The Chargemaster: What’s Really Behind Those Hospital Bills

Hospital prices for both inpatient and outpatient procedures, from surgery to clinic visits and MRIs, vary greatly from facility to facility. For example, the Bayonne Hospital Center in New Jersey charges $99,960 for a procedure to treat chronic obstructive pulmonary disease (COPD). The Lincoln Medical and Mental Health center, a scant 30 miles away in the Bronx, NY, charges a fraction for that same treatment: $7,044. Other hospitals fall somewhere within this cavernous range, confusing frustrated patients who try to anticipate their medical expenses.

So why the discrepancy between prices? The answer lies in the codex of hospital pricing: the chargemaster. A Charge Description Master (CDM), or “Chargemaster,” is a hospital-specific compendium of all the items that a hospital can bill to a payer, patient or facility, including insurance companies.

What’s important is the term “hospital specific,” which means that each hospital has its own chargemaster, and each one is different. This can make it incredibly difficult for a patient to try to decipher a hospital bill. It also leads to wildly varying prices for services. These prices usually have little relationship to what competitors charge or what Medicare or insurance companies remit to the hospital. Unfortunately, consumers without health insurance and those not covered by Medicare or Medicaid must empty their wallets to pay list price.

Hospitals don’t have uniform practices or guidelines for setting or changing prices. It is an administrative decision, largely independent of any market trends. One facility may raise prices for a procedure by 20%, while another keeps the cost low. In addition, the basis for charges is all over the map; one hospital may assign one overall price for a procedure, while another issues line item charges for specific portions of the service.

Some hospitals do try to base charges on overhead and the local market, but they’re in the minority. Smaller hospitals (those 150 beds and under) may view the chargemaster as an afterthought. This affects not only the patient’s bottom line but the amount of billing, clerical, and administrative work that goes into drawing up hospital bills and handling the resulting negotiations with payer institutions, like Medicaid, Medicare, and insurance giants.

Until recently, hospitals guarded their chargemaster strategies closely, and only those with the money to independently foot the bill for every charge had access to the nitty gritty details. Now, some portions have chargemaster data at hospitals across the country have become public knowledge. In an effort to bolster transparency and logic in the medical pricing process, the federal Centers for Medicare and Medicaid Services released a database in 2013 of how much the majority of US hospitals charge for the 100 most common inpatient procedures. As a dominant player in hospital payments, Medicare was able to release a fairly sizeable data set for patients to sift through and use to find the most affordable healthcare providers.

In response, healthcare facilities have mulled over price changes, debating whether to modify charges or simply leave them alone. Most agree that very little will change, as the cost to overhaul the chargemaster system would require a substantial investment of both time and money. As Chip Kahn, the president and CEO of the Federation of American Hospitals, stated, “I can promise you that if you got into the weeds here, you would immediately discover that [it’s not] as easy as it sounds. If someone decided tomorrow to do it, everybody could do it. But I’m telling you, it would cost billions of dollars.”

Sources:

Centers for Medicaid and Medicare Service
State of California Office of Statewide Health Planning and Development
Healthcare Finance News
Medscape
Huffington Post: Hospital Pricing Revelations Unlikely to Change Widely Disparate System
Huffington Post: Hospital Prices No Longer Secret as New Data Reveals Bewildering System, Staggering Cost Differences
Fierce Health Finance

About the Author
Iris Stone began her working as a freelance writer and researcher in 2011. Her business soon took off and she now owns and operates a writing and editing firm that works with clients all across the country. Despite the time it takes to run a business she still does much of the writing herself, and her work has included a variety of content related to education, medicine, healthcare careers, and science. Her interests actually span far beyond writing, and she is currently studying to be a physicist. Check out her Google+ Profile.