As someone who used to work in insurer/provider relations, I disagree. Radiologists, as a group, are the most overpaid providers out there, and it is impossible to negotiate reasonable rates with them. If they get a monopoly on MRIs, etc., I think you will be surprised at how much more customers and insurers end up paying for these services. One of the reasons other providers make less use of these tests when they must refer to a radiologist is to protect the consumer. Fewer MRIs is not necessarily better medicine, just cheaper medicine.

The problem is the cost of MRI/CT scans, not the frequency with which they are ordered. Increasing supply lowers cost, even in a heavily monopolistically competitive industry with very low price elasticity, and a high degree of information asymmetry.

The status quo is protectionism for radiologists.

Jay wrote: "How can it be a free market when the people making decisions to buy health-care services use OTHER PEOPLE'S MONEY to pay for it?"

How indeed.

You stare the solution in its face and ignore it. Why is that? What is so difficult about requiring people to pay the first $1000 of medical expenses that is so difficult to grasp? I pay the first $1000 on my car insurance claims. I pay the first $1000 on my home insurance claims. Why should health insurance be any different?

If the vast majority of people cannot afford to pay for the health care services they receive then we are simply fooling ourselves into thinking we can afford something as a society that in fact we cannot.

Dan: Thanks for the comment. I'm sympathetic to the argument, and I've written favorably about health savings accounts in the past. But I strongly suspect that the huge majority of the $$$ get spent after you blow through the first $1,000. So installing incentives for the small-change stuff might not have much effect. There is still the shaman problem -- often patients just aren't knowledgeable enough to know when they need to invest in care and when they don't. And there is the health maintenance problem -- many will avoid seeking care early on -- when it could prevent later maladies -- if they have to pay out of pocket. JH

CityRedux - I don't understand your comment about the reason people don't send patients to radiologists is to "protect the consumer". I thought the article was about orthopedist/urologists and other self-referrers abusing the use of MRIs. How is it that the radiologist who, according to the article, can't order these tests, are the ones abusing the patients?

Jay,

I suspect that while a small percentage of patients ring up hundreds of thousands of dollars in medical costs the vast majority of medical expenses are for claims of a few thousand dollars or less. Perhaps one of us will dig up the actual data and share it with the other :-)

Your concern about people delaying medical treatment to save their own money, only to impose a greater cost on society later on, reveals the ultimate failure of the welfare state.For one I believe this issue is greatly exaggerated. But whether it is or is not society cannot persist in the lie that people are responsible for their own choices until they are really in a bind, and then society must bail them out.

Either people are free to choose or they are not. You suggest that society must ensure that the best long term choices are as easy to make as possible. But how? For example, learning is not easy. It takes effort. It takes delayed gratification. As a consequence there will be those who do not acquire necessary skills and will suffer a life of sub-average income. That is their choice! That is the consequence!

Likewise, a healthy lifestyle is a personal choice. If you want to say society has a right to dictate an individual's lifestyle then lets rip up the Constitution and declare ourselves servants to the almighty good. The vast majority do not want to be told how to live, what to eat, what to drink. I agree. But that means when Bubba needs diabetes treatment it is going to cost him. It is not society's responsibility to make sure Bubba eats his peas and carrots and it is not society's responsibility to ensure Bubba carries no financial burden for the consequences of his choice.

It used to be that society used the example of bad choices to teach and warn the next generation. Now we don't want to do that anymore. Rather we are told that in exchange for minimizing the consequence of bad choices we must limit everyone's freedom. If you want to take that deal so be it but I'd rather keep my freedom and accept the risk of living.

I am a Radiologist and I assure you that this is all about money and not about what is best for the patient. We have had two offices in my NC city install CT scanners and flat at tell us that they were going to scan "every patient that walks in the door", which they proceeded to do. (Note: CT scanners produce significant amounts of radiation exposure to the patient - and are a known carcinogen). They bought the lowest end, essentially outdated model, and contracted out to the lowest bidder for the images to be read remotely over the internet. There was no supervision of the procedures on site as the Internal Medicine doctors had no idea how to protocol the exams, and not the slightest inkling of how the scanners worked. The tech that they had hired quit and was eventually hired by us, and revealed what in our field are essentially horror stories. It takes four years of training to become a Radiologist. We are experts in imaging, trained to make sure that the exams are perfomed and interpreted correctly. What is going on out there is a travesty. Maryland is the only state that has a stop-gap of this type of abuse. Studies have shown that non-radioloists who install CT or MRI scanner suddenly order up to SEVEN TIMES MORE sans than before they had ownership of a scanner. Why? / GREED. I can assure you this is not an access to care or patient convenience issue. The waiting list to get an MRI or CT these days is typically one day. BOTTOM LINE: The doctors who want this want to bilk the system for very large amounts of money. That is 100% of the issue here.

