Mon, Dec 22, 2014 - Page 12 News List

The odd math of medical tests

Testing has become to the US’ medical system what liquor is to the hospitality industry: a profit center with large and often arbitrary markups

By Elisabeth Rosenthal  /  NY Times News Service, PRINCETON, NJ

An employee holds a portable ultrasound system in early September. Even though testing such as echocardiograms, ultrasound pictures of the heart, have become more pervasive in US hospitals, prices continue to go up.

Photo: Bloomberg

Len Charlap, a retired math professor, has had two outpatient echocardiograms in the past three years that scanned the valves of his heart. The first, performed by a technician at a community hospital near his home here in central New Jersey, lasted less than 30 minutes. The next, at a premier academic medical center in Boston, took three times as long and involved a cardiologist.

And yet, when he saw the charges, the numbers seemed backward: The community hospital had charged about US$5,500, while the Harvard teaching hospital had billed US$1,400 for the much more elaborate test. “Why would that be?” Charlap asked. “It really bothered me.”

Testing has become to the US’ medical system what liquor is to the hospitality industry: a profit center with large and often arbitrary markups. From a medical perspective, blood work, tests and scans are tools to help physicians diagnose and monitor disease. But from a business perspective, they are opportunities to bring in revenue — especially because the equipment to perform them has generally become far cheaper, smaller and more highly mechanized in the past two decades.

And echocardiograms, ultrasound pictures of the heart, are enticing because they are painless and have no side effects — unlike CT scans, blood draws, colonoscopies or magnetic resonance imaging tests, where concerns about issues like radiation and discomfort may be limiting. Though the machines that perform them were revolutionary and expensive when they first came into practice in the 1970s, the costs have dropped considerably. Now, there are even pocket-size devices that sell for as little as US$5,000 and suffice for some types of examinations.


“Old technology should be like old TVs: The price should go down,” said Dr Naoki Ikegami, a health systems expert at Keio University School of Medicine in Tokyo, who is also affiliated with the University of Pennsylvania’s business school. “One of the things about the US health care system is that it defies the laws of economics, and of gravity. Once the price is high, it just stays there.”

With pricing uncoupled from the actual cost of business, large disparities have evolved. The five hospitals within a 15-mile radius of Charlap’s home here charge about US$5,200 on average for an echocardiogram, according to an analysis of Medicare’s database. The seven teaching hospitals in Boston, affiliated with Harvard, Tufts and Boston University, charge an average of about US$1,300. There are even wide variations within cities: In Philadelphia, prices range from US$700 to US$12,000.

David Wiener, chairman of the advocacy committee of the American Society of Echocardiography, acknowledged the price disparities but said he did not believe they were greater than those for other medical services and procedures. He attributed the variations to multiple factors, including how many hospitals and doctors perform the procedure, state regulations and the need to subsidize poorly reimbursed services.

In other countries, regulators set what are deemed fair charges, which include built-in profit. In Belgium, the allowable charge for an echocardiogram is US$80, and in Germany, it is US$115. In Japan, the price ranges from US$50 for an older version to US$88 for the newest, Ikegami said.

Because Charlap, 76, is on Medicare, which is aggressive in setting rates, he paid only about US$80 toward the approximately US$500 fee Medicare allows. But many private insurers continue to reimburse generously for echocardiograms billed at thousands of dollars, said Dr Seth Stein, a New York physician who researches data on radiology. Hospitals pursue patients who are uninsured or underinsured for those payments, he added.

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