Moving Beyond the Chargemaster With Supply Materials Management

Debbie Emery, November 11, 2021

Supply costs are a top expense category for hospitals.

According to a Definitive Healthcare article, which examined changes in hospital medical and surgical supply costs, analyzed U.S. hospitals spent on average $27.4 million annually on supplies, including pharmaceuticals, in 2018, with supply chain spending representing about 33% of a hospital’s total operating expenditures.  

As hospital supply costs continue to rise and price transparency regulations increase consumers’ focus on charges, hospitals need to broaden their scope and perform regular reviews of both their chargemaster and their entire materials management system item master to improve revenue and reduce billing errors.

How the supply master and chargemaster relationship impacts compliance

Similar to pharmacy processes, hospitals must also manage the link between the supply master and the chargemaster to correctly code and bill medical supplies. The materials management item master contains all the supplies and goods purchased by the facility, and it has far more lines than the chargemaster. For example, a single charge line can be applied to multiple items in the item master. A comprehensive review is necessary to ensure compliance. The review must include the item master and confirm that the proper charge line (if appropriate) and HCPCS are assigned correctly to the supply item. 

Establishing proper charging and reporting processes for supplies is a complex process. Many factors can impact the chargemaster, including physician preference, vendor changes, contract changes, and the daily influx of new medical supplies.

Additionally, there is only general guidance available to hospitals on whether a medical supply is billable or not. The Centers for Medicare & Medicaid Services (CMS) only provides broad guidelines on what constitutes a billable supply. CMS guidance for supplies is found in a variety of places and is not centralized. Therefore, it is very time-consuming to research what to charge and appropriately bill for supplies.

At the same time, supply databases are not readily available to help hospitals determine whether a supply item meets the guidance of billable vs. non-billable. Appropriate HCPCS, if applicable, often must be researched by contacting the vendor for each item. Despite this complexity, the provider will need to justify that the billed supply meets the proper requirements if an audit occurs.

Minimizing risk through automation

Hospitals that apply CMS guidelines incorrectly or inconsistently when reporting supply charges risk increased claim edits, denials, and audits, impacting revenue. The primary reporting goal is always to remain compliant. Common issues hospitals run into include reporting items considered routine per CMS guidelines, reporting an incorrect HCPCS, or reporting a HCPCS when one is not appropriate. Improper reporting, including poor charge capture processes, missing charge lines for all billable supplies, HCPCS assignment issues, and missing HCPCS, can result in lost revenue.

Reviewing the chargemaster itself is not enough to decrease these impacts and ensure compliance. Hospitals must also make sure the billable materials management item master line items are tied to the correct charge line and items considered non-billable do not have an associated charge line for proper reporting to occur.

Most hospitals, however, do not have the staff or resources to perform a line-by-line look at supply data. These files can contain 75,000 line items or more entered over many years by individuals with different viewpoints. Files of this size are difficult to audit and often are not maintained retroactively as regulations change. An automated solution is the most efficient way to review the full materials management system item master. A comprehensive tool also can help hospitals quickly determine whether a product meets the guidelines to be charged and billed and provide the appropriate HCPCS if applicable. 

The path to success

It is vital that hospitals conduct an internal supply audit given the multi-disciplinary responsibilities spanning clinicians, buyers, coding, billing, and patient financial services. These internal audits allow hospitals to improve revenue and reduce the potential for billing errors. Complete and compliant medical supply billing requires communication and coordination between multiple departments as no single area has all the information for success. Ultimately, establishing regular maintenance for reviewing the supply charges to the item master supply lines will allow hospitals to keep charges accurate and compliant with ever-evolving supply inventory and regulation changes.

Beyond the Chargemaster

Debbie Emery, September 27, 2021

National hospital prescription drug expenditures are surging. In 2019, non-federal hospitals and clinics spent $36.9 billion and $90.3 billion, up 1.5 percent and 11.8 percent from 2018, respectively, according to a July 2020 article in the American Journal of Health System Pharmacy.