Josh: You have it backwards. The status quo protects self referring physicians. When my group has an imaging center that is better in patient service and results than a competing physician, but can't get referrals from that physician, THAT is monopolistic practice. Banning self referral would require the physician to choose among several competing imaging centers and hospitals. THAT is competition.

Redux: When I am a patient, I WANT my physicians to be well paid. I WANT an expert. In many cases now, your physician is more poorly paid than your plumber. Think about it.
Further, if you MUST have a bad guy, then I nominate the insurance companies. Exhibit A: United HealthCare. Former CEO William McGuire, in his last year, pulled in between $120-$150 million in personal income. It was pointed out that this was enough to pay for the health care for every uninsured child in Minnesota. His income was the highest, but other CEO's were not far behind. United Healthcare, BTW, is famous for contracting to physicians for a rate and simply not paying, daring us to sue them. (see their wikipedia entry). Aetna this quarter had a 30% increase in their profits. These are middle men, sucking out yours and my health care dollars.
Worse, in the new health care law, their abuses have not been curbed. No. They have instead been guaranteed a very large new book of business, since everyone is required to purchase their product.
When you develop your cancer, or have your heart attack, the person you will go to will not be an insurance executive. I suggest it is in all our interests to be sure that the person between you and death is well paid.

I am a radiologist also. I second RadXPert's comments. We have a physician owned hospital in our city which is returning $300,000 a year to its referring physician investors--about 30% annualized--nice if you can get it. A banker friend of mine said, "Hey, can you get me into one of these physician owned imaging centers? They get 35% per year! That's like a license to print money!" The hospital in question had Nancy Pelosi speak at their partners meeting before the health care reform bill was passed. The reform bill was very kind to them. Surprise! And in response to radiologist monopoly, we have many relative monopolies like mammography (no one else really wants to do it) and yet I have yet to be able to significantly influence the price we are paid. The government sets prices for medicare and the insurance companies follow suit to avoid cost shifting. Then hospitals lean on us to accept the insurance contracts so their patients are not inconvenienced. We don't control anything.

What is the marginal cost of an MRI or CT scan? That is, what is the additional cost incurred by the service provider of 1 additional MRI or CT scan? I'm not asking average cost, I'm asking marginal cost.

Now, what is the price charged for an MRI or CT scan? This figure represents marginal revenue. Competitive industries are marked by price (marginal revenue) being approximately equal to marginal cost. Uncompetitive or monopolistic industries are marked by prices being set markedly higher than marginal cost.

You lower average total cost (which is your lowest possible price) to being inline with marginal cost by increasing output and increasing competition.

Would we attempt to cure the high price of anything else by limiting the # of suppliers of it? There is a good case to be made for disclosure requirements informing patients of other service providers, but not a consumer focussed case to limit supply.

Re: marginal cost.
I do not own a scanner, and do not know the direct answer, however I have been present for some financial discussions with the hospital about MR scanners. At the time (about 5 years ago), the break even was at 6 months on a busy scanner in the hospital. The life span of a scanner was 3-5 years, so for the rest of the life, it was very very profitable. Our radiology department was at the time the most profitable part of the hospital, by far, paying for the shortages in ER, etc.
Currently, the payments for outpatient MR, CT have been severely reduced, but if you have an old or cheap scanner, you can still be profitable. I have actually heard physicians say that if payments are cut, no problem, they will simply scan more patients.

Re: marginal cost.
I do not own a scanner, and do not know the direct answer, however I have been present for some financial discussions with the hospital about MR scanners. At the time (about 5 years ago), the break even was at 6 months on a busy scanner in the hospital. The life span of a scanner was 3-5 years, so for the rest of the life, it was very very profitable. Our radiology department was at the time the most profitable part of the hospital, by far, paying for the shortages in ER, etc.
Currently, the payments for outpatient MR, CT have been severely reduced, but if you have an old or cheap scanner, you can still be profitable. I have actually heard physicians say that if payments are cut, no problem, they will simply scan more patients.

