AHA: Hospital costs rise 5% in last decade

Factors such as labor expenditures, shortfalls in reimbursement and health IT related costs are major drivers in hospital price increases over the past decade. Hospital costs have increased by almost 5 percent per year from 2000 to 2009, according to a report published this month that was sponsored by the American Hospital Association (AHA).

The report—"Assessment of Cost Trends and Price Differences for U.S. Hospitals"—used existing literature to help examine the cost and price differences among hospitals.

National health expenditures within the realm of hospital care accounted for more than 30 percent or $759 billion of the total $2,486 billion of national healthcare expenditures over the last decade. Labor costs accounted for more than half of hospitals' total costs, and these costs rose between 5 to 8 percent annually from 2002 to 2009. Prescription drug spending accounted for 10.1 percent of the nation’s total expenditures and was reported to be $249.9 billion in 2009.

The authors expect healthcare expenditures to increase 80 percent between 2009 and 2019.

The report also showed that the increasing number of patients covered by Medicare and Medicaid—more than 60 percent of all admissions—is presenting an issue for hospitals. This could be due to the fact that neither program pays the full cost of care—Medicare paid 90.1 percent and Medicaid paid 89 percent in 2009. The coverage in 2000 was 99.1 percent and 94.5 percent, respectively.

Six percent of hospital expenses originated from uncompensated care—free or reduced cost care for patients who need financial assistance, according to AHA.

During the analysis, the researchers found variations in hospital prices and costs; 72 percent of the differences in non-Medicare prices could be due to case mix, regional costs, hospital investments in capital and other improvements, types of hospital and other factors, the authors wrote. These factors accounted for 83 percent of differences across hospitals in all-payor prices.

In an accompanying letter sent to the Department of Justice and Federal Trade Commission, AHA wrote that the report “casts serious doubt on claims of market power based simply on differences in prices.

“In this regard, it is entirely in agreement with recent work by the Federal Trade Commission’s Bureau of Economics concluding that different price levels in hospital markets are ‘neither necessary, nor sufficient, to demonstrate the exercise of market power.’”

The authors concluded: "Together, the studies lend support for the important role hospitals can play in fostering care coordination as a practical means to reduce cost and lower prices."

The study was produced by Margaret E. Guerin-Calvert, vice chairman and senior management director at AHA and Gruillermo Israilevich, AHA vice president.