Have you heard of a hospital charge master?
Most people are not familiar with, or have heard of a hospital charge master. Every hospital has one – big hospitals and little hospitals. It is a voluminous file of everything a hospital offers to its patients when they come in the door. It includes everything from tablets of ibuprofen, to minutes in the operating room, use the ICU, room and board charges, emergency room charges, everything.
It also includes the respective prices for each of those items they offer. As you can imagine, some hospital charge master’s are larger than others depending upon the type of hospital and the services they offer. The prices are those that are charged to their patients. However, the problem we have in this country is that there are no rules, laws, regulations, or any other requirement that limits what those prices could be – except the CFOs imagination.
It’s from these billed charges that insurance companies negotiate a discount for their PPO networks – the discount off of bill charges that we are all familiar with. All insurance companies boast about their discounts and how they are much greater than their competitors. The fact that a particular insurance company purports to have a larger discount is essentially meaningless. That’s right meaningless! If the billed charges can be increased at any time (which they can) then the size of the discount is irrelevant. Without a firm and consistent base price that is fair and reasonable to begin with, it’s nothing more than smoke and mirrors.
You might enjoy this humorous video that further illustrates the charge master and how ridiculous it really is.
I refer to this as top-down pricing. In other words, the price or prices at a hospital (their charge master) are very high and the negotiated discount brings those so-called prices down, hence the net charge to you and I. If the prices are allowed to continue to go up, what difference does any PPO Discount really make?
If you want to dramatically reduce your costs and hold the line, then what you need is bottom up pricing, whereby the bottom is a fair and reasonable price to start with, and then a reasonable profit for the hospital is added to it – bottom-up. The fair and reasonable price should be related to a particular reference point – usually a basis of cost, or Medicare – the world’s largest payor.
If you want to learn more about how you can obtain bottom-up pricing instead of overpaying with top-down pricing, please call me at 970–349–7707 or email me at [email protected]