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Oct. 20, 2022

MSU research: Health insurance companies overpay for some hospital radiology services

Health insurance companies may be overpaying for common radiology services, leading to higher costs for patients and providers, according to a new study by Michigan State University researchers.

Health insurance companies may be overpaying for common 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 are leaving 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 in MSU's Eli Broad College of Business and current professor of accounting, and health policy and management at Johns Hopkins University. “High prices paid by commercial plans eventually come back to bite patients and providers through high premiums and out-of-pocket costs.”

Hospitals generally contract with multiple 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 across their own various health plans. 

The researchers studied commercial negotiated prices (not list prices or charges) from private payers for the 13 shoppable radiology services — services that can be scheduled in advance — that are designated 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 in the same hospital among various insurance companies and 1.2 times the minimum negotiated price in the same hospital among the same insurance company’s multiple health plans.

Services that require high-cost equipment, such as a CT scanner and MRI, had wider cost variations and higher prices relative to Medicare when compared to other radiology services. The greatest price gaps were found for brain CT services, in which 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 pricing information. Previous research involving price transparency found widely disparate commercial negotiated prices for shoppable radiology services across hospitals.

“With most goods and services, you know the price before you choose to purchase. Prior to the Hospital Transparency Rule’s passing, a lot of medical services didn’t make their pricing publicly available, so patients and payers would only find out after being billed,” said John (Xuefeng) Jiang, lead author of the study and Eli Broad Endowed Professor of accounting at MSU.

“Price transparency took the blindfold off the eyes of commercial payers, forcing them to recognize 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 moving to negotiate prices based on a percentage of Medicare rates to improve pricing fairness and comprehensibility. The study results suggest, however, that some health plans might have negotiated prices less efficiently than others, including those managed by the same insurance company. 

The study also found that higher prices (relative to Medicare) for higher-cost services imply higher hospital profitability. This could potentially motivate hospitals to direct investments away from low-cost to high-cost imaging without regard to incremental clinical value. As a result, such moves may lead to inefficient spending for both patients and payers.

The research suggests that the price variations in the commercial market create an opportunity for radiologists to deliver high-quality, low-cost care in non-hospital settings to benefit patients and commercial payers.

“We hope that this research will help patients realize that, holding quality constant, they can research and shop for radiology services that they can afford and insurance plans that best suit their needs,” Jiang said.

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