Master your chargemaster: is your hospital's chargemaster friend or foe? It's a vital element in the revenue cycle, but it can present challenges

Healthcare Financial Management, Sept, 2005 by Duane C. Abbey, Jodee E. Collins

Are your hospital's claims clean? Complete? Accurate? Do your itemized statements provide the appropriate details to support the claim? If not, you may not be receiving proper payment for services provided.

The chargemaster is an integral part of the process for developing claims that are submitted and from which payment is received. How the chargemaster is established, the process for changing, the coding interface, pricing, and the use of revenue codes are all important for producing complete, accurate claims. Written policies and procedures should guide decisions made in establishing the chargemaster and how it is used.

Pricing and Charge Development

Charges in the chargemaster should be consistent and based on costs. Exceptions can occur for special charges as long as the hospital's cost report is appropriately adjusted, generally by "grossing up" the charges.

There are many different approaches to pricing, and third-party payers, including the Medicare program, use a multitude of payment systems. Hospitals are challenged to establish charges that comply with regulatory guidelines and ensure the receipt of proper payment. When setting prices, many hospitals first address Medicare issues, because Medicare is their major payer and/or the compliance concerns surrounding Medicare are preeminent. Keep in mind that Medicare uses a hospital's charges and cost report to statistically determine the payments made under systems such as diagnosis-related groups and ambulatory payment classifications. Thus, as a general rule, a hospital's charge levels should be set at least at its cost divided by the appropriate cost-to-charge ratio from the cost report. Using this calculation as a starting point, when Medicare translates a hospital's charges into costs, the calculated costs will be aligned with the hospital's actual costs.

Although the process of setting charges at least at the level of costs divided by the appropriate CCR is easily stated, using this process is more difficult. The first question that will arise is how to calculate cost. For certain items, such as supplies, the hospital knows the acquisition cost, but may need a separate formula for calculating the fully loaded cost, which would include associated costs such as storage, delivery, and overhead. The determination of cost becomes more problematic when, for instance, considering the use of an operating suite for a given time unit. Some hospitals have cost accounting systems that can provide this type of information; others do not.

Another question is how to use the CCRs. Various CCRs are derived from the Medicare cost report. Additionally, depending on how the cost report is prepared, there may be different categories or levels of detail for the CCRs. Without a specific CCR for the service or item being provided, the hospital will need to use its overall CCR.

The challenges with this situation are apparent in Medicare payments for blood products. As reported in the Aug. 16, 2004, Federal Register (69 FR 50504-50505), the Centers for Medicare and Medicaid Services was significantly underpaying for blood products. Since implementation of APCs in 2000, hospitals have increasingly noted that payment for blood and blood products was below hospitals' costs. CMS performed a study and determined that the problem lies with the alignment of CCRs for blood and blood products. Some hospitals were not reporting a separate CCR for revenue codes 38X or 390. As a result, CMS used the overall hospital CCR, which is significantly higher than the blood-specific CCRs, thereby causing the underpayments.

Pricing example: drug-eluting stents. Drug-eluting stents are frequently used for inpatient and outpatient services. These stents are approved for coronary use, but their use for noncoronary or vascular procedures also will become common. The stents are relatively expensive. With their introduction and U.S. Food and Drug Administration approval, Medicare established elevated payment levels for DRGs and APCs. As a starting point, CMS established a relatively low payment rate of about $1,200, expecting payment levels to self-adjust based on true costs being reported by hospitals through their charges.

A brief analysis of the drug-eluting stent DRGs and APCs shows that payment levels have decreased over the past several years. In general, hospitals point out that Medicare's payment is well below the increased cost for these stents. This means one of two things: Either hospitals are not charging for these stents, or the charge level has not been appropriately elevated. This situation has no short-term solution. Chargemaster coordinators should consider how to appropriately charge for services using drug-eluting stents.

Note that drug-eluting stents are just one example of a vast array of supplies, drugs, and/or implantable items for which appropriate charges must be made.

Coding and Modifier Development

With the advent of APCs, the need for the proper current procedural terminology and healthcare common procedure coding system codes, along with appropriate modifiers, is essential to gain proper payment. Coding is driven directly through the chargemaster for certain hospital service areas, such as the laboratory and radiology.