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Hospital charge master (CDM) vs. Supply expense

typical_supply_expensesEvery hospital has a chargemaster or charge description master (CDM) list that often contains more than 45,000 line items. The CDM list includes every product, procedure, or labor cost incurred by the hospital…

Hospitals create chargemaster prices by multiplying the cost they pay for a product by 300 to 1200%…

An outlier payment is a special clause in most hospital contracts that triggers chargemaster reimbursements if the total CDM charge, not the actual cost of a procedure or treatment, exceeds an agreed upon threshold. For example, if a patient receives a total hip replacement under a commercial contract and the agreed upon reimbursement to the hospital is a bundled payment of $25,000, and if the charges (not the costs) exceed the $25,000 threshold, the entire treatment or procedure converts to a chargemaster reimbursement methodology…

…a hospital can increase its revenues simply by raising its chargemaster prices. Most hospitals do this yearly, triggering more outlier payments…

…because hospital reimbursement contracts are negotiated with each payor separately and depend on the relative leverage the hospital and health plan have with each other, every contract with every payor has different terms and conditions… This level of complexity makes it nearly impossible for Hospital CFOs to figure out how much reimbursement the hospital can expect on a patient-by-patient basis.

…how can a hospital administrator or CFO track the revenue generated by inpatient treatment when every patient has a different health plan, deductible, co-pay, and hospital contract with the health plan? By using something called the cost-to-charge ratio (CTCR).

…If you know the cost of the item and the chargemaster price, simply divide the cost by the chargemaster. Thus, if a hospital pays $1000 for a device and marks it up to $10,000, the CTCR is 0.1. The lower the number, the more likely that a product or procedure is revenue positive for the hospital.

Each year, hospitals submit average CTCRs for their departments to the Centers for Medicare & Medicaid Services. Published in the American Hospital Directory, these data are public… Most hospital labs have an average CTCR ranging from 0.2 to 0.09, making them one of the most profitable hospital departments, along with surgery, anesthesiology, and radiology. Typical revenue drains, such as labor and delivery departments, can have an average CTCR ranging from 0.9 to 1.5—clearly a less than profitable source of hospital revenue.(…read more)