How Chargemasters Work in Hospital Settings

Patients are generally unaware of chargemasters. They are, of course, focused on becoming well. Chargemasters are, however, an important part of the way in which hospitals functions, and understanding the role they play can lend clarity to hospital billing practices and revenue streams.

What is a Chargemaster?

A chargemaster is a large electronic file maintained by a hospital system. The hospital administrator typically oversees the file and any chargemaster training that employees are required to have. The chargemaster file includes the following information: the charge for a single unit of service, specified by type, a current procedural terminology code for that service, A Healthcare Common Practice Coding System code for that service, and a revenue code for that service. 

How is the Chargemaster Used?

The chargemaster document, although it lists costs for each procedure, does not reflect the true cost of receiving healthcare. The rates included in the document are a baseline from which the hospital begins negotiations. These negotiations occur mostly with insurance companies to determine the rate at which they will reimburse the hospital for the procedure. 

Chargemasters, therefore, jack up the costs in order to have a higher position to begin the negotiations with. It’s not uncommon, for example, for the cost of a CT scan to have a charge-to-cost ratio of 30, while routine procedures are much lower at 1.5 to 2. Insurers negotiate what they are willing to pay, and insured patients then pay a co-pay or deductible. 

Who Maintains the Chargemaster?

Hospitals have teams of trained employees whose sole job is to manage the chargemaster. They usually work under the CFO, CIO, or hospital administrator. These employees keep track of medical codes, popularity of procedures, and what procedures are obsolete and should be discontinued. Maintaining an accurate chargemaster is crucial to the hospital’s revenue stream.

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