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Hospital Chargemaster Basics: What It Is, How It Works, and Why It’s So Important

We know that hospitals are continually adding new people to their teams, and some may have limited experience in healthcare revenue cycle. We put this resource together to help you provide an overview for these folks, covering the hospital chargemaster – aka charge description master, CDM — or EAP if you use Epic. Bookmark this page for future reference and to provide to new hires as they are onboarding.

What Is The Hospital Chargemaster?

The chargemaster, or charge description master (CDM), is a database that contains a comprehensive listing of items that could produce a charge. The chargemaster will have a record for everything in the health system that relates to patient care. Broadly speaking, the chargemaster includes charge data about:

  • Procedures and services provided by hospital personnel and supported by hospital facilities
  • Supplies, devices, products
  • Drugs

Every clinical department that provides a service or product to a patient will have representation in the CDM. The data is used to charge accurately for those services or products in accord with regulations and payor requirements. The opposite is also true, any service that’s not represented in the CDM can’t be charged for, and won’t result in a charge.

Hopefully it’s already becoming clear why the chargemaster is so important to the hospital’s financial health. We’ll pick that train of thought up in more detail later, but first, let’s go over some of the data that the chargemaster manages. This will help us better understand how it works.

Overview of Hospital Chargemaster Data

The data in the CDM describes the nature and price of services provided. Refer to the figure below for some examples, and we’ll go column by column and discuss each data field.

CDM Data Examples

Department Number

The department number reflects the department from which the service, drug, or product was supplied to the patient. Department numbers are hospital-specific and not nationally standardized.

Charge Code

This is a unique code that identifies a specific charge for a specific device, service, or drug. Things like a chest x-ray, a drug like Zofran, or a device, such as a pacemaker. No two charge codes are the same.

Charge Description

These are text descriptions that identify the item or service being charged, and they're usually compressed to 26 to 36 characters in length. The character limitations are imposed by the various patient accounting systems (PAS) in use. Charge descriptions are hospital-specific.

Revenue Codes

Revenue codes are universal and not hospital-specific. All hospitals across the country use the same revenue codes. They’re established by the NUBC (National Uniform Billing Committee). Some payers prefer specific revenue codes for some services.

CPT or HCPCS

CPT are created and maintained by the American Medical Association (AMA) and are universal across all hospitals. HCPCS codes are created and maintained by the Center for Medicare and Medicaid Services (CMS). These codes represent the particular service or item that you are charging for, but may also have specific payor requirements.

Modifiers

Modifiers are specific to particular codes, with the most prevalent ones being for laterality (right / left). Others may describe digits, or providers: such as GPs, physical therapists, speech therapists, etc. Some modifiers impact reimbursement and others do not.

Price

There is often confusion between price and cost. The “price” is the price the hospital charges the patient, while the “cost” is the expense to the hospital to provide the service (e.g. overhead, salaries, equipment, supply and drug expenses). Price = patient cost. Cost = hospital cost.

There are additional data files that may or may not be housed within your CDM system. Things like cost, fee schedules, and manufacturers. We believe a modern CDM solution should be able to house all these things in a single tool.

Maintaining The Hospital Chargemaster

The CDM is dynamic, as procedures, packages, drugs, regulations, and codes are constantly changing. But it must be maintained as the “master” authority for this information. The information can become outdated within days, even hours, and it can change immensely over months and years.

When does the CDM change? The most common reasons are:

  • New billable services and items
  • Items or services no longer billable
  • Annual and periodic code changes
  • CMS regulatory changes
  • Other regulatory guidance
  • Payer contract changes
  • New departments created
  • Changes in cost to provide services, drug or supplies

In some ways, it’s better to think of the CDM more as a workplace than as a data repository. An effective workflow mechanism in your CDM solution is crucial for agile maintenance of your chargemaster.

In addition to daily maintenance, most organizations employ a combination of audits and formal reviews in order to ensure: 1) That CDM data is kept up to date and accurate; 2) That older codes are cleaned out of the system; 3) That charges exist for all billable services, drugs and supplies; 4) That interfaces and ancillary systems are functioning properly; and 5) That proper procedures are being followed throughout the revenue cycle ecosystem. A trusted CDM typically requires a combination of:

  • Quarterly Reviews
  • Annual Reviews
  • Ad Hoc / Charge Capture Audits

These reviews can focus on various aspects of the data, or the overall function and efficacy of the various teams charging and bill for services. Here are a couple of additional resources on how to run year-end chargemaster changes and charge capture audits.

Maintaining Ancillary CDM Files

Pharmacy, professional, supplies, soft codes… there are plenty of other data points that need to be maintained similar to your chargemaster. If you’re using a legacy CDM solution, you may need to login to different tools or download separate spreadsheets to manage. If you’re using VitalCDM, all of these files and departments can be managed within the same solution. Pharmacy is one of the most common examples of an ancillary system, and will include data points like the cost of the drug, the NDC code, the route of administration, strength, and billing conversion factor.

