The Role of the Chargemaster in Hospital Revenue Management

It's no secret that the United States spends more on healthcare per person than any economically-developed country—with over $10,000 spent per resident in 2020 alone. Inflated prices recorded in hospital chargemasters are part of the driving force behind these expenditures.

What Is a Hospital Chargemaster?

A hospital chargemaster is a large electronic file that comprehensively lists all the billable services to patients, insurance companies, and other payers.

Also known as the hospital charge description master (CDM), it contains standardized revenue codes and hospital-specific coding, descriptions, and other data.

In summary, it is a dynamic record of hospital-assigned prices for diagnostic tests, equipment, fees, medications, prescription drugs, procedures, services, supplies, and treatments.

How Do Hospital Executives Use Chargemasters?

An accurate chargemaster plays a key role in preventing millions of dollars in revenue loss and ensuring regulatory compliance.

The data guides the calculation of prices, ensuring that charges comply with applicable regulations and payer requirements. Further, this information assists hospitals in negotiating reimbursement rates from private payers and serves as an essential record for public reporting and compliance, ultimately impacting the hospital's revenue cycle. 

The chargemaster may also track service volumes, revenues, and costs.

Setting chargemaster rates begins in a hospital's finance department, under the oversight of the Chief Financial Officer (CFO). Hospital executives collaborate with CDM teams and coordinators to address any chargemaster-related issues.

What Do Third-Party Administrators Need To Know About Hospital Chargemasters?

Third-party administrators must remain vigilant while reviewing claims to prevent overpayments, as chargemasters may not always reflect up-to-date information.

Numerous changes may occur to cause information to become outdated. For example, regulations may be enacted or reformed. Drugs can become available or discontinued. Or the American Medical Association (AMA) publishes changes to current procedural technology (CPT) codes. 

When these updates occur if hospital chargemaster teams do not stay abreast of the revised information, the risk of inaccurate billing increases.

Hospitals are encouraged to perform frequent—such as monthly or automated—chargemaster maintenance. Still, there is no guarantee that the hospital's chargemaster team applies these revenue cycle management best practices, which can result in faulty billing processes necessitating meticulous pre-payment claims reviews by payers.

Payers Rely on Hospitals To Maintain Chargemasters for Billing Integrity

Maintaining a hospital chargemaster is a dynamic process, often relying on full-time, dedicated teams. Hospital executives work with medical professionals to collect information on products and service volume, assessing whether they require modification or discontinuance. 

Additionally, these teams must align the coding with the International Classification of Diseases, Tenth Revision (ICD-10), and record other applicable updates.

Outdated chargemasters can lead to a variety of negative outcomes, including overpayments, missed payments, claim rejections, poor patient experience, and compliance violations. In addition to these possible errors, hospital staff may introduce inaccuracies during any stage of the day-to-day process of entering data into the system.

For example, hospital departments can assign unlisted Healthcare Common Procedure Coding System (HCPCS) codes when specific codes are available, leading to errors.

Most hospitals have a chargemaster team to oversee these processes and ensure that hospital staff correctly codes and charges all services and items. Additionally, chargemaster coordinators should verify that medical coding, line-item descriptions, revenue codes, and hospital-specific charge descriptions are correct.

The critical thing to remember is that maintenance duties reside with the hospital. Ultimately, payers must carefully review the bills produced by this unregulated, esoteric process to ensure charges are accurate before paying. As such, an AI-powered bill review service can be tremendously beneficial in ensuring payment integrity.

Chargemaster Prices Are Inflated, Confusing—and Strategic

Billing determined by chargemaster processes often becomes a source of confusion for patients, and here's why. These prices aren't intended for consumers but instead are inflated for third-party payers. Hospitals justify these amounts by claiming that the high markups give them more leverage in negotiating with insurance companies.

Moreover, each hospital has its own chargemaster, and there is no regulated standard for pricing. These disparities result in drastic variations between hospitals' charge-to-cost ratios, which rarely reflect the actual costs of products and services.

These practices produce medical bills that reflect strategic revenue management and non-cost-based variables to set pricing, such as market competitiveness and rates negotiated with insurance companies.

Progressive Efforts To Increase Transparency

In January 2021, a Trump administration rule required hospitals to publicly disclose rates negotiated with private payers, stemming from an executive order in 2019 requiring the online posting of hospital chargemaster prices for common services.

The intention of the rule is to increase transparency, ostensibly allowing consumers to comparison shop for medical services. However, most healthcare organizations' chargemaster data is so cryptic that the documents are difficult to understand, compare, and interpret. 

Furthermore, it is uncommon for consumers to shop around for medical services, particularly in emergency situations.

In addition, the prices listed aren't used for billing patients directly. Instead, they're modeled for a patient's health insurance provider. So, while increased transparency is good in concept, consumers will not know the amount of their bill without asking their insurance company what percentage of the chargemaster price is their responsibility.

In 2023, a separate rule will require insurers to make negotiated rates and out-of-pocket cost estimates available to consumers for 500 items and services. Regulations surrounding pricing transparency will be further enhanced the following year when insurers must provide the public with cost-sharing information on all goods and services.

Hospitals Own the Process, but AI-Powered Bill Reviews Drive the Savings

Relying on hospital chargemasters to produce accurate bills is a risky endeavor replete with possible billing inaccuracies. Alaffia Health uses AI technology to review chargemaster-based statements, providing the necessary protection to prevent overpayments. 

So schedule a call to learn how to take control of billing based on chargemaster prices to drive the payment-integrity process for your organization.