Hospital Charge Master – Basis for Cost Plus Pricing?

hospitalchargemasterAn excerpt from trial records gives one a clue to hospital Charge Masters – “The total bill for Mrs. Doe’s hospital stay was $6,731.05. This amount was determined according to the hospital’s “Charge Master”, a confidential list of charges made by the hospital for all its goods and services, which is used to compute charges for all private commercial patients who are treated on a fee-for-service basis. The Charge Master is compiled and maintained by the hospital’s chief financial officier on the hospital’s computer system. In 1991, the Charge Master contained approximately 295 pages and listed prices for approximately 7,650 items. The Charge Master is considered confidential proprietary information and is not shown to anyone other than the officers and employees of the hospital and authorized consultants. The Charge Master is adjusted on a weekly basis to reflect current cost data; the hospital’s costs are marked up by a mathematical formula designed to produce a targeted amount of profit for the hospital. When the Charge Master is adjusted on the hospital’s computer, the hospital does not preserve or archive the earlier versions of the Charge Master.”   Hospital Charge Master

Editor’s Note: Seems to us that  hospitals us their Charge Master as the basis a cost-plus pricing methodology. If that is true, then why do hospitals insist on negotiating pricing with payers on the basis of “discounts off billed charges” rather than a more transparent cost-plus model?”

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