Who Determines the Price of an MRI?

June 21, 2016

Who Determines the Price of an MRI? NRCgov / Flickr / CC BY

People are a bit crazy. But when it comes to healthcare, we all rely on the idea that everyone is behaving rationally. We certainly hope that's true considering it’s one of the most important industries in the country. But in fact, there’s a large group of people behaving quite irrationally in American healthcare and no, it’s not the healthcare workers.

It’s the patients.

“Not me!” you’re probably saying. But ask yourself, the last time you had a medical procedure performed, did you shop around and compare prices? The answer is most likely no. Now think of the last time you bought a TV, smartphone, or pair of shoes. You probably spent some time searching to compare quality and price.

So what makes healthcare so different?

Why Do We Pay 100% More for a Worse MRI?

It’s a fair question. The NPR Podcast Planet Money asked that very question. What they found was quite shocking. One example in Pensacola Florida found it cost $800 outright for an MRI at one facility. But half a mile away it was $400.

Okay, but the more expensive place probably had a better machine right? Nope, just the opposite, the less expensive facility had better equipment. Did one receive better MRI training? Not that either. Both had the same qualifications.

Someone Else’s Money

Why Do We Pay 100% More for a Worse MRI? kenteegardin / Flickr / CC BY-SA

So why aren’t consumers all flocking to the cheaper and higher quality option? One reason is the “someone else’s money” phenomenon. Most people getting an MRI have insurance.

That means not only are they not paying out of pocket for the procedure, but they may not even be aware of how much it costs.

Frankly, from medical assistants to the MRI technologists themselves, few people seemed to know how much the procedure cost.

So why spend the effort to shop around just to save your insurance company money?

Most people simply don’t see the reason for it. They certainly do see a reason to focus on quality however. But here the situation is similar. It’s difficult to get reliable information about the equipment used, the qualifications of staff, the satisfaction of patients, or success rates for procedures. There’s very little transparency all the way through the process.

Why Is an MRI Different Than a Pair of Shoes?

The answer here really comes down to consumer mentality. In the US, we’ve chosen a more market driven medical system relative to other postindustrial countries around the world.

Yet, when it comes down to it, we really don’t like thinking about healthcare in pure capitalistic terms. We want to know that we’re getting quality healthcare. Thinking too much about the price feels strange. And it’s not just us.

Many hospitals are operated as nonprofits (often catholic or charity hospitals), and as Jonathan Bush put it in his book Where Does It Hurt? "Profit is a dirty word among the corduroy-elbow crowd in the research hospitals and foundations."

Nobody wants to hear that you learned how to become an MRI tech or phlebotomist for the paycheck.

The Copay Effect

Why Is an MRI Different Than a Pair of Shoes? NTNUmedicine / Flickr / CC BY-NC

Ultimately, copays tend to even out those costs. A check up could cost $150 or $300, but your copay will still be the same. The irony, however, is that the costs still come back to you, the consumer. Because your insurance company isn’t a black hole, their rates are based in large part on what they have to pay out. So those added costs will come back around.

Many business leaders in healthcare like Bush see this strange mixture of capitalism, socialism, and philanthropy as being at the core of that simple question: why are medical procedure costs so wildly different between facilities? Other markets, like those for shoes for instance, just don’t work this way.

One Company’s Solution

One company called SmartShopper, profiled in the Planet Money episode mentioned above, took a novel approach to this problem. They partner with insurance companies to pay consumers to go to the less expensive place for their procedures. By pay, we mean a physical check for anywhere from $25 to $500 for a single visit.

It seems crazy, but the company believes that everyone involved can benefit from this process. The insurance companies save enormous amounts of money by getting their customers to shop around, customers get paid for their medical procedures, and they believe the entire process will push down healthcare costs.

However, there’s also plenty of skepticism out there about that idea.

The Limits of Shopping Around

The Limits of Shopping Around

A major study by the Health Care Cost Institute (HCCI) found that even shoppers who understand the system and go out of their way to find lower costs, like those empowered by SmartShopper’s system, don’t have much of an effect on overall healthcare costs. Why though? It came down to the basic cost breakdown of the healthcare industry.

The problem was that out of pocket costs for “shoppable” healthcare, the kinds of smaller procedures covered by the SmartShopper system account for just 7% of overall healthcare spending for privately insured patients. So even if you can bring down costs by 10% across the board, that only translates into an overall decline of 0.7%.

Ultimately, small savings on a lot of small routine procedures don’t add up to much when a single organ transplant can cost over $1 million. There’s undoubtedly room for savings and improvements here, but it’s not going to change the game entirely. But Yevgeniy Feyman, a Forbes contributor, sees more opportunities than HCCI.

Reasons for Optimism

In his recent article on the potential of patients shopping for their healthcare, Feyman references the HCCI study by pointing out that copays make understanding their data more difficult. Because, in the end we don’t really know how much of the healthcare spending on “shoppable” procedures has the potential to come from the consumer’s own pocket.

That makes it more difficult to really understand the impact on consumers. Feyman concludes that the HCCI study isn’t a reason to despair. It also points out a real opportunity for insurance companies to reassess how they incentivize shopping around. Even if cost savings doesn’t directly affect patients, the overall cost savings can still come back to them through their insurance companies. There’s potential for a virtuous circle here.

It Comes Down to Transparency

It Comes Down to Transparency pennstatenews / Flickr / CC BY-NC-ND

When you break all of this information down, what comes out is that the US healthcare system is in dire need of more transparency. The difficulty of even finding out how much various medical procedures cost for the average consumer is prohibitive.

Today, the hope is that greater digitization of health records and all other aspects of hospital administration will help with that. With more data becoming more easily accessible, it becomes easier to determine and share pricing information.

Accompanying those changes is going to have to be a shift in consumers’ mindsets. All the transparency in the world doesn’t help much if consumers aren’t interested in using it to find lower prices. The SmartShopper model of acting as an intermediary and doing this for consumers clearly offers some promise, but ideally other systems will begin to emerge to compete with it.

So What Does Determine the Cost of an MRI?

Coming back to the original question, why on earth could one MRI cost so much more than another? It comes down to individual hospitals and clinics. The major difference is overhead. A large hospital has more overhead than a small clinic.

Each facility will decide which procedures are best for obtaining higher margins to help cover that overhead. They may decide that an MRI should be cheaper, but an expensive surgery is a good place to charge extra to cover costs.

What has remained constant throughout all of these changes to the US healthcare system has been the great job opportunities it offers to millions of Americans. Unlike the wild inconsistencies that exist in pricing for medical procedures, allied healthcare workers receive stable salaries with lots of growth potential.

So for those of you who are interested in working in the healthcare industry, a great option to consider is an MRI Technologist training program.