Medical costs

My wife just completed an amazing inquiry into how much a medical procedure might cost.  Her doctor said that she should get an MRI on her sore knee.  She was given two options, one at a local facility that has a closed MRI machine or a second in a city about 25 miles away in an open MRI.   She has trouble in closed spaces, so she prefers the open-system, but only if it is affordable.  We have a very high deductible on our health insurance, so the cost of this procedure would come out of our  pocket.

She called the place with the open MRI machine to ask how much it would cost.  The answer was that they didn't know.  It could be somewhere between $250 - $1500 (or more) depending upon the discount rate negotiated by our insurance (Blue Shield of California).  (The cost of performing a procedure seems to vary by several hundred percent depending upon the insurance company, not the actual cost of labor or equipment).

They told her to call Blue Shield to find out how much we would actually have to pay.  So she did.

She ran into an amazing wall of misinformation mixed with no information.  This was not a question that they were at all prepared to answer.  During her 1.5 hour phone call she was told a half a dozen different amounts, all of which seemed to change whenever she asked for clarification.  Finally, after this really crazy phone call it turned out that the open MRI will cost about $680 while the closed one will cost about $2300!  Quite a big difference considering they both use the same person to read the MRI - that portion is identical, and insurance company is the same in both situations. 

So, for a "normal" person wanting to pay the minimum amount for a service it takes a huge amount of persistence and tenacity.  Not being worried about closed spaces, I would have opted for the closer facility under the assumption that a digital photo would cost me about the same in either location.  Surprise!  There is actually about a 300% difference in cost  - and it is close to impossible to determine which is the best deal, or even if it is affordable.

The medical business is interesting - it is based upon the concept of buying a pig in a poke (actually, that plus the fact that you don't even know how much the pig is going to cost before you buy it).  It is similar to buying a car where you would select your car and sign the contract, once you take possession of the vehicle, then you get to learn how much it costs.  The customer has no readily available means of determining how much they will have to pay before a procedure is performed - even if it is as simple as taking a digital photograph without any supplies or unexpected costs.  And they wonder why the public is fed up with the medical system.

I keep hearing about this business of various discounts to insurance companies based upon "quantity discounts."  I wonder what quantity is being considered and why it would have any impact upon the cost of the service being performed.  If I am buying boards in a lumberyard I can understand a quantity discount.  The merchant has to be involved in the sales a smaller number of times.  Often I buy in bulk, so handling a 100 widgets takes as much labor as 1 widget, so it makes sense that it would cost less.  Also, there are transaction costs that are grouped together with a quantity purchase.  However, for medical care there is no difference in either the labor required to perform the service, or the costs of billing and tracking the transaction.  I can think of no actual reason why an insurance company doing $10M a day business with a hospital would get a different rate from one doing $1M in business.  There is nothing to based the quantity discount upon - except the threat of taking their business elsewhere.  Instead of being based upon a reduction in cost for more patients, it is based upon their financial clout.  A bigger insurance company gets a MUCH better price, therefore they can charge much less for their insurance.  Therefore, they keep getting bigger because smaller companies can't compete.  I suspect that this is the making of huge, very powerful, monopolies (which is why we don't have government paid health insurance).