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Kill Your Chargemaster

Philip Betbeze, for HealthLeaders Media, May 10, 2013

A major joint replacement at St. Thomas Hospital, an Ascension hospital, is billed to Medicare at $45,029, and Medicare pays $12,081. At Vanderbilt University Medical Center, a teaching hospital, a major joint replacement is billed to Medicare for $59,822, and Medicare pays $18,386. I can reach both of these hospitals from my house in five minutes. Which one appears to be the better value, no matter who's paying?

And finally, insurers should ponder the relevance of the release of hospital pricing data. In my experience, they use chargemaster data to show you, as a patient, how much they're doing for you in getting cheaper care.

If you pay first-dollar coverage like I do, you cast a jaundiced eye at explanation of benefits memos that list the charge for the care and then show you the negotiated rate as a means to convey how much they've saved for you based on your premiums. Others likely see that information less cynically, but they're learning.

If chargemasters are so irrelevant to reimbursement, find a way to get rid of yours.

And if they're not irrelevant, find a way to make sure yours doesn't portray you as a greedy outlier, because this is only the latest attempt to shine the light of day onto how we as a nation pay for healthcare. Others are on the way.


Philip Betbeze is senior leadership editor with HealthLeaders Media.
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7 comments on "Kill Your Chargemaster"


stefani daniels (5/23/2013 at 10:38 AM)
Mr. Poggio is right on target. The chargemaster is a legacy leftover from the old CBR days - which is true for many of the hospital 'business' activities. It relates closely to the hospital's continued use of LOS as the primary indicator for resource efficiency. In my HealthLeaders article, The Myth of Length of Stay, I contend that LOS is a holdover metric when it was the only measure that the hospital could easily access. Over the years its become a surrogate for efficient delivery of hospital services and physician practice behaviors. Similarly, the chargemaster is the legacy surrogate for accurately pricing hospital services.

Frank Poggio (5/13/2013 at 8:30 PM)
Here's the 'satisfactory answer you've been after... If there was ever a report that was self-indicting this is it. Yes hospital charges are non-sense, all over the map, not based on logic, etc. All true. But how'd that happen. As a former CFO I can tell you it was all done via the Medicare Cost Report, the core basis of Medicare payment system. For almost five decades the government has used the Cost Report, and a myriad of other convoluted reimbursement systems, to calculate payments to hospitals. So over the decades any good CFO would make sure that his charges maximized his governmental payments. And Medicare and Medicaid usually make up 60% or the his total payments. Some fifty thirty years ago charges became a substitute for statistics and cost accounting to estimate how much the government was going to pay you. Ever hear of RCCAC? That's the Ratio of Costs to Charges as Applied to Costs, a key calculation in the Cost Report. One of the most insane ways of 'identifying' costs ever cooked up. And it's still used today! Hospitals get paid based on DRGs, but still must do a Cost Report to justify the DRG amounts. I was around in 1983 when the feds came up with DRGs, they said back then the DRG system would replace the Cost report...and here we are 30 years later- with both! If you want to know why charges are a mess...just look at the Cost Report, and ask who created that monster?Oh, the government ...the same one that now complains about warped prices? What did they expect? Frank Poggio The Kelzon Group KelzonGroup.com

Michael Cylkowski (5/10/2013 at 3:45 PM)
Interesting suggestion Phil and one reason it probably won't be followed is the claim by hospitals about how much money they lose treating indigent patients. I listened to a Board Chairman of a large system talk about how their main hospital loses $18 Million per month just treating the indigent. He was making the case for our state to accept the Medicaid supplement. So, the more outrageous the charge master, the bigger the leverage for claiming unsustainable losses.