Deactivating Charges and Cleaning House

The CDM should be a current snapshot. It’s important to have tools and processes that makes it easy to deactivate charges that are no longer active so they can’t be accidentally charged on a patient account. It’s too common for facilities to never deactivate any data, and that almost always causes confusion and rejected claims. Learn to use deactivation and set up a regular cadence (monthly, quarterly, or annually) to review codes and procedures that are rarely or never used. You’ll be happy you did.

How Does The Hospital Chargemaster Work?

The CDM is at the center of the patient financial system, which is why it’s often called the foundation of the mid-revenue cycle. It links to many feeder systems like your clinical system , order-entry, electronic health records, and your materials management system.

In the simplest terms, the chargemaster is where charge information is accessed and distributed by the systems that either generate charges, or use charge data to prepare the itemized bill and claim.

In the simplest terms, the chargemaster is where charge information is accessed and distributed by the systems that either generate charges, or use charge data to prepare the itemized bill and claim.

Common Charge Generation Workflows

Let’s take a look at a few typical procedural examples to better understand common CDM workflows. In every case, the chargemaster is being consulted, and data is drawn from it, to match the charge to the specified procedure, item, or drug.

Example 1

Radiology Order

We’ll begin with a radiology example. Typically, a chest x-ray is ordered in the order entry system and then sent over to radiology to perform the test. Once the “complete” designation is entered, the radiology system will trigger a charge for the chest x-ray to be added to the patient’s account. The charging mechanism here is “charge on completion”, meaning the charge is generated once the procedure is completed. In a simple process flow, it looks like this:

order entry > order acknowledged by radiology > X-ray performed > marked as completed > charge generated

Once the charge is generated, it goes through the patient accounting system, into the billing system, and finally ends up on the claim.

Example 2

Lab Order

This time let’s look at a common process flow for a lab-test, like a simple CBC:

order entry > order acknowledged > lab test performed > lab test resulted > charge generated

Note that the laboratory is usually a “charge on result” mechanism, meaning the charge is produced through the CDM once the result is noted. From there, it again goes to the patient accounting system, over to billing, and then the claim.

Example 3

Charge Via Documentation

Another increasingly common path for generating charges is through documentation. EHR systems have grown increasingly sophisticated over the years, so many hospitals are capturing charging via documentation by linking documentation of care given directly to the charging mechanism. This approach has taken hold specifically for calculating the evaluation and management (E/M) service level codes. The EHR system analyzes the documentation and assigns points to arrive at the suggested final E/M level.

Why Is The Hospital Chargemaster So Important?

Remember, all patient charges are generated from the chargemaster and tie directly to revenue.

The UB-04 is the standard form used to bill all insurance payors. Charges from the CDM populate the entirety of the middle of that form.

Examples of what will appear on the UB-04:

  • Revenue codes
  • Descriptions
  • CPT/ HCPCS codes
  • Modifiers
  • Dates of service
  • Units of service
  • Covered charges
  • Non-covered charges

Other Key Uses For Chargemaster Data

Cost Reporting

Medicare-certified providers are required to submit an annual cost report to CMS. This report contains information such as facility-characteristics, utilization data, cost and charges by cost center, and cost and charges by department (tracked in total, and separately for Medicare). These reports also include Medicare settlement and financial statement data.

Budgeting and Resource Allocation

Hospitals with up-to-date, clean chargemasters are able to place greater trust in the data they use for strategic financial planning. Revenue generated by various hospital departments and procedures can be tracked through the revenue and usage figures associated with the charges in the CDM.

Inventory Tracking

For those hospitals without separate supply management systems, the CDM can be used to track supply utilization. Even if they have another system, validating against the CDM is worthwhile.

The Big Picture In Review…

A good grasp of the basics helps hospital personnel understand the crucial role the chargemaster plays. The keys to success with the chargemaster can be summed up rather easily:

Make sure it’s complete. A chargemaster that can’t consume and represent all of your facility’s charge data is inefficient right out of the chute. The likelihood of error and mismatching data is multiplied significantly when the chargemaster doesn’t live up to the “master” part of its name.

Make sure it’s maintained. The chargemaster is a moving target — a snapshot of that current moment in coding and clinical data. Keeping it up-to-date takes dedicated work and expertise, but it also requires a system that is designed to be continuously updated. A good chargemaster is not merely a data warehouse, but also a place where people constantly work and collaborate together.

Make sure it’s connected. Appreciate the central position the chargemaster occupies. Get as much of the data as you can flowing in and out of the chargemaster automatically so manual uploads and downloads aren’t necessary.

When it’s all said and done, your chargemaster is there to help ensure that your charges are clean, accurate, and properly composed. Chargemaster maintenance alone won’t do that for you, but it’s a good start. And along with regular auditing and focused revenue integrity efforts, a clean chargemaster is at the very center of a healthy financial operation.

Come See the New Standard in CDM Management

VitalCDM unifies all your departments and data in a single, easy-to-use solution. Schedule a demo for a personalized walkthrough of how it would work in your facilities.

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