Healthcare Revenue Cycle Management, ICD-10, Claims Reimbursement, Medicare, Medicaid

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The Role of the Hospital Chargemaster in Revenue Cycle Management

The hospital chargemaster is how providers communicate medical bills to payers and patients. Comprehensive maintenance is key to preventing revenue leakage.

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The hospital charge description master, or hospital chargemaster, is at the heart of the healthcare revenue cycle, serving as the hospital’s starting point for billing patients and payers.

A hospital chargemaster is a list of all the billable services and items to a patient or a patient’s health insurance provider. The chargemaster captures the costs of each procedure, service, supply, prescription drug, and diagnostic test provided at the hospital, as well as any fees associated with services, such as equipment fees and room charges.

Charge capture through the chargemaster is an integral component of the hospital billing process. When a patient receives services from a hospital, providers document the encounter in the medical record and health information management staff or professional coders assign codes for reporting and claim submission.

Those codes and documentation are translated via charge capture to chargemaster rates. The charges are then used to bill the patient and create a claim for payers.

Maintaining an accurate hospital chargemaster is key to revenue integrity. An inadequate chargemaster can result in overpayment or underpayment, as well as claim rejections, undercharging for services, and compliance violations.

What is a hospital chargemaster?

Hospitals, and to a lesser extent physician practices, use the chargemaster to create a summary of charges and services. Hospital leaders also use chargemaster data to track service volume, costs, and revenue.

For each service, the chargemaster includes the following components:

  • Item number that is assigned by the facility and unique to one service line item
  • Current Procedural Terminology (CPT) or Healthcare Common Procedure Coding System (HCPCS) code
  • Item description that translates the CPT or HCPCS into a short text description
  • Revenue code
  • Charge amount or fee assigned to service line item
  • Alternative CPT/HCPCS code if codes overlap or additional codes are needed for specific payer
  • Numeric designation for department
  • General ledger number for accounting purposes

Each hospital determines its own chargemaster prices for the thousands of services performed by its providers.

While patients and payers are technically on the receiving end of chargemaster prices, healthcare stakeholders outside of the hospital are unlikely to gain access to hospital chargemaster prices. The charges on this list are generally considered proprietary information.

Hospitals use their chargemaster prices to negotiate reimbursement rates with private payers. And most patients do not see the chargemaster price from their hospital encounter unless they are uninsured and must actually pay the chargemaster rate.

Consequently, hospitals tend to set chargemaster prices to remain competitive and negotiate higher rates from private payers. As a result, their prices are usually significantly higher than actual costs of care.

A recent Health Affairs study showed that the average hospital with over 50 beds had a charge-to-cost ratio of 4.32, meaning that hospitals charged $432 when the service actually cost $100.

On average, hospitals charged over 20 times more their own costs in 2013 for CT scans and anesthesiology services, added the research team from Johns Hopkins Carey Business School and Bloomberg School of Public Health

“Hospitals apparently markup higher in the departments with more complex services because it is more difficult for patients to compare prices in these departments,” explained lead author Ge Bai, a Carey Business School Assistant Professor.

Hospital executives point out that most patients never pay the chargemaster rate and markups help the hospital to stay open and remain competitive. However, the push for increased hospital price transparency may soon lead many hospitals to reconsider how much they charge internally for services.

Setting chargemaster rates starts in the finance department, with the CFO overseeing the general pricing process, explains Rebecca Kidder, RN, CPC-P, Practice Lead Compliance/Audit at Advisory Solutions. But most hospitals have chargemaster teams or coordinators who own the process. Developing a team or relying on a single member of staff depends on hospital resources.

The team typically includes a director of finance, controller or chargemaster director, and support staff, including chargemaster analysts, nurse auditors, and other finance staff.

Chargemaster team or coordinator responsibilities should include gathering departmental reviews, deleting or replacing codes, assigning revenue codes, reviewing code changes and rates, identifying rates below Medicare rates, and educating other staff on pricing and billing processes.

The chargemaster team or coordinator should maintain open communication with clinicians to ensure the chargemaster contains all billable services and prices are accurate. Clinicians are on the front lines of patient care and know what services are in high demand and which ones are rarely used.

Chargemaster teams should also partner with coders and billers to make sure clinical documentation and coding practices align with the chargemaster. Inadequate coding could result in missing charges and leaked revenue.

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Ensuring hospital chargemaster maintenance

Hospital chargemaster maintenance is the primary responsibility of the designated team or coordinator. Maintenance is a continuous process that ensures all services are accurately charged, the hospital is compliant with government regulations for pricing, and the organization receives accurate reimbursement.

Hospital chargemaster maintenance can be especially challenging as public and private payers continuously update or change coding and reimbursement rules. CMS updates Medicare prospective payment systems every year and can also modify the systems as needed.

While private payers usually follow in the federal agency’s footsteps with certain coding and reimbursement changes, each payer maintains its own set of rules.

Chargemaster coordinators must keep abreast of coding and reimbursement changes to ensure the hospital maximizes reimbursement, reduces claim denials for coding errors, maintains an accurate chargemaster.

Hospitals should maintain their chargemaster lists by following the three C’s, advises the AAPC, formerly known as the American Academy of Professional Coders. The three C’s are correct, complete, compliant codes.

