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Kill Your Chargemaster

Philip Betbeze, for HealthLeaders Media, May 10, 2013

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.

When you came to work yesterday, surely you spent some time combing through the massive amount of data released Wednesday by the Centers for Medicare & Medicaid Services regarding hospital procedure pricing.


MU proposed rules

How much hospitals charge for the same procedures (source: The New York Times)

After your tour through data on your hospital or health system and your local competitors, you're either embarrassed or pleased, depending on where your hospital or health system landed on the continuum. Probably, you're feeling a little bit of both.

Likely, you're pleased if you landed right in the middle. If you're at either end of the price continuum, you're likely looking for ways to address the problem. But regardless of how your organization looks on the list, you have some work to do.

Hospital pricing, as we all know, is complex. But if you're the CEO of Brookwood Hospital in Birmingham, AL, and your hospital is charging $87,065 to treat chronic obstructive pulmonary disease while across town, St. Vincent Hospital is charging $23,245, you have a problem today where you didn't yesterday.

But wait, you say, Medicare isn't paying Brookwood the full amount (it's actually paying $7,473), and it's not paying St. Vincent that amount either (it's actually paying $7,027).

Since the two are in the same small geographical area, Medicare is paying them both roughly the same amount for the procedure. As you know, Medicare pays based on a system of standardized payments based on the DRG.

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8 comments on "Kill Your Chargemaster"


phil (12/5/2014 at 10:25 AM)
Assuming there are convoluted arguments being passed around and along to help talk down accusations of plain ol outright gouging, I would expect points on the map of such apologisms to be colored most heavily upon the "greedy outlier"s. And then where is all that money winding up? All the way down to second tier administrator multi-millionaires, throughout the industry from hospitals to pharmas all the way to equipment makers??? The chargemaster, being inanimate software, can't be pocketing it, or buying mansions, yachts and sports cars with it, although I gather the phrase "don't ask me, ask the chargemaster" has been paraphrased a great many times when gumshoe reporters show up. Anyway, pattern recognition is a powerful tool once the will and authority is in place to bring that hammer down.

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