Similar increases were predicted for 2020.

As hospital prescription drug spending continues its upward trajectory, now more than ever, it is critical that provider organizations perform comprehensive recurring pharmacy formulary reviews to stay compliant with the main accreditation organizations and to ensure they are correctly reimbursed for their drug spend.

Compliance: The critical link between the pharmacy formulary and the chargemaster

Administered medications must be properly documented to support coding and billing requirements for pharmaceutical drugs. As part of this process, clinicians document the administration of drugs in a permanent medical record. Drugs are identified and reported using a HCPCS code, if applicable, and unique number called the National Drug Code (NDC), which serves as a universal product identifier for the drugs.

Managing the link between the pharmacy formulary and chargemaster is important because of the significant impact on compliance and revenue. The pharmacy department is often an area of focus for financial and compliance audits, given its significant budget allocation and impact on patient care.  

The pharmacy department is the subject of surveys, site visits, and audits by accreditation groups, including the Centers for Medicare & Medicaid Services, Office of Inspector General, and state licensing boards for pharmacy and medicine. Beyond these audits, there are many unique factors to a pharmacy department that can impact the chargemaster, including new drugs and new applications for drugs, which occur frequently. Also, physician preferences change on manufacturer, and there are also vendor procurement changes. All these factors could impact the chargemaster, and due to sheer volume they are very time-consuming to research.

Charge lines from the chargemaster can be applied to multiple items in the pharmacy formulary. If inaccuracies exist, this has the potential for amplified erroneous reporting. A comprehensive formulary review is required to ensure compliance and that each drug has the proper charge line mapped and HCPCS and bill unit assigned.

Identifying top risks in the pharmacy

Auditing the pharmacy process promotes compliance and financial viability. During a pharmacy formulary audit, it is important to assess how the chargemaster is generating the drug charge using the NDC number and identifying if a bill unit is applicable and accurate. Bill unit conversions are complicated and a source of lost revenue if done incorrectly or not maintained as regulations and packaging change. If bill units are under-or over-stated, this can lead to compliance risk and impact revenues.

Additionally, an analysis of charge capture processes is important to identify missed pharmacy charges which are another risk area. It is critical to bill for all drugs correctly. Appropriate reporting is always the best way to remain compliant. Incorrect reporting creates rework, compliance risk, and improper reimbursement.

Key steps to improve accuracy

How can hospitals improve the accuracy of interdependencies between the chargemaster and the pharmacy formulary? It is not enough to solely ensure that chargemaster elements are accurate. Many hospitals have applications that automate the review of the chargemaster, although the guidance provided usually is not thorough enough. Hospitals must go beyond the chargemaster and ensure the pharmacy formulary line items are tied to the correct charge line, therefore ensuring proper HCPCS and bill unit assignment is made to each drug.

These processes should be supported by an automated solution to enable efficient and accurate setup of the chargemaster and pharmacy mapping. The right tool can assist in the review and compliant setup of newly procured pharmaceuticals and automate a complete review of the entire formulary in minutes. This is essential as the formulary can be up to 50,000 line items or more and populated with charge data elements over many years by many individuals with potentially differing viewpoints. Files of this size are difficult to audit and are often not maintained retroactively as regulations change.

Many hospitals have processes in place to accomplish a chargemaster review. Yet, a manual review of the entire pharmacy formulary rarely occurs due to the high volume. Now is the time to go beyond the chargemaster and build in applications that efficiently review the pharmacy formulary in its entirety. Doing so allows a hospital to ensure pharmacy charge accuracy, compliance, and accurate reimbursement.

Part Two Coming Soon: Supply Materials Management Item Master Reviews

Debbie Emery is a senior product manager at Optum. She has expertise creating and maintaining hospital chargemasters, claims edit resolutions related to charge practices, and RAC and post payment defense audits. Previously serving as the director of revenue assurance for a 38-hospital system, she helped develop and implement a corporate standard CDM, standardized charge practices, conducted charge/medical necessity audits and provided system-wide education.