Making prices make sense: a balanced approach to defensible prices: this project is a collaborative effort by MedAssets and the Healthcare Financial Management Association

Healthcare Financial Management, July, 2005

Likewise, benchmarking may also help a provider to rethink the price of a certain service or revisit decisions about what services are going to be offered. If a provider's price for a certain service is well out of line with what other market providers are charging--say $10,000 for a certain procedure versus $5,000 for the market average--that may indicate the price or some element of the service has to be changed.

Harris says that price modeling at Washoe includes a combination of benchmarking and cost-based analysis. The benchmarking, which includes MedPAR data as well as proprietary data, serves to identify areas where Washoe may be out of line, either above or below the market average, which then allows Washoe to evaluate what charges are appropriate.

"We have looked at certain areas where we might not be capturing all the charges we can to see what kinds of improvements we might be able to make," she explains. "That probably has been a big area of focus for us--going through certain departments and making sure that we're capturing all the charges that are appropriate to bill."

Harris adds that it's difficult to gauge whether Washoe's prices are vastly different from those of other hospitals in the market, because the benchmarking data are collective, and individual hospitals are legally restricted from having access to other hospitals' chargemasters. "I think the real value for us is keeping up with regulatory changes and making sure that when the codes change for certain procedures everything gets changed in our CDM," she says.

When to Implement Price Modeling

How often a price modeling strategy is implemented depends on the model used. In general, an annual review is sufficient for benchmarking prices. A cost-based model is a bit more complicated because costs can change every day--a change in employee pay rates, an increase in the costs of a supply, and the emergence of a new technology all have the potential to affect costs. So a hospital may want to review certain costs, such as for supplies or pharmaceuticals, on a quarterly basis.

At the same time, if prices are constantly changing, financial reporting becomes a challenge. It can be hard to track trends and revenue fluctuations if there's a moving target. For this reason, many hospitals maintain a set price for their services during the course of each year and make changes at the beginning of the next fiscal year.

Consultant Ventrone says price modeling should be performed, in general, at least annually, while most cost accounting systems will provide data more frequently, such as quarterly or semiannually. A market analysis requires comparative hospital data, and most facilities will limit this action to annually or once every other year.

Scrutinizing the Chargemaster

Defensible pricing necessarily means having a defensible chargemaster--one that would be able to withstand public scrutiny. Some say it would be wise for hospitals with multiple facilities in the same market area to find some way of synchronizing their chargemasters.