Time Value of Money In Healthcare

Why would any plan sponsor that’s able to pay cash at the point of service reimburse a hospital more than their discounted cash price?

The time value of money in a typical claim cycle averages 90 days X cost of money. What is 90 days worth in the value of services received in today’s dollars? Suppose a claim under a PPO contract is paid at 225% of Medicare and the cash price is 100% of Medicare, the time value of money under a PPO contract in this instance is 2.25. That beats money market and CD rates these days.

The Hospital Price Transparency Rule – Driving Improved Payment Accuracy

MyHealthGuide Source: David Cardelle, R.PH, Chief Strategy Officer, AMS, White Paper (full text with tables and examples, 18 pages, PDF)


The CMS Hospital Price Transparency Final Rule that went into effect January 1, 2021. You may also be aware that while some hospitals have been compliant in publishing chargemaster rates, negotiated rates and cash discount prices, many hospitals have not been fully compliant. Under the new hospital transparency final rule, most hospitals in the United States must post their standard charges (chargemaster rates), certain other negotiated rates and specific shoppable rates including cash discounted rates. This data needs to be published in a prominent way, accessible on a publicly available website, in machine readable format. Sounds pretty straight forward, right? Well, there is more to the story as nothing in healthcare is ever that simple.

CMS required hospitals to be compliant with this final rule almost 2 years ago. So how can so many hospitals still be classified as non-compliant? Taking a closer look at the “non-compliant” hospitals, many have reported partial data, leaving gaps around important information. For instance, the published chargemaster data may be accurate but they may not have reported negotiated rates or discounted cash prices. Some hospitals published excessive amounts of data, even more than required. However, in doing so, the data is published in a way that is extremely difficult to parse out the important required information. Still others have submitted data that is lacking integrity throughout, or the data is formatted in an unstructured way. All of these issues in aggregate renders a significant portion of the data published by hospitals as “unusable.” This becomes concerning, especially for those facilities that may be doing this intentionally.

To be fair, there are plenty of good reasons for hospitals to be partially compliant, just based on the final rule itself and the lack of standardized requirements. Likewise, there are plenty of good reasons for non-hospital stakeholders to be frustrated with the level of hospital partial compliance, this far after January 1, 2021. Your opinion will depend on where you sit in this equation.


Rather than further that controversial debate, it is more interesting and more meaningful to think about innovative use cases for the “useable” subset of data that does exist today. Also, the volume of useable data continues to improve as fines are imposed, and hospitals are starting to refine what they are publishing on their websites. Focusing on the useable data, my payment integrity background leads me to think about the importance of this newfound data through that lens versus the intended “rate shopping” use case. Specifically, there are a few exciting use cases that can now leverage this new important data to drive improved payment accuracy and do so at scale. While these use cases may not be completely new to the payment integrity domain, these use cases can now be deployed at scale.

The lack of accessible pricing data in the past, significantly limited the ability for health plans to verify list prices or billed amounts. Specifically, “Chargemaster Reconciliation,” “Chargemaster Validation” and other payment integrity use cases and solutions can now be deployed in a much more efficient, pervasive, and meaningful way. Before getting into these use cases, it makes sense to provide a brief summary of the hospital price transparency final rule. Then we can look closer at how the final rule  enables chargemaster list prices and the discounted cash prices to drive incremental payment integrity and payment accuracy opportunities.

What is The CMS Hospital Price Transparency Final Rule?

To be compliant with the new hospital transparency final rule, most hospitals in the United States must post their standard charges prominently on a publicly available website and do so in two ways.

