Have you ever wondered how hospital prices became so irrational? As is often the case, things changed incrementally. Hospitals and healthcare systems have experienced years of inadequate inflationary update factors, often reduced by factors such as presumed overcoding under the federal inpatient and outpatient prospective payment systems.

Operating margins, which were once attained through tight operating budget controls and across-the-board price increases to payers, have suffered for decades. Some hospitals that experienced reimbursement shortfalls optimized their chargemaster prices to subsidize such losses and help maintain their financial viability.

The net result of these forces? Many individual chargemaster line item prices have become irrational and indefensible. And in an era of higher deductibles, health savings accounts, increased transparency, and government and consumer scrutiny, it is more important than ever that CFOs and financial managers can explain, document and defend their CDM prices.

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