AHA: Hospital Pricing Variations Unrelated to M&A Activity

• Medicare patients represent 60% of all hospital admissions, and Medicare has been paying a declining percentage of the cost of care, from 99% in 2000 to 90.1% in 2009. Medicaid paid even less, 94% in 2000 and 89% in 2009.

• Hospital prices are directly related to such costs as those associated with labor and capital and the level and type of care received by the patients treated by the hospital.

• Up to 72% of the differences in non-Medicare prices among hospitals are explained by case mix, regional costs, hospital investments in capital and other improvements, the type of hospital, and other tangible factors.

• The remaining 28% of price differences are linked to the cost of providing higher quality care, including the cost of various state regulatory compliance, various hospital cost-containment strategies or errors and data inconsistencies. "There is no reason to believe that the remaining differences are due to market power."

The two AHA reports refute two studies published last year that concluded higher prices charged by some hospitals are due – to a significant extent – to hospital consolidations and mergers that strengthened hospitals' power to negotiate higher prices with private health plans.