02 October 2013

Morose Reactionary Insurance

A while back, I mused that even the 1% would need Obamacare. I offered up the non-data based, just logical, argument that MRIs would become too expensive, due to the high fixed cost relative to marginal cost, should the number of scans be substantially reduced. Without Obamacare, and the increase in the uninsured, eventually the "poor" will be allowed to suffer (and die). No MRI for you.

Finding actual data on the specific fixed/marginal load isn't easy. I've finally found a Nova Scotia study which helps. (See Appendix C, the total cost is about $3 million.)
A conventional high field fixed site can be sited with appropriate shielding, connectivity, receiving and waiting room all in the vicinity of 2.6 million dollars. In addition, "uptime" is reported to be higher in a fixed site.

It is recommended that the province fund and operate each scanner eight hours a day, five days a week, booking 14 patients per day. Each scanner operating 50 weeks per year at 70 scans per week would provide up to 3500 scans on an annual basis. This would increase capacity up to 7,000 scans. This would bring the Province of Nova Scotia closer to the national average. Current data is changing in view of the rapid diffusion of MRI technology across the country.

If you look at the detail on page 20ff, you'll see how tiny the true variable costs are. The staff is salaried (i.e., in normal accounting they'd be paid from one account, and "billed" back per MRI to another). The variable costs, "supplies" of various sorts, come to $87,000 per year. That's $24/MRI. As to the fixed cost, let's say interest free amortization over 5 years for the $3 million installation. That's $600,000 per year. Remaining fixed cost is $535,000 per year. So, we're left with $1,135,000 to defray for each yearly block of 3,500 scans. That comes to $324/scan. As simple arithmetic makes clear, viability is highly dependent on usage. Cut the usage in half, and total cost nearly doubles. Yes, for once the world is linear. For more expensive procedures, robotic surgery machines for example, their vendors will simply go out of business. Rand would be so happy that we've found a way to rid the world of useless cripples.

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