First, chargemaster coordinators should check that the correct codes are billed. Inaccuracies may exist between what is captured in the order entry system or EHR and what is being reported on the chargemaster. Common examples include:

  • Missing or inaccurate modifiers for radiology, physical/occupational/speech therapy, and other procedures
  • Assigning an unlisted HCPCS code when a specific code is available
  • Missing HCPCS codes for separately paid drugs
  • Assigning a deleted or non-billable code
  • Assigning a CPT code when an HCPCs code is necessary for Medicare billing

Coordinators should work with providers and other coding staff to correct workflows leading to improper coding. To improve workflows, coordinators should verify that line-item descriptions match the CPT/HCPCS and revenue codes.  They should change codes that do not represent the service provided. They may also add codes for items that should be reported with a CPT or HCPCS code and determine if modifiers are needed.

Second, hospitals should review for complete code sets in the chargemaster to guarantee that hospital departments can capture the charges for all the services and items provided to its patients.

Without complete code sets, departments cannot charge for all the services rendered, resulting in missed payments. For example, providers may inadvertently exclude Evaluation and Management (E/M) level of care, observation, drug administration, and add-on codes. Another common error is failing to assign both codes for procedures that can be reported using multiple codes.

Coordinators can ensure departments have and understand their complete code sets and line-items by:

  • Understanding the services provided by department
  • Asking department staff if they provide services without charging for them or if they lack an appropriate code to use for reporting
  • Reviewing new codes with staff to determine if additions to the chargemaster are necessary
  • Verifying applicable codes are not already on chargemaster
  • Verifying that chargemaster and order entry line-items accurately describe services rendered

The AAPC also recommended that hospitals review their chargemaster to maintain compliance with coding standards and federal, state, and commercial payer rules. Neglecting to adhere to government and payer rules can result in repayment to a payer after an inaccurate reimbursement or as a consequence of a healthcare fraud or abuse case.

“The best way to accomplish ‘compliant code’ is to interview department staff for verification,” the organization explained. “Ask the staff specific questions concerning compliant service code use to determine their general compliance knowledge and adherence. Regular compliance communication and education is also advisable.”

To review code compliance, hospitals should also identify, change, or remove line-items that should not be reported separately or are being reported inaccurately. For example, chargemaster coordinators should verify that commonly unbundled codes or separate procedure codes are appropriately used.

John Behn of Stroudwater Associates recommended that hospitals review their chargemaster more frequently. He suggested that hospitals audit their chargemaster lists quarterly instead of annually to ensure their chargemaster codes are as accurate and relevant as possible.

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How to Maximize Revenue Capture with Low Costs, High Quality

Improving healthcare price transparency through the hospital chargemaster

Traditionally, hospitals have been able to develop their own pricing methodologies and keep their strategies secret from other healthcare stakeholders. However, the industry-wide push for healthcare price transparency is starting to change how healthcare organizations calculate and guard their chargemaster rates.

In 2013, CMS launched the Medicare Provider Utilization and Payment Data section on its website. The data files compare hospital charges for the most popular healthcare services, ranging from inpatient to outpatient and home health care to Part D prescribers.

Some states have also implemented their own strategies for increasing healthcare price transparency. California requires hospitals to submit their chargemasters and relating pricing documents to the Office of Statewide Health Planning and Development website.

Consumers can use the website to view a hospital’s chargemaster, a list of average charges for 25 common outpatient procedures, and estimates of the percentage increase in gross revenue due to price changes.

In addition, Maryland and West Virginia regulate hospital charges. Maryland participates in a statewide all-payer model that pays hospitals the same rates for services regardless of payer, while West Virginia enacted legislation that limits hospital charges.

Efforts to publicly disclose chargemaster rates are likely to increase as healthcare consumerism continues to take hold of the industry. Consumers with high-deductible health plans and more financial responsibility for their medical bills are now shopping more frequently for cost-effective services.  

Hospitals that do not prioritize price transparency are at risk of losing patients to retail clinics, standalone surgical centers, and walk-in medical facilities, PricewaterhouseCoopers (PwC) recently reported.

“Consumers today are likely to discover, with a minimal amount of searching online, that standalone clinics often charge less than hospitals for commodity services such as routine blood work, imaging procedures and lab work,” PwC wrote.

“This increasingly is important because many consumers report being open to seeking care in new venues. More than one-third of consumers say they would be willing to go to a retail clinic for an imaging procedure, for example.”

Adventist Health System in Florida decided to combat this trend by reexamining its chargemaster, explained James English, the health system’s Vice President of Revenue Cycle Finance, in the report.

“Our marketplace was starting to tell us that the tolerance for what was going on, both from a rate perspective and a charge perspective, was no longer going to be acceptable,” he said.

“So, our executive team saw the horizon and said we now have to look internally and see what we can do to start marching down on rate and charges, decrease complexity, before our payers came and did it to us.”

Adventist Health System performed a market analysis on pricing and compared its prices to other hospitals in the market. Using the data, the health system pinpointed which services drove revenue and which services could undergo a price cut.

The health system found that decreasing some chargemaster rates by up to 40 percent would result in annual revenue losses between $50 million and $75 million. But Adventist Health System expects to absorb those losses over time as the system attracts additional patients.

“We can give back some revenues, but we wanted predictability,” explained English.

The hospital chargemaster is at the heart of the revenue cycle. The list of charges determines how much providers will receive for services rendered.

But to keep the revenue cycle heart pumping, hospitals should ensure they have a comprehensive maintenance strategy and team to quickly respond to healthcare price transparency and consumerism trends.

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