BTW - the above points out that hospitals DO have a monopoly. The recent DRA legislation cut payments severely to any outpatient facility not owned by a hospital. This was an unbelievably anticompetitive move for the Congress to make. Whether this is just stupid, or the result of the lobbying efforts of the American Hospital Association is unclear. The result has been that the hospitals (who can be paid much more than private physicians who own machines) as a result have bought up many of the self referring practices, and now charge much more than these practices could have in the past.
Has this changed self-referral? Well, in at least one case, the cardiologists became employed by the hospital, and it is rumored that they have a productivity bonus that may depend on the number of cases referred to the scanner. So they still have a personal financial interest in scanning you.

Congress had an opportunity to actually save money, by banning self referral, but allowing privately owned imaging centers to compete with the hospitals on price and service. Instead, they delivered the outpatient scanning business to the most expensive and least competitive provider: the hospitals.

A few years ago, there was a mini-scandal concerning unethical stock brokers who would churn the accounts of some of their customers, buying and selling stocks frequently to generate fees for themselves until the portfolio was empty. Physician self-referral is the same thing, but more disgraceful, in my opinion. However, it has been entirely ignored in the MSM until this moment. Thank you, Jay, and please keep reporting on this to bring those responsible for this disgusting practice to light. I fervently hope that you can have an effect.

@Bill: when the ortho does an MRI, you get charged for the MRI, but not for the ortho to read it, which is already included in his comprehensive insurer-negotiated fee for the visit. When the ortho sends you to a radiologist, you get charged for the MRI, and charged for the radiologist to read it (at a much higher rate than ortho fees), plus you are still getting charged for your ortho visit. Since orthos don't really trust radiologist's skill and orthopedic knowledge in reading an ortho MRI, they tend to save the patient the trouble and cost by not referring. When they have their own MRI, they are more likely to use it.

@PBS You say, "Our radiology department was at the time the most profitable part of the hospital, by far, paying for the shortages in ER, etc." That is exactly my point.

@Josh Dowlut & @City Redux:
With respect, you are both looking at this issue from an incorrect and erroneous perspective. Radiologists do not order scans. We interpret them. Even if I own a CT and MRI scanner, I still have to hope that non-radiologist physicians will send their patients to my scanners when they need an imaging study. In addition, it has been shown on many occasions that non-radiologists vastly over-utilize scanners that they own. So, it is not the cost, nor the supply that is the main issue. The issue is the conflict of interest that exists by the non-radiologist physician who “owns” the patient and also owns the MRI or CT scanner, thereby allowing him to direct the patient to the scanner, and reap the benefit of the revenue generated by the scan performed. Unfortunately, and believe me I know this part well, radiologists are innocent bystanders who are increasingly frequently getting run over by the non-radiologist imaging train. THAT is why anti-self-referral legislation would be so beneficial – it would decrease the numbers of unnecessary scans and, hence, decrease costs as a result. (Radiologists might benefit solely from increased traffic due to patients being sent to scanners that are no longer owned by non-radiologists. That is a by-product that could possibly keep us radiologists in a viable position from a career standpoint – not that you should care about that aspect of medicine and politics.)

The "conflict of interest" repeated so often is nothing unique to MRI's or medicine. Any business that has invested in productive capital, be it an MRI machine, a factory, a truck, or a legal or medical education with the appropriate professional distinction, has a self interest to use that capital investment as much as possible to drive down average total cost as much as possible and maximize profit.

The pro-radiologists and Hancock posit that through ignorance, apathy, and someone else paying the bill, doctors who own their own MRI will be able to defy the law of demand and increase the quantity of MRI scans without lowering price. This is an argument for disclosure or variable co-pays, not an argument for limiting supply. It also overlooks the fact that cost-conscious insurance companies already price-grind service providers.d

Josh: The treating doctors are the demand. They decide when a sale is made, not the patient. JH

City Redux, I believe this statement is inaccurate "when the ortho does an MRI, you get charged for the MRI, but not for the ortho to read it, which is already included in his comprehensive insurer-negotiated fee for the visit". The ortho is actually charging you for the interpretation for the MRI. It is included in the "global fee" for the MRI, which includes both the technical component (performing the exam) and the (professional component (interpreting the exam). It looks like one charge, but it is not. In a radiologist-owned facility, you can also have the same "global fee", or you may be billed separately for the components. In a hospital setting, the technical and professional are split and billed separately. This is widely misunderstood by many. You'd better believe that ortho is getting his professional component.

