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Defending the chargemaster

Hospitals and price transparency

The hospital chargemaster assumed a new role in 2013 – that of a villain in the story of the already high and growing costs of healthcare. But it may be a case of miscasting.

In March, Time magazine caused an uproar with the publication of Steven Brill’s 36-page report, "Bitter Pill: Why Medical Bills Are Killing Us." The account presents Brill's seven months of interviews and research into bills from hospitals, physicians, drug companies and others in the healthcare system.

At the center of the article was pricing for medical products and procedures listed in hospital chargemasters, which Brill characterized as "wildly inconsistent" with "no rationale."

On May 8, Brill reported on Time's website that the article had prompted federal action. "Health and Human Services Secretary Kathleen Sebelius released an enormous data file on May 8," Brill wrote, "that reveals (chargemaster) prices of all hospitals across the country for the 100 most common inpatient treatment services in 2011. It then compares those prices with what Medicare actually paid hospitals for the same treatments – which was typically a fraction of the chargemaster prices."

Americans are now closer to being able to compare what hospitals charge for goods and services with what they actually cost, Brill wrote. He went on to say that this data file, which printed out to more than 17,000 pages, "should become a tip sheet for reporters in every American city and town, who can now ask hospitals to explain their pricing."

That’s not a call many hospital officials associated with chargemaster maintenance will want to take.

Defensible pricing

"The interesting part (of the article) is it makes it sound as if the chargemaster tool itself was magically creating billing risks for acute care hospitals," said Mike Nolte, executive vice president and chief operating officer at MedAssets, which provides revenue management support to healthcare clients. "If anything, the Time article has resulted in the acceleration of conversations we've had for a number of years. Those conversations get clients thinking about getting to defensible pricing from a technology and service perspective."

The chargemaster itself is little more than a catalogue of pricing tied to services and products used in the care of patients.

"We very deliberately use the word 'defensible' when we talk about the chargemaster and what we do around it," Nolte said. "We approach it as a way to make sure it has an ethical and benchmark backdrop behind it."

MedAssets tries to create tool sets to provide payment interaction with a patient or provider, Nolte said. "But prices charged," he said, "are tied directly to benchmarks to allow our clients to have confidence that the prices associated with work they're doing with their patients is tied to something that has a national or regional benchmark."

Hospital pricing has gray areas, he said, and hospitals run risks when they make assumptions about what products cost. One can argue why a product or service costs a hospital what it does. But these are costs that hospitals have to pay for a product or service, and that cost is passed along.

Chargemaster solutions, Nolte said, are designed to help hospital clients establish more accurate, consistent and defensible pricing. Solution types offered by many vendors include the following.

• Patient transparency tools that help patients understand what part of a medical bill they are going to be responsible for as early in the process as possible.

• Pricing consistency tools that force pricing uniformity across an integrated delivery network. These solutions help ensure pricing at facilities with similar patient-payer mixes, geography and procedure offerings are as consistent as possible.

• Crosswalk tools that link a hospital's acquisition costs to pricing, which helps drive defensibility. This allows users to see benchmarks for standard acquisition costs. This information helps hospitals formulate reasonable markups to cover overhead.

These tools, coupled with consulting services, can help hospitals better understand their costs, and, in turn, determine realistic pricing.

"People must think about this as a way of doing business," Nolte said. "That's the most important part, making sure you use this approach in how you look at economics and the pricing of healthcare."

As for fielding that call about why your hospital charges a certain price for a box of gauze pads?

If you use the right tools, you can "prevent that conversation from happening in the first place," Nolte said.

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