Essential Elements of Charge Protection Language

 

The chargemaster, or CDM (charge description master), is an integral component of hospital financial strategy, reimbursement, and the revenue cycle. It is important to understand the complexities of the CDM as well as the consequences of even seemingly simple changes.

Throughout the year, this “menu” of hospital service prices changes to reflect minor adjustments. Larger modifications are typically implemented at least once a year to maintain policy changes and stay competitive in an ever changing healthcare market. While raising prices can appear to lead to higher payments from managed care payers, charge increase limitations are often  negotiated to prevent sizeable payment increases.

The limit percent itself as well as how the payer evaluates the change to charges determines how restrictive a limit will be. Limits can range from a fully restrictive 0 percent upward to as high as 9% in some cases, with a usual average of around 4 to 5 percent. The percent can be defined in the contract, or tied to a published amount – typically some component of the consumer price index (CPI).

An increase to the chargemaster can have a different impact on contract terms depending on how the payer evaluates the charge increase. Though many payers evaluate the overall change to the chargemaster, other methods can be used. A few of the most common are as follows.

  • Overall change to health plan’s patient mix
  • Overall change reported separately for inpatient and outpatient services
  • Overall change reported for services paid a percent of charge

Multiple departments, including managed care, chargemaster, and finance should work together to align financial strategies with knowledge of how managed care contract language plays into the bottom line. It is critical for hospitals to understand how limits are determined, as well as how health plans are evaluating reported charge adjustments. Understanding these components can help hospitals evaluate net revenue impacts that are the result of charge adjustments while remaining in line with financial goals.

 

By Laura Jacobson, RHIA, CSMC

Data Quality and Reimbursement Consultant

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