Smart Choice MRI and ThedaCare announced this month that the Appleton-based health system is investing $3 million in the Mequon-based stand-alone MRI provider. In the announcement, ThedaCare’s senior vice president of Systems of Care Support, Keith Livingston, described the partnership as a collaboration with a competitor that is “consistent with our need to learn how to better meet consumers’ needs in the evolving retail health marketplace.” Livingston also told the Milwaukee Journal Sentinel that “[h]ealth care needs to change,” and “[i]t’s our job to make health care more affordable.”
It can’t be denied that Smart Choice MRI’s $600 per scan price tag is lower than what a patient will be billed in a hospital setting, and that this model has the potential to disrupt and compete with ThedaCare and other health systems to push down prices. What is less convincing is the idea that expanding retail medicine into higher margin services is truly the type of change that is needed to reduce overall health care costs. Having more MRI scanners in use (whether at hospitals or retail locations) can lead to an unnecessary duplication of equipment and added fixed costs that are ultimately paid by consumers. And there are limits, of course, to the number of hospital services that can be delivered more cost-effectively in a retail setting without compromising quality of care and safety.
Simply because a patient is able to purchase a service at a lower unit cost does not mean that the patient’s total costs, much less global health costs, will be reduced. Unlike Smart Choice’s single service model, hospitals are designed, staffed, and managed to address a wide range of health conditions. Prices for hospital services are based not only on the true cost to deliver a given service, but also other factors such as anticipated volume, patient payer mix, and expenses like uncompensated care.
Hospitals will no doubt find a way to adjust to Smart Choice MRI’s business model, just as they adapted to new competition from ambulatory surgical centers and other providers who deliver traditional hospital services more conveniently and at lower prices. Any hospital that sees its revenue drop because it is performing fewer well-paying diagnostic scans can be expected to make up that lost revenue elsewhere. Hospitals will meet the demands of the marketplace and reprice MRIs and other services when they update their chargemaster and renegotiate carrier contracts. New competition may drive down the price of a hospital’s MRI but this single decrease will likely be accompanied by price increases for many other hospital services.
Likewise, a patient’s utilization of a retail imaging provider is not guaranteed to reduce his or her overall out of pocket costs. In order to get a Smart Choice MRI, a patient must first have an order from their health care provider. Although ThedaCare providers and many others may be willing to accept the results of a Smart Choice MRI and the interpretation given by the radiologists Smart Choice partnered with at the Cleveland Clinic, others may not. Due to either concerns about defensive medicine or the push towards greater coordination and integration, a physician could condition further treatment upon the patients’ completing an MRI and having it interpreted at the physician’s hospital. In this case, the $600 spent on the Smart Choice MRI would be an added cost, not a savings. On the other hand, if the patient’s physician and health plan are both board with the patient’s use of a retail provider, he or she may really benefit from the lower costs and greater convenience promised by firms like Smart Choice MRI.
Finally, we should also not lose sight of the fact that although hospitals routinely charge thousands of dollars for an MRI, this is a relatively small piece of overall healthcare spending, which makes up more than 17% of U.S. GDP. To put this in perspective, Americans spend around $100 billion annually on medical imaging, including MRIs, CTs, and other advanced diagnostic scans. This is less than 3% of the more than $3 trillion spent on healthcare each year in the United States. Retail medicine providers and other innovators will deserve much praise when total health care costs, not just prices, are reduced. At this point, much work remains to be done.