Additionally, radiologists are very well qualified to read orthopedic exams, and in most cases, more qualified than an orthopedic physician. Radiologists can sub-specialize just as any other physician -- and many radiologist groups contain musculo-skeletal radiologists who have additional years of training after their radiology residency, these MSK radiologists in particular are the ones I would want reading my orthopedic MRI, not the surgeon.

The bottom line for me in all things healthcare is that the people making decisions at a national level have absolutly no idea regarding how healthcare actually works at a macro level, much less a micro level - and therefore have no business legislating what they do not understand.

I have been performing MRI scans for 27 years for a radiology group. In the initial 2-3 yrs we were the only scanner in town. Not even the local University hospital wanted to risk the invest in time and money in what was at the time experimental technology. We did and we profited from it. I wish I could say we have never done an unneeded MRI . But we have only done the patients that were refered to us by physcicians who had no vested interest in doing so. However, I can say that we have tried to educate physicians on what MRI can and can't do and the cost verses benefit. We have been dealing with and competing against self referring MRI centers for the last 23 years. We've done it by investing in the best technology and providing the best service to our patients and to the referring physicians. We have to. WE have NO choice because our patients know THEY have a choice. In many cases the patients in self referring MRI centers do not
You cannot control the cost of medical testing as long as those who order the testing have a financial interest in doing so.

Technical note: If the surgeon owns the machine and reads the scan, it is billed as a global. If the scan is read by a radiologist, the surgeon bills the scan technical only, and the radiologist bills professional only. Either way, there is one reading paid for.

And the discussion about who you would rather have 'read" a scan is also mis-informed, and illustrates how a verb can get out in the wild among the wonks and lose all connection to reality. The truth is, no good orthopedic surgeon is going to make a decision about your care (especially a decision to operate) by relying on someone else's words on a piece of paper. He (or she) will need to see the images personally. So the word "read" has come to mean "the person who dictates a report and bills for that dictation, no matter how that dictation is used". If the word "read" were to mean "the person who will look at the image and recommend a treatment course to the patient" -- then that will be the surgeon, and will always be the surgeon.

There is a turf war for the professional component of the imaging beneath the surface of this debate over the technical component.

The radiologists will talk all day about how they are the experts in interpreting images, until you ask them to take any liability for the only step in the process which makes any difference to the patient -- the treatment. Will you recommend a treatment and -- this is the key part of the question -- actually answer to the patient (and the jury) for that treatment? Didn't think so.

And even journalists should cast a sidelong glance at actual clinical practice as they recommend restructuring sectors of the economy by fiat. Actual surgeons consider radiologists valuable as colleagues and a resource to be called on when an image needs another set of eyes. Actual radiologists will seldom argue they need to "read' most imaging studies or the patient is ill-served. The way these discussions go, you'd think the radiologists are not paid for professional volume.

So it is an ironclad rule that the income for a service and the recommendation for that service cannot go together without inevitable corruption? Really? So the family doctor should not be able to tell you to come back next week for a re-check? You should have to go over to the hospital to have your blood drawn? Is the doctor going to make any money on the throat swab that takes 30 seconds because we can do it right here? The physical therapist should have someone ok another session tomorrow? Your surgeon who recommends you have your gall bladder removed: are we presuming that motive is untainted? Is the radiologist going to be able to recommend another type of test in his report? is it more likely that test will be done because he recommends it? (Hint: yes.) is it highly likely he will also be asked to read that second test? (Hint: yes.)

Disclosure: I manage an orthopedic office, and we own MR machines. Every single day we walk a patient down the hall to the scanner because of their symptoms of spinal stenosis, scan them before they leave, read the images before they leave, and recommend treatment before they leave. (There is a radiologist in the building if the surgeon needs a consult; in most cases, the surgeon is recommending a treatment based on what he sees with his own eyes.)

You want to attack the problem of self-referral in a meaningful way?

Invite a group of radiologists to do peer review on the clinic notes produced by a group of orthopedists in their own town. Ask them to tell the surgeons, to their faces, which patients should not have been scanned, and why.

At the end of that lunch hour there would be a lot less rhetoric thrown around. Perhaps by both sides.