1. Machine Readable File

Single machine-readable digital file containing the following standard charges for all items and services provided by the hospital: gross charges, discounted cash prices, payer-specific negotiated charges, and de-identified minimum and maximum negotiated charges. More on Machine Readable File Requirements: https://www.federalregister.gov/d/2019-24931/p-1010

2. Consumer-friendly Display of Shoppable Services

Display of at least 300 “shoppable services” (or as many as the hospital provides if less than 300) that a health care consumer can schedule in advance. Must contain plain language descriptions of the services and group them with ancillary services, and provide the discounted cash prices, payer-specific negotiated charges, and de-identified minimum and maximum negotiated charges. More on Shoppable Services Requirements: https://www.federalregister.gov/d/2019-24931/p-1030

Price Transparency Stakeholders

Hospitals and the Hospital Price Transparency Final Rule Impact
For most hospitals, the requirement to publish volumes of pricing data can be contentious. This pricing data has been previously viewed as proprietary information vs. public information. Most hospitals would only release a standard chargemaster report, if a contract allowed a Payer to access this information.

Payers can utilize a chargemaster to verify year over year rate increases. The  problem is, some contracts did not allow this information to be easily obtained and some hospitals simply did not provide this information, even if requested. Now, hospitals are being required to publicly publish and make available in electronic readable format, not just chargemaster data but negotiated rate information, and some discounted cash prices. All this has become a new burden on hospitals

Consumers and the Hospital Price Transparency Final Rule Impact

For consumers, the intended benefactor of the final rule, there seems to be limited immediate value. Unless consumers gain access to this data through a third-party vendor, capable of aggregating and parsing out the unusable data and curating the useable data, it is exceedingly difficult and time consuming for a lay person to use what is published.

The value and intention of the hospital transparency rule was for a patient to be able to compare prices across various hospitals for the same procedure. I know how difficult this actually is because I tried. I conducted three individual searches of three local hospital websites for the same procedure. Each data file was published differently. They all had different information and price points listed in different formats, and it became a time consuming challenge of comparing apples to oranges. Also, it created more questions than it answered. I felt the next step would have to be a phone call to the hospital to try and validate and gain clarification. I encourage everyone to try it themselves to see firsthand, just how complicated this process can become. Third-party analytics organizations can help sort out the massive amount of data and disparities across the thousands of published files

Third-Party Analytics Organizations and the Hospital Price Transparency Final Rule Impact

The technical lift to obtain all the chargemaster prices, negotiated rates, shoppable rates and discounted cash prices, from all the hospitals is a massive undertaking. To curate this data and make it useable, is yet another enormous undertaking. There are several third-party software and analytics-based organizations currently pulling all this disparate data together and curating what is useable for the intended use case, shopping for comparative rates for common procedures. Some are ahead of others, some are more accurate than others, some offer more functionality and features than others and some are doing this at no cost to the consumer. As hospitals become more compliant and the  aggregate data becomes more complete, these analytics and tools will become more meaningful. Being able to comparison price shop, helps further the commoditization of healthcare services

What is a Basic Chargemaster Report?

A typical and basic hospital chargemaster report does not contain contracted rates, discounted cash prices or other monetary values, other than the gross list pricing for services and items. While these other monetary data points are maintained within the same chargemaster system, they are not considered part of the basic chargemaster report. Now, with the new hospital price transparency rule, some of these negotiated rates and discounted cash prices are required to be published, where they had not been public information in the past. This is important as these new data points open up some very new and meaningful use cases relative to payment accuracy objectives. The mere fact that hospitals are now required to publish rate information also opens the door for added accountability and responsibility from a consumer protection perspective, which requires the publishing of price information to be accurate. We are all familiar with examples of deceptive, predatory, and other unlawful pricing strategies in the retail and service industries, and those same laws would apply to shoppable healthcare procedures with publicly published rates.

Is Chargemaster Data Even Useful for Payment Integrity Reviews?

Over the past several years I have read various articles, blogs, and posts on how “Chargemaster” information is meaningless, because “no one really pays at the chargemaster list price.” In fact, chargemaster data is extremely valuable information for a variety of reasons.

While it is true that no one should have to pay the full chargemaster list price, knowing this upper limit published price is especially important. Hospital chargemaster list prices provide information necessary to validate the accurate starting point before contractual discounts are applied on fee-for-service claims.

