high demand. These physicians and health system workers, acting rationally, are demanding higher pay and more expensive benefits, regardless of the impact on the organization’s cost structure.
Tactical steps for hospitals
According to economic-behavioral theory and human nature, change is unlikely if there are strong financial incentives to stick with the status quo. If individual incentives remain unchanged, organizations and personnel will continue to pursue their own self-interests at the expense of the ever-expanding healthcare dollar. That behavior will likely lead to price controls and possibly the implementation of site-neutral payments for outpatient services.
Health systems must develop scenario plans for the highly probable use of price controls, including closing service lines and using technology to reduce their workforce.[6]
The following are recommended strategies to prepare for the inevitable tragedy:
- Rationalize assets based on realistic expectations and no heroic assumptions or confirmation bias.
- Focus on the basics: Seek smart growth (such as adding ambulatory surgery centers), and improve access, emergent care, productivity, revenue cycle management and efficiency.
- Divest non-core services and programs.
- Negotiate fair rates and terms, and dispute excessive downcoding and denials.
- Plan to deliver much more with much less using new care models.
- Actively manage performance of professional and vendor contracts.
[1]. Hardin, G., “The Tragedy of the Commons,” Science,
Dec. 13, 1968.
[2]. The National Academies Keck Futures Initiative, Collective Behavior: From Cells to Societies: Interdisciplinary Research Team Summaries 2015, report, June 25, 2015.
[3]. Hospital Association of Oregon, Oregon Hospitals on the Brink, report, April 25, 2025.
[4]. Joint Economic Committee Republicans, The Economics of Price Controls, report, Sept. 27, 2022.
[5]. Ludomirsky, A.B., et al., “In Medicaid managed care networks, care is highly concentrated among a small percentage of physicians,” Health Affairs, May 2, 2022.
[6]. American Hospital Association, The Cost of Caring: Challenges Facing America’s Hospitals as They Care for Patients in 2026, report, March 2026.
