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Kill Your Chargemaster



Regardless of how your organization looks on the massive list of hospital pricing data released to the public by the Centers for Medicare & Medicaid Services, you've got some strategic thinking to do.



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.
Rosemary Holliday, Principal Holliday & Associates (5/10/2013 at 2:09 PM)

Readers may be a bit confused both by the title of this article: "Kill your Chargemaster" and the suggestion to "...find a way to get rid of yours." Hospital information systems, compliance to CMS reporting requirements, and hospital payment for varied payers all rely on this master file. It is an essential hub to hospital financial processes. More poignant is the author's suggestion to "...find a way to make sure yours[Charge Master} doesn't portray you as a greedy outlier..." I haven't met a "Greedy" Hospital CFO in 20+ years. I have, however, seen many hospitals that have limited knowledge of detailed service-level costs, and even more with historic pricing methods that cause unrealistic charge amounts. I do agree with the theme of this piece: Hospital leaders should definitely consider this week's press about hospital pricing as an immediate "call to action". It's time for clear pricing policies, accurate Charge Master data files, and sound management strategies of the continuum of charge management.
Terry Nash (5/10/2013 at 1:29 PM)

Hospitals aren't going to "kill" their chargemasters. That's a bit like telling a dealership to get rid of their prices on car parts. It's not going to happen. One reason charges are high is because hospitals don't want to leave money on the table. Let's say you get reimbursed $1,000 from Medicare for a service, but $3,000 from a commercial payor. If lowered your price to $1,000 you just lost $2,000 from the commercial payor because they won't pay more than the price you charged - even if the contract allowed them to pay more. So hospitals set a price that will cover all payors. You can argue that some prices are still too high, but that's the reality of the 3rd party payor system. Change the price depending on the payor? Lawyers would be lining up out the door to sue for unfair pricing. It seems the biggest outcry surrounding prices comes from the uninsured who are sometimes stuck having to pay them. We can do one of two things: make everyone pay the same amount for the same service (good luck) or find a better way to discount services for the uninsured.
mrrogers (5/10/2013 at 1:15 PM)

Amen!
Jacob Kuriyan (5/10/2013 at 1:10 PM)

How refreshing when you contrast it with the Businessweek's cynical story that asserts the news item about varying hospital charges is "data rich but information poor". (http://www.businessweek.com/articles/2013-05-09/97-214-for-a-lung-infection-why-new-data-is-useless) Actually there are two other reasons why hospitals continue to use inflated charges. (i) Historically insurers paid providers based on UCC - usual and customary charges - meaning average of prevailing charges in a geographical region. The trade groups of providers encouraged them to bill "high" so that UCC leads to an artificially high number - and it worked. But Medicare switched to DRG and the insurers have followed as well. Old habits die hard, as far as hospitals are concerned. (ii) Often I hear the excuse that the Federal law requires that providers charge the "same" smount to everyone. I have never checked this out but providers used to go to a lot of trouble to follow this rule. If there is such a law, the intent may have been to make sure that the customers are not subject to wide variations in cost. Again the trade associations have frustrated this by using "uniform charge" instead of using uniform "payment" as a metric of fairness. You cannot underestimate how wily these critters are.