What is Chargemaster Reconciliation?

Chargemasters are dynamic and can change at any time based on new or expired regulations, products, services, codes, departments, and costs. Many Payer contracts impose a limit on how much list charges can increase annually from contract year to contract year, so Payer audits or “reconciliation” of chargemaster rate increases is important. One problem with Payer reconciliation of  chargemasters is that these audits are done on an item-by-item comparison of just one unit and do not consider the utilization or volume of the items being billed. This linear audit methodology masks the overall aggregate price increase and hides what is most important, the financial impact that rate increases have on a Payer.

What is Chargemaster Validation?

Chargemaster Validation is the verification of a hospital’s published chargemaster report or list price for an item or service, directly compared to the actual billed charges on a submitted claim. To perform true validation of accurate reimbursement on fee-for-service claims, one needs to verify that the billed charge submitted on a claim is in fact the correct starting point before applying a contractual discount (xx% off billed charge). The easiest example of this, outside of healthcare but where consumer protection and other laws are specific, is with retail sales. The price tag on an article of clothing is $50 and the sign advertising a sale states, “50% off” the price tag.

Use Cases | Chargemaster and Discounted Cash Price

Why would any Payer negotiate and reimburse a hospital more than their own published discounted cash price, which is based on 1 patient and 1 unit of care?

Why would any Payer base reimbursement on a billed charge that is higher than the hospitals own publicly reported Chargemaster Price?

Identifying claims where reimbursement exceeds a chargemaster list price, allows for clear cut overpayments to be quantified and recovered. Most hospital billing systems draw from the chargemaster to create accurate billed amounts when submitting claims to Payers for reimbursement. Logically, one would assume that the billed charge per unit of any item on the chargemaster is the same amount billed per unit on the actual claim. Unfortunately, there are some hospitals filing claims where the billed amounts per unit exceed the chargemaster price. The units below have all been validated that there are no “package size” or other issues driving these excessive billed amounts

Why would any Payer reimburse a hospital more than an uninsured individuals discounted cash price for an Out-of-Network claim?

Some hospitals across the country refuse to negotiate a participating (PAR) provider or “In-Network” contract rates with Payers and therefore, renders these patients as “uninsured” at those facilities. For this specific circumstance, reimbursement should be reconciled to the hospital’s own publicly published  and reported, discounted cash price, whenever that price is available. Until recently, these discounted cash prices were not known, however with the new hospital price transparency final rule, this information is publicly available and every patient that has no insurance or who has insurance but there is no coverage at a specific hospital, the discounted cash price should apply.

A Case for AMS Chargemaster Validation and Reconciliation Use Cases

AMS has been actively marshaling the enormous amount of chargemaster data over the past 3.5 years and more recently, integrating the shoppable rates and published discounted cash prices. The effort to curate this massive and complex aggregation of non-standardized data was a one of our main priorities, knowing how important this data would be. Payers can now perform a variety of  chargemaster reconciliation and chargemaster validation use cases, at scale.

Chargemaster validation use cases can also be performed at different points of deliver, either pre-submission, pre-payment, or post-payment. AMS’ affordability platform can integrate this new pricing information directly across a Payers claims data so that avoidance or recovery of millions of dollars in pricing discrepancies can be realized. In addition to avoidance or recovery, pinpointing specific providers for specific procedures, where pricing is out-of-balance, the Payers contract negotiators can zero in on exactly what to address and how to fix it. Coming to the negotiating table, armed with empirical evidence of pricing discrepancies that exceed published rates, negotiators can work with providers to fix these inconsistencies and help drive closer to payment accuracy, lowering the cost of care.

About AMS

For nearly 20 years, AMS has challenged the healthcare analytics status quo with innovative financial and clinical insights that provide healthcare payers with strategic intelligence to guide business initiatives. Visit mdstrat.com