Why Hospitals Should Stop Automatic Chargemaster Increases

Hopefully your hospital's pricing strategy doesn't sound like this:

“Prices were set in cement a long time ago and just keep going up almost automatically.”

This was one Chief Financial Officer’s explanation of Chargemaster prices from the controversial 2013 Time Magazine article “Bitter Pill: Why Medical Bills Are Killing Us.”

The article highlighted the extreme cases of high prices at hospitals and even called several hospitals (by name) into question.

Although some of the findings in the report were later disputed, the article placed hospital pricing under a microscope and reinforced the need for defensible pricing.

Automatic price increases might be the traditional route, but the strategy opens itself up to scrutiny, inefficiencies, and a potential loss in net revenue. 

Because of these factors and the recent emphasis on increased price transparency and defensible pricing, hospitals are moving away from the "across the board" annual gross price increase and towards a modeling approach to predict how charge adjustments impact net revenue. Not only does this give finance a clearer picture of future net revenue, it creates a defensible pricing strategy if prices ever come into question. 

So where is a good starting point? When conducting a chargemaster review, it's important for the hospital to first determine its pricing objectives and parameters. These can include: 

1. Overall conditions such as gross revenue targets and minimum and maximum adjustments that achieve the desired net revenue.

2. Code level conditions such as minimum and maximum pricing changes by specific code or code category.

3. Comparison conditions of benchmark data, such as market rates, Medicare, or other payer payment rates, and/or unit costs with user-defined mark-up criteria.

4. Relationship conditions including charge codes where rate changes should move in tandem to maintain established relationships (levels of care, ER, OR, observation time, lab panels, etc.).

5. Category constraints such as price position objectives by clinical service category (cardiology, obstetrics, etc.) or revenue code/cost center.