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April 5, 2005

VIA EDGAR AND FACSIMILE

Mr. Jim B. Rosenberg
Senior
Assistant Chief Accountant
United States Securities
and Exchange Commission
850 Fifth Street, N.W.
Washington, DC 20549

Mail Stop 03-09

RE:
American Healthways, Inc.

Form 10-K for the fiscal year ended August 31, 2004
File No. 0-19364

Dear Mr. Rosenberg:

The following is a response to your
comment letter of March 16, 2005 relating to American Healthways, Inc. (the
“Company”) Form 10-K for the fiscal year ended August 31, 2004.

Management’s
Discussion and Analysis

Critical Accounting
Policies

Revenue Recognition,
pages 22 and 23

          1.

          In regards to the contract settlement process under a contract, please
          consider expanding your  disclosure to include the following:

               a.

               For each period presented, quantify and disclose the changes in estimates of
               prior period  revenue and contractual adjustments that you recorded
               during the current period. For example  for 2004, this amount would
               represent the amount of the difference between estimates of revenue  and
               contractual adjustments for services provided in 2003 and the amount of the new
               estimate or  settlement amount that was recorded during 2004. This should
               include performance-related  adjustments to revenues such as amounts
               recorded as revenue that ultimately needed to be  refunded, adjustments
               to incentive bonuses accrued and data reconciliation differences.

Beginning with the Company’s
Annual Report on Form 10-K for the fiscal year ended August 31, 2005, the Company will
expand its disclosure under its Revenue Recognition section of Critical Accounting
Policies to quantify and disclose the amount of revenue recognized in the current period
that can be attributed to services provided during the prior fiscal year. This amount will
include performance-related adjustments (including any amounts recorded as revenue that
were ultimately refunded), changes in estimates (such as a customer’s medical cost
trend compared to a baseline year or medical claims incurred but not reported), data
reconciliation differences, and adjustments to incentive bonuses.

               b.

               Quantify and disclose the reasonably possible effects that a change in
               estimate of these  unsettled amounts as of the latest balance sheet date
               could have on your financial position and  operations.

Each of our contracts with
performance-based fees contains different contractual targets, and some may require the
use of estimates in the measurement of actual performance. For a majority of our
contracts, we measure performance by using full contractual data sets, which do not
require the use of estimates. Because of the different contractual targets, it is only
possible to quantify the impact of a change in an estimate on a contract by contract
basis. The same change in an estimate could have a significant financial impact on one
contract while having no impact on another contract. Accordingly, it is unlikely that an
investor could draw a meaningful conclusion from a sensitivity analysis of these
estimates.

We propose that a more meaningful
disclosure would be to provide investors with the total amount of performance-based fees
subject to refund as of the latest balance sheet date. In addition, we believe that
separately disclosing the portion of the cumulative balance of all of these unsettled
amounts that is based upon estimates would also provide meaningful information to
investors.  We would propose to include these disclosures in the Revenue Recognition
section of Critical Accounting Policies beginning with the Company’s Annual Report on
Form 10-K for the fiscal year ended August 31, 2005.

Contractual Obligations,
page 30

          2.

          We note that you have not included your interest payments related to
          long-term debt in your contractual  obligations table. It would appear
          that these liabilities represent your future legal obligations. Per  Item
          303(a)(5) of Regulation S-K, please revise your table to include these amounts.

Response to Question 2:

The Company will revise its
contractual obligations table to include estimated interest payments related to long-term
debt in accordance with Item 303(a)(5) of Regulation S-K.

Financial Statements

Note 1, Summary of
Significant Accounting Policies, page 37

Revenue Recognition,
page 38

          3.

          Please tell us supplementally and clarify in the filing why you believe your
          policy for recognizing  revenue for performance-based programs is
          appropriate under Staff Accounting Bulletins 101 and 104. We  note that a
          portion (up to 100%), of the fees may be refundable to the customer and that you
          recognize  revenue based on your performance to date. Please tell us
          specifically if the amounts may be refundable  regardless of your
          performance to date.

