What does the price of gasoline and the price of a chest x-ray have in common? Not much really, except the price of both have gone up in the Atlanta area recently; but the former did so for expected reasons that are predicated on behavioral economics and the relationship of demand to price. The latter went up, well, because it could.

The spike in gasoline prices recently followed a temporary interruption in the supply of gasoline to many gas stations in the southeast caused by a pipeline leak in Alabama. The price increases seemed to be accelerated in part by news of a "gas shortage" that went through social media faster than photos of Janet Jackson's wardrobe malfunction.

But the sticker shock that I've experience lately trying to find a price on a simple chest X-ray is not due to any shortages (either perceived or real) or any sudden increase in demand. Nor was it from a sudden increase in the cost of performing an X-ray or some phenomenal increase in quality that created a better image or less radiation exposure. Nope, none of the usual factors that go into predicting price behavior were at play.

There are literally pennies differences from station to station in the gasoline market. But in my quest for a price quote for a self-pay patient in need of a chest x-ray, I discovered four of the previously independent or free-standing imaging centers had been swallowed up by a couple of the big hospitals in the area. All very legal. But here is the kicker related to this: I was quoted a range of between $40 to as much $494 for the same x-ray, all within a 25 mile radius. The high end prices were much higher than just a couple years ago before the consolidations.

Seriously, these prices are for the exact same test, all done on similar state-of-the-art digital x-ray machines. The other quotes by phone within that range were $85, $117, and $212.

The weirdest one (not the highest) was from Kaiser that charged non-member patients a "deposit" of $212 for an estimated x-ray fee of $76 which did not include the radiologist's reading. At least the others were a flat fee which included the interpretation, since that is necessary for a complete study.

The quote of $494 came from two formerly private free-standing imaging facilities that were recently acquired by one of our local hospital systems - prior to being acquired they had prices easily under $100 for the same x-ray.

The large hospital was quick to point out that they offered a VERY generous 75% discount off of that "estimate". Yes, an estimate. I was surprised too that something that pricey was just an estimate. The nice patient financial representative stated she was obligated to tell the patient that the list price was subject to change anytime and could not be guaranteed.

This is the same health system that now offers a consumer-friendly price estimate hotline. The Hotline didn't actually provide a true price, but an "estimate" of patient financial responsibility for those with insurance. But what about the actual price of the x-ray? I guess it doesn’t matter to them, or apparently to most patients with a PPO network card. They are too busy to handle calls in person, here is the audio from their voice greeting.

https://music.microsoft.com/cloud/track/8E216647F0C45FA2!209459

I am not making this up!

After striking out on the price estimator hotline, and after getting transferred and holding several times for over 10 minutes, I was finally able to get someone to tell me what they charge for a simple chest X-ray. I was then told that the hospital's charge master List price is currently $494… but they are willing to offer it (on sale [my words]) at 75% off of list for a grand total of just $123.50! (emphasis mine)

After a couple seconds of stunned silence, I verified the CPT code and reiterated that it was for a simple plain X-ray, not a CT scan of the chest. The phone attendant read back to me the code and description, that indeed it was a plain chest X-ray with a suggested retail price of $494!

I wonder if that bit of marketing genius drove up chest X-ray business this week… or the next? But of course, a hospital would never use the "S" word to describe these discounts.

So why not just price the service nearer the cash discounted rate and be done with it? Simple answer first: it is not in their financial best interest to do so. And realize that they almost NEVER receive the full $494 for a chest X-ray, because they are very unlikely to get that sum. Recall in the opening paragraph, that I stated that the price of the chest x-ray went up "because it could". This pricing nonsense allows for the coding and billing fiasco to perpetuate, hiding the real price like a shell game table at the amusement park. In essence, there isn't a direct pay market of significant size for prices to matter or exert their desired effect on demand.

This phenomenon is a primary reason why healthcare costs have risen at twice the rate of real income in that everything, no matter how small, has to be ran through this unnecessary CPT coding/billing claims process. The discipline of the market, and its effect on prices, is rarely felt in the healthcare sector.

Another facility, nearby one of those that was acquired, was the same facility that I used to have a contract with who charged my practice $35 for the same x-ray exam only 18 months ago. My imaging facility ended the contract with my practice when they were acquired by yet another large player in the space, stating it was against policy to have direct contracts with doctors or clinics; now they charge $117 (Translation: Medicare and commercial carriers don't take kindly when you do business outside the "loop").

Oh, just thought you should know that the $40 and $85 quotes took me about 30 seconds to obtain over the phone, including pleasantries with the person on the phone. There was no hold time and no looking anything up on complex charge master lists. Just a simple price out the door. And it won't surprise you that the two lowest price quotes were from the two free-standing imaging centers, of just a handful that we have left in the north metro Atlanta area.

Why do we see these bizarre spreads of inexplicable pricing in healthcare, especially in an area as routine as x-rays? With as many facilities as there are, shouldn't competition keep prices tighter. And there was something else I found that seemed strange; no facility offered to match the price of another.

