Understand the difference between retail and wholesale rates

Jan. 1, 2020
Wholesale rates provided to insurance companies should not be used to establish retail rates.
Passwater ABRN auto body repair collision repair retail rates wholesale rates DRPs direct repair programs A few months ago, I had some lesions on my leg that just didn't seem to heal properly, no matter what I did. My family doctor forwarded me to a "wound specialist." It so happened that the day of my appointment was the first day of the new medical plan effective date, but at the time it was not clear whether the old plan was going to stay in effect for that month or not. I only had my old insurance card with me, so I used it.

By the next appointment a few weeks later, I knew that the insurance card I had given them was incorrect, and provided them the new card, a new provider as well. Well, of course at first I got "Explanation of Benefits" notices from my old carrier listing that they did not pay any of the claim, because the policy was no longer in effect. Then I got notices from the hospital and doctor listing their charges. The pricing was staggering!

My appointments consisted of sitting in a chair for 30 to 45 minutes while several assistants and interns looked at my leg, took pictures and measurements, and put a dressing and bandage on it after the doctor walked in and said, "Hello, does it hurt?" Nothing specialized about that. The bill for the first appointment was a staggering $4,448, which did not include the doctor's bill of $1,097. I was expected to pay both!

Even stranger is that the subsequent bills for the next three visits sitting in the same chair in which the routine was exactly the same were about $300 to $470, each of which I was responsible for about $242 since my deductible had not been reached, and the doctor's bill was less than $40. The first bill has now been submitted to the correct insurer, so I'm assuming my bill will be adjusted accordingly.

What does this have to do with the collision industry? Everything! The medical industry is scrutinized and regulated even more than ours. The medical industry also has fought the insurers much longer than our own PPO/HMO programs, which we call direct repair programs (DRPs), have existed. The medical industry pours millions of dollars into lobbyists and still they have the most messed up system in the world that bills insurers $125 for an office visit and accepts a $30 co-pay and approximately $15 from the insurer as full payment. This is an extreme case of retail rates verses wholesale rates.

I am sure many in this industry don't know or understand the difference between the two or their significance in business. Many have been conditioned that the wholesale rates and "charged for procedures" provided to insurers or other wholesale rates in private business agreements, such as DRPs and fleet agreements, are to be used to establish prevailing market rates and practices in a county or market area. That is false, and courtroom cases have supported it almost unanimously. In fact, they should not enter into calculating the prevailing rate or practices at all. The prevailing rates and practices in a given county or market area should be based on your retail rates and practices, or what we used to call "door rates." These basic rates were always posted where anyone can clearly see them when entering the office. In some states this is still required; it is a practice we all should reconsider.

There is no obligation for you to provide the same "discounted rates and practices" to anyone who does not have a private business agreement with you. The courts concur that your rates do not have to be exactly what a legitimate prevailing rate survey using retail rates only as it should concludes to be consider "normal and customary". Your rates can fluctuate from 10 percent to 20 percent of the prevailing rate and be considered acceptable.

What is stopping you from taking back control of your market area? Have you analyzed your cost of business and set retail rates accordingly? Have you gotten involved with your association and performed a prevailing rate survey and posted it, so it is public information? We are working on that in Indiana by posting rates online at www.Indiana-shoprates.com. Have you posted your retail rates in your office so everyone can see them? If not, you're missing the point of owning your own business and are squandering a lot of dollars. Too bad you can't take those as a personal tax deduction. Then it might make some business sense.

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