Difference in public and private sector pricing of clinical services

A recent query on why the difference in public and private sector pricing I received that I solicited feedback from friends and colleagues. Decided to post some of the comments here with my perspectives embedded in [—]. Will be grateful for comments on this very important and interesting issue.

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“In a recent consultation, I needed a brain scan. Comparison of the same scan:

MRI (unsubsidised rate) at XGH (Public Hospital) = $1700

MRI at private radiology group in Orchard Road= $1000

How is it that private rates are cheaper than XGH?”

• The same goes for hospital beds and surgical procedures. Companies and insurance companies have the mistaken idea that private hospitals always cost more. [I think the reason for this misconception is the positioning that public hospital private A1 wards have zero subsidies, but this does not mean that they are priced at full cost only and not cost-plus or priced to what the market can bear. Remember that public hospitals espouse a cross-subsidy model and so patients should expect full paying services to be priced at a premium. Another reason is the common belief that a non-profit will be priced lower than a for-profit, although the only difference between the two is the disposal of the surplus/ profits!]

• Perhaps so that after subsidies it would appear cheaper? Medical costs have certainly gone up in Singapore and this must be a grave concern with our aging population. [I am a little concerned here if the comparison is actually like-for-like; typical outpatient public subsidies are in the ballpark of 50%, and so half of S$1,700 is S$850.00, which is 85% of the full private price]

• It’s a common assumption that all prices are related very closely to their costs of production. In addition to subsidies and market pressures; there’s also cross-subsidy, pricing on the margins, bundling, “bait prices”, etc. In a way, the very comparison of prices for a specific service is asking the wrong question. It’s the total cost of care that’s important, including the procedure that could follow on from that MRI. [In the Singapore private sector, services are typically disaggregated so that radiology is provided by one entity, physician consults by another, ward and nursing by yet another etc. Hence, ‘bait pricing’, ‘loss leading’ strategies generally would not be too applicable.]

• What’s the marginal cost for doing the MRI? The other question is how much indirect cost being billed into the MRI? [The marginal costs for MRI scans are actually relatively low since the major expense is capital, i.e. the machine. Major marginal costs would be professional fee for reading, radiographers and other staff labor, rental of premises, utilities, maintenance contracts. For indirect costs, in the private sector, would be marketing, corporate HQ and in the public sector, cross-subsidization for teaching and research which are still not fully compensated for]

• Could be that the private guy is running his MRI more! [Actually I think volumes in the public sector are much higher due to both greater throughput and extended operating hours. However, in the public sector, patients would come in at different price points]

• Beware of anecdotes! We have to be sure that we are not comparing apple and oranges – is it plain MRI brain vs MRI and MRA? I have seen limited echocardiograms from private sector with only a dozen 2D images and no Doppler etc. that may have been adequate for the clinical question at that time, but patient will have the impression that it is the same test as a full echo protocol with Doppler, tissue Doppler etc.

• Consider this: an MRI examination consists of multiple sequences of varying complexities and duration, may or may not include contrast injection and further post-scan post-processing. Therefore seemingly similar region MRI exams performed in different centers are not necessarily comparable. Furthermore it is not in the interest of public hospitals to make losses on non-subsidized procedures and these are “cost(ed)” and fully priced accordingly. BTW, a valuable portion of each radiology examination done anywhere that is often not quantified is the reporting expertise involved and reporting accuracy for that particular case. [Very pertinent points raised in both. The MRI machines are different with different capabilities and the expertise of reading also differs. In some set-ups, there are dedicated experts in a particular body part reading and even double-reads but all these add to the costs.]

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All in, the comparison may not even be apple for apple and it is difficult for patients to know the differences in the services offered, both in terms of scope and quality. Hence, a straight-on pricing analysis is not too meaningful. That said, the Ministry of Health uses this as the basis for the publishing of bill sizes for 70 common conditions.

Secondly, public and private sectors have very different cost structures. Private imaging providers have commercial pricing for all their costs including rental and labor (no access to lower-cost residents, trainees etc) while the public sector have higher overheads because of the policy intent to cross-subsidize the subsidized patients, education and research.

However, this may not be relevant to the patient or payer. In the aviation industry, no customer really cares how much Singapore Airlines or AirAsia pays for aeroplanes or fuel; the customer only cares about the price to him/herself. As Drs Loh and Cloma say in the latest issue of SMA News:

“What patients really want is simply: diagnosis and treatment, without mistakes, and without delays! That can be defined as of value to patients. That which is not, can be considered as waste.” (From the patient’s perspective)

The point about price of the entire episode is not really valid here as in the private sector, the entire episode is disaggregated into the component parts. In theory and increasingly in practice, there is nothing to stop patients from doing this disaggregating themselves, e.g. image capture in one facility (say private sector in Singapore), diagnostic evaluation in another (say public sector in Singapore)and definitive treatment in yet another (say private hospital in Thailand).

Finally, a note about ‘good enough’. Health technologies can be fitted into a 2 x 2 matrix with cost and effectiveness as the two axes. For higher cost, higher quality, e.g. better diagnostic accuracy, the question is “Is it worth the extra costs?” and for lower cost, lower quality, e.g. dental technicians doing scaling and polishing instead of dentists, the question is “Is it good enough?” Here, the professional community needs to be clear what is the Goldilocks standard (‘Not too hot, not too cold’)? Appropriate quality or expertise of reading and image capture at the right price for patients.

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One comment

  1. Some views compiled from Public Sector Hospital Leaders (I confess I am sympathetic and my experience similar to a neurosurgeon who shared his views, is that the price differentials are not usually so large and typiclly one to two hundred dollars)
    1. We can’t ascertain that the prices quoted are for identical level of service, i.e. with/without contrast, single/multiple regions, multiple slices, etc.
    2. We can’t determine if MRI machines used are identical (big cost difference between 3T and 1.5T scanners)
    3. We have no way to determine if radiologists/radiographers are of equal professional and technical competence (continuous education, accreditation, etc).
    4. The public sector MRI is available 24/7 so very different cost structure in running it. Cannot use differentiated pricing between day and night scans, especially for emergency life-or-death case.
    5. The MRI is hooked into our EMR. Both EMR & RISPACS are mission critical systems so there is High Availability, Disaster Recovery, & Business Continuity built in.
    6. Our images & reports go into EMR and eventually NEHR so we don’t depend on patients lugging films around, and running the risk of losing their films.
    7. If a patient has co-morbids, all his scans and reports will be accessible to every other discipline within the hospital. We don’t need his hard copy films & reports.
    8. The hospital is also a HIMSS Level 6 institution for digitization (only Level 7 is highest being completely paperless), besides being JCI, Magnet, ISO, OHSAS etc accredited.
    9. MRIs are only part of total spectrum of care. A more meaningful comparison would be Average Bill Size for private care as published by MOH.
    10. There is no existing rule which states that public healthcare must be cheaper at ALL levels when compared to private healthcare. The missions are totally different.

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