Response to Question 3:

The above comment appears similar to
issues raised from an SEC review of our Annual Report on Form 10-K for the fiscal year
ended August 31, 2001. Specifically, we refer you to the issues raised in Comments #5 and
# 6 in the comment letter dated January 31, 2002 and our corresponding response letters
dated March 11, 2002 and March 21, 2002.

The Company believes that its revenue
recognition accounting policy continues to satisfy the requirements of SAB 101 and 104,
Revenue Recognition in Financial Statements, (SAB 101 and 104). Under SAB 101 and
104 there are generally four primary criteria for revenue to be recognized:

•

Persuasive evidence of an
arrangement exists;

•

Services have been rendered;

•

Collectibility is reasonable assured; and

•

The seller’s price is fixed and determinable.

With regard to the first three
criteria, the Company’s arrangements are all contractually based. Revenue is only
recognized once services have been provided and to the extent that collection is
reasonably assured. With regard to the last criterion, the Company receives payment each
month for the entire amount of fees contractually due for that month’s enrollment. As
you noted in your comment a portion of these fees may be refundable to the customer based
on our performance to date. The Company accounts for these performance-based fees in
accordance with SAB 101 and 104 as contemplated by Method 2 of EITF Topic D-96,
Accounting for Management Fees Based on a Formula, (EITF D-96). Consistent with
EITF Topic D-96, the Company’s recognition of performance-based fees is higher in
periods in which targets are being met or exceeded while revenue is lower in periods in
which the specific performance targets are not met. Also consistent with Method 2, the
Company’s revenue recognition methodology does not involve a consideration of future
performance but rather relies only on the calculated fee at the interim measurement date.

Performance-based fees are not
refundable for any reason other than our contract performance to date. The Company’s
contracts containing performance-based fees include specific termination provisions, and
none of the Company’s contracts provide for refunds in the event of an early contract
termination. A termination “at will” of a contract by a customer would result in
the Company retaining all fees earned to that point.

The Company will update its
disclosure in its Summary of Critical Accounting Policies for Revenue Recognition to
specifically state that performance-based fees are not refundable for any reason other
than contract to date performance.

Note 14, Segment
Disclosures, page 49

          4.

          Please tell us why you believe disclosures in SFAS 131 are not required.
          Please address paragraphs 10  and 17 in your response and specifically
          tell us what information your chief operating decision maker  receives.
          Also, please tell us why you believe information required by paragraph 37 of
          SFAS 131 is not  required.

Response to Question 4:

The Company has a single operating
segment, its care enhancement services. Since care enhancement services are the only
component of the Company whose operating results are regularly reviewed by the
Company’s chief operating decision maker and for which discrete financial information
is available, it is the Company’s only operating segment as defined by paragraph 10
of SFAS 131.

The chief operating decision maker
receives and regularly reviews:

•

Consolidated financial information;

•

Total revenues by customer contract;

•

Direct costs by care enhancement center (care enhancement centers are the company’s
nurse-staffed call centers which typically support multiple customer contracts);

•

Indirect costs by overhead department.

Because the Company has only a single
operating segment, the aggregation criteria of paragraph 17 of SFAS 131 are not
applicable. In addition, because care enhancement services are the only service provided
by the Company to external customers, the Company reports its revenues from external
customers on a consolidated basis.

The Company acknowledges
that:

•

the Company is responsible for the adequacy and accuracy of the disclosure in its filings;

•

staff comments or changes to disclosure in response to staff comments in its filings reviewed by the
staff do not foreclose the Commission from taking any action with respect to such filing; and

•

the Company may not assert staff comments as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the United States.

If you have any questions concerning
our responses to your questions and comments, please do not hesitate to contact our Chief
Financial Officer, Mary A. Chaput, at (615) 665–1122 or by facsimile at (615)
665–7739.

Sincerely yours,

/s/ Ben R. Leedle, Jr.

Ben R. Leedle, Jr.
Chief
Executive Officer

cc:
Mary Mast (via facsimile)

James H. Cheek, III
Cynthia Y. Reisz