The American Hospital Association has issued a second report to counter claims that acute care prices are rising as a direct result of hospital consolidations, which enhance providers' bargaining clout with payers.
Rather, the AHA says, hospital prices "are directly related to the costs of providing services to patients and their communities, including wages, capital investment, and the level and specialization of services."
Most important, the latest report "should dispel un- or poorly supported claims that differences in hospital prices are attributable automatically to market power," the group said. The report also shows a link between hospitals' efforts to improve care coordination, reduce costs, and lower prices.
Cost reduction was cited as the top priority among hospital finance leaders polled for the HealthLeaders Media Industry Survey 2011.
Titled "Assessment of Cost Trends and Price Differences for U.S. Hospitals," the report was prepared in collaboration with economists Margaret Guerin-Calvert and Guillermo Israilevich with Compass Lexecon.
• Hospital costs represent 30% of the nation's healthcare expenditures.
• More than half of hospital costs are due to the cost of labor.
• Labor costs grew by between 5 to 8% a year from 2002 to 2009.
• 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.
One of the studies, published last year in the journal Health Affairs, was entitled, "Unchecked Provider Clout In California Foreshadows Challenges To Health Reform.
It said, in part, that in California, faced with declining payment rates, hospitals "have implemented various strategies that have strengthened their leverage in negotiating prices with private health plans. When negotiating together, hospitals and physicians enhance their already significant bargaining clout. California's experience is a cautionary tale of national health reform: It suggests that proposals to promote integrated care through models such as accountable care organizations (ACOs) could lead to higher rates for private payers."
The California report suggested that policymakers need to consider price caps and all-payer rate setting, "because antitrust policy has proved ineffective in curbing most provider strategies that capitalize on providers' market power to win higher payments."
The other report,fromthe Office of the Massachusetts Attorney General, concluded in part that "Price variations are correlated to market leverage as measured by the relative market position of the hospital or provider group compared with other hospitals or provider groups within a geographic region or within a group of academic medical centers."
It also found that price increases, not increases in utilization, caused most increases in healthcare costs in that state and higher priced hospitals "are gaining market share at the expense of lower priced hospitals, which are losing volume."
The latest AHA report details the rise in hospital costs due to physician services, home healthcare and pharmaceutical costs, but says labor costs, including salaries and benefits for doctors, nurses, and technicians and other numerous personnel account for a large proportion.