[clinta]

Because very few people pay for their healthcare. Insurance coverage separates the consumer from the cost of the service making little incentives to market on price.

Additionally hospitals and insurance companies both benefit by overcharging. The insurance company gets to negotiate a discount on the bill, then advertise these discounts to employers and individuals when they sell coverage. Hospitals get to write down the difference between the inflated billed price, and the actual paid amount.

One sector of healthcare where market forces have reduced costs are procedures not covered by insurance. Eye surgery and cosmetic surgery.

[saltedonion]

If they don’t compete on price, do they compete on service? Or simply just distribution (which insurance firm they are in network with)

[clinta]

Where they are allowed to compete yes, they will compete on service. But in many places it is illegal for hospitals to compete at all due to Certificate of Need laws. In places with CON laws, if you can't prove that your hospital will not compete with existing providers, you cannot build it.

https://en.wikipedia.org/wiki/Certificate_of_need