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Price Disparities Common In Health Care System
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Price Disparities Common In Health Care System

Economy

Price Disparities Common In Health Care System

Price Disparities Common In Health Care System
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Prices for identical goods and services are usually the same or very close at competing businesses. That's not the case when it comes to health care — not by a long shot. For example, in Pensacola, Fla., there are huge price disparities for MRI tests. It's not a matter of greed or poor decision-making by MRI providers or a lack of consumer awareness. For better or worse, it's the way our insurance-based health care system works.

MELISSA BLOCK, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.

MICHELE NORRIS, host:

And I'm Michele Norris.

Our Planet Money Team has been reporting on the strange economics of our health care system. And today, we have a story about a basic economic rule. Here's the catch: When it comes to health care, that rule doesn't seem to apply.

NPR's David Kestenbaum and Chana Joffe-Walt explain.

CHANA JOFFE-WALT: This rule, it is so much a part of our daily lives, we don't really think about it.

DAVID KESTENBAUM: And the rule is that if you've got two identical things - one in one store, one in another - they should cost about the same.

JOFFE-WALT: In fact, let's test it.

David, you go to one grocery store. I'm going to go to another two blocks away, and we can compare prices.

KESTENBAUM: Okay, break.

JOFFE-WALT: So, David, are you there?

KESTENBAUM: Yeah.

JOFFE-WALT: Okay, I'm in the soup aisle.

KESTENBAUM: SpaghettiOs Original.

(Soundbite of laughter)

JOFFE-WALT: Okay, SpaghettiOs Original: Full serving of vegetable, $1.09.

KESTENBAUM: All right. My Campbell SpaghettiOs Original: $1 even.

JOFFE-WALT: $1 even?

KESTENBAUM: Yours is how much?

JOFFE-WALT: $1.09.

KESTENBAUM: Yeah, pretty close.

JOFFE-WALT: We did this for a long time: Cheerios, M&Ms, laundry detergent, all generally the same price.

KESTENBAUM: And this is how a market is supposed to work: If one store can do it cheaper, if one store runs better, smarter - it wins, and all of us customers benefit.

JOFFE-WALT: Which is what makes our next stop really confusing: we're in Pensacola, Florida hanging out with this guy Brad Myers. Brad used to work for a big health insurance company down here. He was a numbers guy, and he tells us every single day, he would see this basic rule completely violated.

KESTENBAUM: Prices that were all over the place. Patients don't notice because they're covered by insurance but not everyone has insurance, so he's been putting together a Web site that compares prices for all kinds of procedures. It's called newhealthchoice.com. [POST-BROADCAST CORRECTION: The correct Web site is newchoicehealth.com.]

We asked about MRI prices, and he took out a map of Pensacola.

Mr. BRAD MYERS (Founder, New Choice Health, Inc.): At example, an MRI of the shoulder, go to Davis Highway and get the MRI at this Pensacola Open MRI Center for $400 to $450. Or you could take a right on Bayou Boulevard and go to Sacred Heart and have it done for twice that 800 to 850.

JOFFE-WALT: For double the amount.

Mr. MYERS: Double the amount.

JOFFE-WALT: And these two places are down the street from each other?

Mr. MYERS: Within a mile.

JOFFE-WALT: So we went to visit that hospital, Sacred Heart, to figure out how this was possible, and we talked with Mike Smith, their vice president, who deals with all the prices and negotiates with insurance companies. And he says, yes, we charge a lot. Actually, it's more than that. It's about $900. And sure, that is probably more than the outpatient place down the street.

KESTENBAUM: Then he says this thing that may sound a little weird. That $900, that's not the cost of doing the MRI plus some profit margin. Actually that $900, that's basically a made-up number.

Mr. MIKE SMITH (Vice President, Sacred Heart Hospital): The cost of that MRI is not going to be reflected anywhere on that bill. That's not part of what you see. That's not part of what we bill.

KESTENBAUM: Hospitals, it turns out, don't negotiate prices with insurance companies for each and everything they do. They negotiate everything altogether in one huge bundle.

JOFFE-WALT: And everything they do is a lot. This place, Sacred Heart, is huge. They have all kinds of fancy equipment that costs a lot. Maybe it's not in use all the time but it's here. We all want the hospital to exist. If I get hit by a car, 3 a.m. tonight, I want the emergency room to be there.

KESTENBAUM: And that 24-hour emergency room, the hospital has to treat everyone who shows up, whether they can pay or not.

Mr. SMITH: That's usually five, six percent, you know, of our bills are uncompensated care.

JOFFE-WALT: So, but does that means that you're giving them - you're giving that totally for free?

Mr. SMITH: You know, there are situations where it is fully uncompensated.

KESTENBAUM: You an MBA? Did you go to business school?

Mr. SMITH: I did.

KESTENBAUM: Did they teach you about this business model where you give away stuff for less than it cost?

Mr. SMITH: In the program that I went, in my graduate program, they did.

JOFFE-WALT: Does it seem weird to you? I mean that's weird. It is a business. I mean, this is a business, right?

Mr. SMITH: There are definitely times where it's crazy. It's a unique business. You know, and I can only speak for Sacred Heart. We're in it for, you know, to make a margin. But we're also in it to take care of the community.

JOFFE-WALT: Have you ever gotten a bill where you were charged 50 bucks for a bandage kit or something weird like that, or $10 for an aspirin? This is why. Of course, it doesn't cost the hospital $10 for aspirin. But it cost hospitals millions to stay open all the time, to run an emergency room, to cover people who don't pay. So your $10 aspirin�

KESTENBAUM: Or your $900 MRI�

JOFFE-WALT: �is paying for that.

KESTENBAUM: Mike Smith does warn people to be careful when shopping around. He says not all MRIs are created equal.

JOFFE-WALT: So we get in the car again and we go to the cheaper place. Less than a mile down the road is the Imaging Center of Pensacola. It's run by Sherrin and John Sowers, they're a couple. And they say, yeah, not all MRIs are created equal. Ours are better. John Sowers says they have a higher resolution machine than the hospital; a three tesla as opposed to a 1.5 tesla.

Mr. JOHN SOWERS (Co-Owner, The Imaging Center of Pensacola Inc.): For most body exams, but not all the three tesla is preferable, to the shoulder, certainly you would go to the three tesla.

KESTENBAUM: So I would be paying half the price and you'll be putting me in a much fancier, more high resolution machine?

Mr. SOWERS: That's correct. That's correct.

KESTENBAUM: That's sort of amazing.

Mr. SOWERS: Well, that's the way it works.

Ms. SHERRIN SOWERS (Co-Owner, The Imaging Center of Pensacola Inc.): Hmm. One of the best kept secrets in town.

(Soundbite of laughter)

JOFFE-WALT: David, if you think back to the grocery store, if my store's Campbell Soup was twice as much as the soup at your store, my store would go out of business. But health care is different; we don't want our hospitals to go out of business.

KESTENBAUM: But there is a strong economic reason for wanting hospitals to have a real list of prices. Because in a normal marketplace, prices aren't just numbers, they carry information. They're how we tell which places are operating like well-oiled machines, delivering good products at the lowest possible price. Hospitals argue that when you look at all of the care they provide as a whole, that's exactly what they're doing.

JOFFE-WALT: But when you don't have individual prices or if you have price tags that don't mean anything, it gets very hard to tell.

I'm Chana Joffe-Walt.

KESTENBAUM: And I'm David Kestenbaum, NPR News.

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