According to a new study by researchers at Michigan State University (MSU) published in the journal Radiology, health insurance companies may overpay for common radiology services, resulting in higher costs for patients and providers.
“Many commercial plans leave money on the table when negotiating prices with hospitals, especially for expensive scanners and MRIs,” said study co-author Ge Bai, a former doctoral student at Eli Broad College of Business at MSU and current Professor of Accounting. and Health Policy and Management at Johns Hopkins University. “The high prices paid by commercial plans eventually come back to bite patients and providers through high premiums and out-of-pocket fees.”
Hospitals usually have several insurance plans, some of which are managed by the same insurance company. The study found that insurance companies negotiated different prices for the same services within the same hospital and even negotiated different prices in their own health plans.
Researchers studied negotiated commercial prices (not list prices or fees) from private payers for the 13 purchasable radiology services — services that can be scheduled in advance — that are designated by the Centers for Medicare and United States Medicaid Services. On average, the maximum negotiated price for purchasable radiology services was 3.8 times the minimum negotiated price at the same hospital among various insurance companies and 1.2 times the minimum negotiated price at the same hospital among multiple health plans from the same insurance company.
Services that require expensive equipment, such as a CT scan and MRI, had greater cost variations and higher prices in Medicare compared to other radiology services. The largest price differentials were found for CT scan services, where 25% of hospital-insurance pairs – hospitals and insurance companies that have a contract together –had set their maximum negotiated price at more than 2.4 times their minimum negotiated price.
The final rule on hospital pricing transparency requires US hospitals to disclose pricing information. Previous research on price transparency has found widely disparate negotiated commercial prices for purchasable radiology services in hospitals.
“With most goods and services, you know the price before you choose to buy. Prior to the adoption of the Hospital Transparency Rule, many medical services did not make their prices publicly available, so patients and payers wouldn’t know until after they were billed,” said John (Xuefeng) Jiang, lead author of the study and Eli Broad Full Professor of Accounting at MSU.
“Price transparency has removed the blindfold from commercial payers, forcing them to recognize the fact that they are often overpaying,” Bai added. “Equipped with pricing information, radiologists can change the landscape of care delivery to the benefit of patients and payers.”
Increasingly, insurance companies are negotiating pricing based on a percentage of Medicare rates to improve pricing fairness and understandability. The study results, however, suggest that some health plans may have negotiated prices less effectively than others, including those run by the same insurance company.
The study also found that higher prices (compared to Medicare) for more expensive services imply higher hospital profitability. This could potentially motivate hospitals to shift investments from low-cost imaging to high-cost imaging without considering the additional clinical value. Therefore, such measures can result in inefficient spending for both patients and payers.
Research suggests that price variations in the commercial market create an opportunity for radiologists to provide high-quality, low-cost care in non-hospital settings for the benefit of patients and commercial payers.
“We hope this research will help patients realize that, with consistent quality, they can find and purchase radiology services they can afford and insurance plans that best meet their needs,” Jiang said. .
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