While the complexity of medicine may never fully allow pure commodity economics in healthcare services, certain services, such as diagnostic imaging and laboratory tests, do lend themselves toward being shopped for as commodities. In theory, this should make such services more sensitive to price pressure. But that is not what San Francisco healthcare technology firm Castlight Health found when it examined four such services: low-back MRI, head CT, lipid panel and preventive primary care visit.
Commodity competition doesn’t work well in small markets where there may be only one or two choices in provider, so Castlight focused its analysis on what it considered the 30 most populous U.S. cities. (Certain cities that the U.S. Census Bureau considers the most populous were not on the list, including number 10 on the 2013 U.S. Census Bureau list, San Jose.)
The company says it the based its analysis on medical claims data from these cities augmented with publicly available data, provider information and actual provider rate sheets that list the negotiated price between a provider and an insurer. It then applied a proprietary algorithm to determine as actual a provider price as possible for a typical in-network patient.
Medical facilities in big cities do of course have higher operating costs. Medical office space costs more and a higher cost of living means that salaries are higher too. San Francisco, which has the highest cost of living in the United States, also had the highest average cost for a preventive primary care visit. But the degree of variation within individual cities negates the argument that it is all due to local costs of doing business.
For example, Castlight found that the price of a lipid panel in Dallas ranged from $15 to $343, a 23 times difference between the highest and the lowest price. In Philadelphia, a head/brain CT scan could be as low as $264 or as high as $3,271. In New York, a lower back MRI ranged from $416 to $4,527.
The company says it issued the Castlight Health® U.S. Cities Analysis to help dispel the common belief among both patients and employers that if you pick an in-network provider from an employer’s health plan, you will automatically get the best price in your local healthcare market.
“Understanding healthcare costs is a first step in enabling employers to fix what is broken in enterprise healthcare,” said Jennifer Schneider, M.D., vice president of Strategic Analytics for Castlight Health in the press release. “Many Americans believe if they select an ‘in-network’ doctor from their company’s health plan they are assured of paying less, or think that healthcare prices vary across the country but not in their backyard. This analysis dispels both those myths.”