Unlike the gasoline market which is not only competitive and displays prices right out in the open for all to see including the competition, the medical imaging market is…well… kind of different to put it kindly. Actually, there is no market in medical imaging, let alone the whole of healthcare, that is comparable to other normally functioning markets that have transparent pricing.

But hey, if you know the CPT code of the test you need, know your co-pay or co-insurance responsibilities, where you stand with meeting your deductible and total out-of-pocket spending and other requisite insurance information, then we can get darn close to what you might owe after the fictitious charges make their through the billing cycle and finally to your EoB.

Can you imagine having to buy a set of tires or a battery or a kitchen sink with those kind of hassles?! Would you stand for it?

This should raise an eyebrow or two and should lead us to ask, "how does healthcare pricing work and what does it mean"?

Predictably so, the temporary spike in gasoline prices will correct downward, as consumers will not patronize gas stations that keep prices artificially high beyond what the shortages would justify. Why? Because it is an open market that is not carved up by network contracts or artificial barriers to choice like those that dominate healthcare; these same barriers and inflation drivers control how we access and pay for medical care - making it way more expensive, and more confusing than it needs to be.

Yes, yes I know what you're going to say…

"But medical care can't be reduced to a commodity like gasoline; it is too complex. It is far too important to leave it to the whims of market pricing."

So how is that anti-market philosophy working out for the U.S. healthcare system? Truth is, we haven't had anything resembling a free market in routine outpatient care for nearly 50 years. So why do some continue to label it as "market failure" if a healthy market was largely absent? I suspect it is either due to wearing partisan blinders and/or a superficial understanding of the problem. And, if you think that the fix for healthcare is simply to get rid of the “profit motive”, or many other frequently cited explanations for the pricing failures, consider the potential fraud and abuse within the Obamacare co-ops. Devoid of profit motives, they were supposed to be the model for the to run a health insurance company.

The evidence for continuing anything even remotely resembling our current pricing system in healthcare (including Obamacare) is damning to say the least. This U.S healthcare system is the opposite of everything that a normally functioning market should be; our system is one huge pricing failure (designed to be that way) and thrives on price confusion, complex billing protocols and meaningless list prices that are impervious to price pressures of demand, service and quality.

Back to x-rays and prices. Remember, we are talking about outpatient imaging services, all of which are scheduled on non-emergent basis. Facilities that offer these imaging tests seem to be in abundance.

So why the huge price disparity in medical imaging? Simply put, Consolidation happens! But it happens with much different consequences in healthcare compared to other industries!

On one side of this strange coin, the rules of engagement inherent in the payment schemes in healthcare allows for these pricing/billing shenanigans to take place. Throw in a unhealthy dose of government intervention and industry protectionism and you've got a perfect recipe for a well-oiled cartel instead of a patient-centered system. Were it not for the way we are forced to access care via complicated contractual arrangements that keep the money flowing in the direction preferred by the healthcare cartel, we could have a system of pricing that responded to price pressure and demand.

And the other side of the price disparity coin is the crazy way prices behave when facilities or practices become acquired by large healthcare systems and hospitals - or when large systems merge. In other industries, mergers can benefit the company, and hopefully the consumer, due to economies of scale resulting in lower costs, better service or more selection. In healthcare, pricing perversions are caused by a combination of the effects of CPT billing with a lack of standard accounting practices within hospitals topped off by the ability to negotiate up reimbursement schedules due to the near monopoly-like nature of these alliances, all of which dictate rules of engagement of providers and recipients of care.

And before you start feeling sorry for the third-party payers because they have to deal with large health systems, remember they have no incentive to really care about holding down costs as long as premium revenues keep just ahead of claims expenses. Furthermore, if they get too far in the black, they have to share the excess profit with the health plan fiduciary. This is because the Medical Loss Ratio rules, ostensibly put into place to cap profits, actually provides a perverse incentive for payers to encourage utilization and not care about costs. It actually benefits them in the long term if claims expense are higher rather than lower, because then premiums go up gradually to match claims; thus the net revenue after claims expenses (no more than 20% allowed for profit) is a larger number (the whole pie gets bigger). And let's not forget about PPO discounting and all the money made by unscrupulous TPAs and brokers if they are paid on percent of savings they get for their clients.

Providers, whether they be independent physicians or imaging centers that employ radiologists or hospitals that employ wide range of providers, have the power to change this overnight if they could escape the prisoner's dilemma by tacit cooperation. Unfortunately, no one wants to the first to tear up these unholy health plan contracts which have always guaranteed the revenue stream at the expense of rising costs for everyone and access barriers for uninsured / underinsured citizens.

Update October 6, 2016: Correction... About one week after this article was written, I received a voice mail in regards to a message I had left requesting a price for chest X-ray at one of the local facilities mentioned. The message reiterated the fee for code 72010 (2 view chest x-ray) was $474 and that it DID NOT INCLUDE the radiologist's reading!