Here's the standard dogma. Some hospitals charge much more than others in a city for similar services because we have a market economy, they are allowed to set their charges at whatever level they like, and most patients don't foot the bill themselves so don't seek the lowest cost provider. I came across an interesting article on the topic of hospital billings in Oregon (see: Why some Oregon hospitals charge three times more than others). It's chock-full of interesting tidbits so take a look at the excerpt below:
When Oregon began disclosing details of hospital billing three years ago, officials hoped to spur competition that would hold back costs and reduce the huge variations in rates from hospital to hospital. The latest data from 2009 suggest that little has changed. Hospitals with the most clout command payments two to three times higher than the lowest-priced hospitals. And hospital costs overall continue to soar....Until recently, the only publicly available costs on hospital charges in Oregon were more like sticker prices with little connection to the discounted rates negotiated by insurers and employer groups. In a given year, U.S. hospitals collect only about 40 percent of their "charges" from patients or insurers. The Oregon Health Authority's online price comparison tool allows consumers to compare actual payments made to hospitals by the nine largest commercial health insurers....Hospital executives cite a variety of reasons for steep inflation, and wide variation, in prices. Hospitals have varying overhead. Some are more efficient or better at managing expenses. The payment data suggest that lack of competition explains much of the difference in prices. Cities with one hospital tend to have higher prices. St. Charles Medical Center in Bend, for example, stands out as one of the costliest in the state. In Portland, where numerous hospitals compete, payments are consistently lower than the state average. Among Portland hospitals, multihospital systems such as Providence tend to command higher payments than smaller competitors such as Adventist Medical Center or Tuality Health Care...."I don't have the same negotiating power as the Providence health system when I sit across the table from Regence BlueCross BlueShield," said Tuality's Fleischmann. Providence operates hospitals in Hood River, Medford, Seaside, and five in the Portland area. "If you are an insurer you've got to have a contract with them," he said.
Certainly most insiders understand that any hospital's posted "charges" are a fiction, largely irrelevant, and only paid by the unfortunate self-insured who may have some resources (see: Why the Prices Charged by Hospital for Inpatient Care Are Irrelevant). Insurance companies and employer groups negotiate steep discounts for patients admitted to the hospital and are covered by their insurance. Understanding that they will be reimbursed only a fraction of their posted charges, hospitals keep increasing them in order to cover their true costs, which are far less. Note the reference above to discounts to insurance companies amounting to about 60 per cent. Also note the effect of competition on hospital charges with consistently lower prices in the largest city in Portland. Obviously, large and prestigious hospital systems have more negotiating power with the insurance companies (see: Health Systems Use Their Regional Dominance to Muscle Insurance Companies). The good news here is that the posting of hospital charges such as Oregon's Compare Hospital Costs provides some degree of transparency to the system and leads to articles such as the one cited above.