Last week I had to get an MRI. Considering that my greatest fear is being trapped alone with my own thoughts, it was a tough 35 minutes for me.
But being in the tube gave me a lot of time to think about supply, demand, and markets. MRIs are a great way to understand the healthcare system. The scan itself is basically a commodity that you plan in advance. In theory, it’s a fantastic place to price shop, which is the prevailing theory behind high deductible health plans.
Turns out this doesn’t happen! A new paper out of the National Bureau of Economic Research suggest that not only do patients go wherever their physicians tell them, but they’ll also DRIVE BY 6 cheaper options on the way to do it.
Understandably, doctors will send patients to the hospital’s own MRI if it exists. It’s way more convenient for all parties if it’s right there (and if you totally ignore price)! The issue is that hospitals charge much much more for the scan (by 2X when you compare the averages), and most physicians aren’t aware of the price of goods or services when they order them
A compounding part of this is the fact that it’s also hard to set up a new competing service. There are regulatory barriers to entry like certificate-of-need (CON) laws in many states. These laws were set up to prevent hospitals from unnecessarily creating too much supply and passing the bill onto payers/consumers if the demand wasn’t high enough.
This makes MRIs an interesting case study. The free market principles that were supposed to bring down prices apparently don’t work since people effectively outsource the decision making process to a third party, and the regulatory aspects that were supposed to prevent hospitals from gaming the system ended up helping them do just that.
Also my MRI was clean, thanks for asking.
Insurance -> Assurance
There is an entity that knows the price discrepancy of healthcare commodity services and has a financial incentive to get you to go to the cheapest option: your health insurance carrier.
Thing is…most people don’t want to interact with their insurer. I can count on 0 hands the number of good customer experiences I’ve had with my carrier. So it’s probably not shocking that 0.74% of all patients in the study that got an MRI used the insurer’s price shopping tool beforehand.
I’m sure YOU’VE used your insurers price shopping tool though, right?
This is a great example where poor brand/customer experience directly impacts an insurer’s bottom line. Patients are relying entirely on their doctor to tell them what they should do, where they should get their tests, etc. even if it’s not the most cost effective choice. If insurers could more reliably get patients to check in with them and trust them, they might actually be able to decrease utilization or guide patients to better quality/cost options. This has been Oscar’s bet for a while (as we wrote about).
Insurers aren’t ignoring this completely, there’s one population that they’ve focused on this intently: Medicare. The cost per patient is astronomically high and customer experience actually matters (thanks to Star Ratings), so insurers are investing heavily to become the concierge for enrollees in their Medicare Advantage Plans.
For expert intelligence clients, we looked at other themes about where insurers are investing. See the brief here.