State regulation leads to fewer low value imaging tests

March 13, 2024

Source: Horwitz, et al NBER February, 2024 LINK

The United States has more imaging equipment than most other developed countries, and we perform a lot more imaging tests. High-cost imaging facilities have high fixed costs (purchasing or leasing the machine and building the facility.) Therefore, excess utilization leads to dramatically higher profit, as there is little resource cost used for each additional imaging test.

Carriers reduce imaging through prior authorization programs, but many are performed adjacent to emergency departments, where prior authorization is not required. Employers have imposed higher cost sharing on imaging tests, but few patients rarely argue when their doctor says “you should have a scan.”

Some states in the East and Midwest, have certificate of needs (CON) laws that restrict building new CT and MRI scanners. Researchers evaluated the rates of low and high value high cost imaging tests at the border between regulated and unregulated states, and found that low value tests were diminished for residents in states with regulations limiting new imaging facilities. The probability of any MRI is about 2% lower on the CON side of the border, while the probability of a high value MRI is unchanged. The probability of a high value CT scan is slightly decreased for residents of CON states.

Implications for employers:

• This study demonstrates that effective government regulation can help prevent unnecessary medical utilization.

• There is a natural tendency for overutilization of services that have low marginal cost for providers, as increased utilization leads to substantially higher profit margins. This points to the need to lower prices for many high technology services.

• The medical delivery system often is like a “field of dreams.”  When we build capacity, it gets used!

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Tomorrow: Americans are deeply worried about the cost of health care