By Brian Cotter, MPA HSF
120% of Medicare. 50% Discount off Charges. Misused & Misunderstood. Neither is a price. Avoid putting either term in a contract without further definition. They are formulas…that can be manipulated!
A formula is only as reliable as the base it sits on.
Why “% of Medicare” is not a price:
- Medicare is at least 5 numbers per DRG: National, Market, Hospital, Hospital + supplementals, and Claim-specific. NYU Langone, DRG 470, FY2026: $14,189 to $40,243. Same hospital. Same DRG. 184% spread.
- The denominator drifts every year. Wage index, IME, DSH, UCP, VBP, HRRP, HAC all move on CMS’s calendar. Your benchmark shifts even when the commercial contract does not.
- Primary Risk -> the actual adjudication done by the IPPS pricer includes all components by default and can increase the expected price by 2-10X.
Why “Discount off Charges” is not a price:
- Chargemasters vary 10x between hospitals. 60% off at one can pay more than 30% off at another, on the same admission.
- The hospital controls the Charges. Raise charges, raise allowed amounts. The discount creates the appearance of control without the substance.
- Hospitals can increase their chargemasters massively which directly increases their reimbursements.
The real issue:
Both terms describe the math. Neither defines the inputs.
A contract that says “120% of Medicare” or “50% off charges” without specifying:
- Which Medicare flavor, which year, which date of service rule
- Which charge schedule and what annual update cap
- How carve-outs, modifiers, and unlisted codes are handled
- What happens when the base shifts mid-contract
It is not a defined price. It is a negotiation gap.
One more thing. The fix is not better adjectives. It is a defined denominator, a defined date, and defined fallbacks for everything the formula does not cover.
