What if Healthcare Was a Car Dealership?
What if healthcare was a car dealership? It would be the craziest car dealership ever, y’all.
Yeah, comparing healthcare to a car dealership seems a little bizarre. But this thought experiment unmasks financial complexities in our healthcare system.
We heard about the car dealership analogy from UNC Health CEO Dr. Wesley Burks, who spoke at a healthcare summit earlier this year.
Imagine a car dealership with 100 cars. If it worked like our healthcare system, here’s what would happen:
Multiple customers buy each car.
At a car dealership, there is one customer for each car.
Not so with healthcare, where there are usually at least two customers–the patient paying out-of-pocket costs, and the insurer.
And sometimes, the insurer creates payment barriers like prior authorizations, which are rising dramatically. Last year, the American Medical Association estimated that physicians and their staff spend the equivalent of two business days a week hassling with prior authorizations.
Insurer recalcitrance is the reason why healthcare administrative costs are rising. Only 75 percent of costs go towards actual patient care, McKinsey & Company estimates. The other 25 percent goes to the coders, billers, and other financial wizards that providers must hire to coax payments out of the insurers.
In short, healthcare insurers would be some pretty crappy customers if they were buying cars.
The car dealership must give away 5 of those 100 cars for free!
Providers end up giving away care all the time because the insurance company refuses to pay, the patient can’t pay out-of-pocket costs, or some combination of the two. Hospitals were left holding the bag for more than $42 billion in uncompensated care in 2020, the American Hospital Association estimates.
The cost of uncompensated care has doubled since 2002. We made some progress during the last decade as more Americans became insured under the Affordable Care Act, but we’re losing ground. The cost of uncompensated care is creeping back toward its 2012 high.
That’s one reason why more than half of our country’s hospitals ended up with a negative profit margin in 2022.
Meanwhile, more than 40 percent of Americans are carrying some kind of medical debt, the Kaiser Family Foundation estimates.
For 40% of the cars, the dealership must charge less than what the cars actually cost.
Health insurance companies have a monopoly. Five giant companies provide health insurance to more than 125 million Americans. The market is just as big as ‘Big Tech.’ The sheer size of payers puts providers at a disadvantage during contract negotiations.
The other big health insurance player? Federal and state governments. Medicare insures more than 65 million Americans, and Medicaid chips for 90 million. Federal programs pay between 189 and 264 percent less than private insurers for outpatient services.
That leaves our imaginary car dealership with only 55 cars that have any kind of profit margin out of the 100 on the lot.
Health care just doesn’t work like an ordinary “free market economy,” Dr. Burks told healthcare summit attendees.
And that’s a big reason why pricing transparency is so difficult in healthcare. “None of us created the healthcare financial system that we live with,” Dr. Burks stated. “We have to work within it as best as possible.”
Here at Marathon Medical, Inc., we want to help you work within this crazy system. Stay tuned this summer as we share tips from coding and billing experts on how providers can collect the reimbursement they deserve for their surgical work.
