Health insurance companies may be overpaying for routine radiology services, leading to higher costs for patients and providers, according to a new study by Michigan State University (MSU) researchers published in the journal Radiology.
“Many commercial plans leave money on the table when negotiating prices with hospitals, especially for expensive CT and MRI scans,” said study co-author Ge Bai, a former doctoral student at MSU’s Eli Broad College of Business and a current professor of accounting and health policy and management at Johns Hopkins University. “The high prices paid by commercial plans ultimately come back to bite patients and providers through high premiums and out-of-pocket costs.”
Hospitals typically have multiple insurance plans, some of which are operated by the same insurance company. The study found that insurance companies negotiate different prices for the same services within the same hospital and even negotiate different prices across their different health plans.
The researchers examined commercial contract prices (not list prices or fees) from private payers for 13 purchasing radiology services—services that can be scheduled in advance—as determined by the U.S. Centers for Medicare and Medicaid Services. On average, the maximum negotiated price for shoppable radiology services was 3.8 times the minimum negotiated price at the same hospital among different insurance companies and 1.2 times the minimum negotiated price at the same hospital among multiple health plans at the same insurance company.
Services that require expensive equipment, such as CT scans and MRIs, have greater cost variations and higher Medicare prices than other radiology services. The largest price differences were found for CT brain imaging services, where 25% of hospital-insurance company pairs—hospitals and insurance companies that have an established contract together—had set their maximum negotiated price at more than 2.4 times their minimum negotiated price.
The Hospital Price Transparency Final Rule requires U.S. hospitals to disclose price information. Previous research involving price transparency has found widely varying commercially negotiated prices for shoppable radiology services in hospitals.
“With most goods and services, you know the price before you choose to buy. Before the hospital transparency rule was passed, many medical services did not make their pricing publicly available, so patients and payers would only find out after they were billed,” said John (Xuefeng) Jiang, lead author of the study and Eli Broad Professor in accounting at MSU.
“Price transparency has taken the blindfold off commercial payers, forcing them to face the fact that they are often paying too much,” Bai added. “Equipped with pricing information, radiologists can change the landscape of care delivery to benefit patients and payers.”
Increasingly, insurance companies are beginning to negotiate prices based on a percentage of Medicare rates to improve fairness and understandability of pricing. However, the study’s findings suggest that some health plans may have negotiated prices less effectively than others, including those operated by the same insurance company.
The study also found that higher prices (compared to Medicare) for more expensive services imply higher profitability for hospitals. This could potentially motivate hospitals to shift investment from low-cost to high-cost imaging without considering additional clinical value. As a result, such moves can lead to inefficient costs for both patients and payers.
The research suggests that price variations in the commercial market create an opportunity for radiologists to provide high-quality, low-cost care in the outpatient setting to the benefit of patients and commercial payers.
“We hope this research will help patients realize that by maintaining consistent quality, they can research and shop for radiology services they can afford and insurance plans that best suit their needs,” Jiang said. .