Are Health Care Services Shoppable? Evidence from the Consumption of Lower-Limb MRI Scans

Michael Chernew, Zack Cooper, Eugene Larsen-Hallock, Fiona Scott Morton

NBER Working Paper No. 24869
Issued in July 2018
NBER Program(s):Health Care, Industrial Organization

We study how individuals with private health insurance choose providers for lower-limb MRI scans. Lower-limb MRI scans are a fairly undifferentiated service and providers' prices routinely vary by a factor of five or more across providers within hospital referral regions. We observe that despite significant out-of-pocket cost exposure, patients often received care in high-priced locations when lower priced options were available. Fewer than 1 percent of individuals used a price transparency tool to search for the price of their services in advance of care. The choice of provider is such that, on average, individuals bypassed 6 lower-priced providers between their home and the location where they received their scan. Referring physicians heavily influence where their patients receive care. The influence of referring physicians is dramatically greater than the effect of patient cost-sharing. As a result, in order to lower out-of-pocket costs and reduce total MRI spending, patients must diverge from the established referral pathways of their referring physicians. We also observe that patients with vertically integrated (i.e. hospital-owned) referring physicians are more likely to have hospital-based (and more costly) MRI scans.

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Document Object Identifier (DOI): 10.3386/w24869

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