Pull up a chair and a mug of hot chocolate.
The Wacky World of Chargemasters, DRGs, and Charges for Lab Tests
My consulting work has not dealt much with procedures and tests that are used only on inpatients. I spent some time this week with real-live Chargemasters, and I'm recording some hard-won learnings.
DRG 101
Medicare pays for inpatients by Diagnosis Related Groups, or DRGs, of which there are hundreds.
They are broadly classed as Medical or Surgical. Medical DRGs are driven by primary diagnoses, and surgical DRGs are driven by the main surgical procedure.
Generally, DRGs come in clusters, usually triplets, with a basic rate (say, $10,000) which may be raised by the presence of minor or major complications (such as appendectomy + sepsis, or valve replacement + stroke).
In a triplet, a base DRG may be $6,000-$10,000 and the minor complications rate raises payment to $14,000 and the major complications rate might be $20,000. CMS publishes annually revised relative values for DRGs - for example, simple pneumonia has a relative rate near "1" - and the dollar multiplier has a standard value of circa $6000 in 2020, but varies by hospital and by geography. The very highest DRGs have relative values like circa 30 (heart transplant) which times $6000 pays circa $180,000. That is an extreme outlier, however.
Outlier Payments Basic Math
There's such a thing as outlier payments, but they are rare (1% of all inpatient payments.) Medicare takes the hospital's charges, multiplies the charges by that hospital's cost to charge ratio (say .33). It takes the results (aka imputed "costs") and subtracts around $25,000. Medicare then pays the remainder at 80 cents on the dollar.
Here's a whiteboard example of the math. For a $15,000 DRG for Aunt Jane, let's say that a hospital bills $150,000 of Chargemaster-charges.
Since the cost to charge ratio of this hospital is.33, the costs are imputed to be $50,000. OK. Medicare subtracts $25,000 from the costs, then compares what's left ($25,000) to the DRG payment already made, in this case $15,000. The gap is $10,000, which Medicare pays at the outlier rate of 80 cents per dollar, or $8000.
So hospital had $50,000 in imputed real costs (charged at $150,000) and got paid $23000 ($15,000 DRG + $8000 outlier) and seems to have lost $27,000. Remember that outlier payments in total, are only about 1% of total payments by Medicare Part A.How DRGs are Assigned
I know how Part B services are billed by doctors and labs to Medicare. It's the 1500 claim form, and after background info like your name and the patient's data, there's a series of lines. Each claim line holds a date, a CPT code, and an ICD10 diagnosis code, and a charge. Got it.
So how do hospitals submit inpatient charges to Medicare Part A?
First, they use the same 1450 form as outpatient hospital services. (Quiz question, though - outpatient services are driven by AMA CPT procedure codes, and inpatient services by ICD-10 procedures codes, an unrelated procedure code set.)
The inpatient DRG is driven by a DRG grouper which looks at (1) ICD-10 procedure codes and (2) diagnosis codes, and assigns a DRG.
Like an assembly line, the DRG output is passed to a Medicare Part A Pricer which assigns a locality-adjusted final price.
The scale of DRG pricing. To give you some back of envelope numbers, basic medical DRGs like pneumonia might be in the $10,000 range, basic surgical DRGs start at $20,000. Those prices can double with complications like sepsis. The most expensive DRG, heart transplant, was in the $100,000 range the last time I checked (a few years ago).
Overview of Part A Hospital Bills to CMS
How detailed are the hospital bills to Medicare Part A MACs? Here's what I was told.
I learned, from a kind Part A CMD who took me under wing, that most of the charges tallied by the hospital are rolled up to Revenue Codes (aka Cost Centers) and this is what CMS sees when it processes the hospital's inpatient 1450 form.
For example, in lab medicine, 030X is the revenue code family, such as 0301 chemistry, 0302 immunology, 0306 microbiology, etc.
Let's go back to Aunt Jane's $150,000 of "charges" and $15,000 DRG. During her inpatient stay, she racked up 100 lines lab tests which the hospital kept track of. This added to $20,000 in lab charges (see section below on real-world Chargemaster lab prices for inpatients.) Now, what Medicare sees on the 1450 claim is: "0306 Microbiology $5000" and "0301 Chemistry $15,000" with those $150,000 of charges for Aunt Jane in what will become ultimately her $15,000 DRG for pneumonia.
What Chargemasters Look Like (Enter If You Dare)
The link is:
https://oshpd.ca.gov/data-and-reports/cost-transparency/hospital-chargemasters/2019-chargemasters/
I pulled down two Chargemasters, one for for Cedars Sinai 2019 and one for California Pacific Medical Center. States may require hospitals to post Chargemasters. Whether CMS can require hospitals to post actual payer payments is in court (here).
They're big Excel spreadsheets with over 7000 lines.
Cedars Sinai
Cedars has 7500 lines. Here, each line has a Cedars code and, if possible, a CPT/HCPCS code. (No ICD-10 procedure codes are seen here).
The Cedars codes for their first four of eight digits, match the 4-digit CMS revenue categories. Then they add four digits specific to Cedars. For example, Cedars Chargemaster Service "03010001" = CMS center 0301 labs + Cedars item 0001. (It also has a lab CPT code associated with it, too.)
At Cedars, of 7500 total claim lines, lab tests plus pathology tests total 2280 lines. Lab lines on the Chargemaster are 30% of all possible lines.
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| Cedars orders item numbers by CMS revenue code (0301) and includes CPT code |
Cedars Lab Chargemaster Examples
When I pulled out Cedars Chargemaster lab tests only for study, at line 54, we have "basic metabolite panel" which is Cedars code 03010001 (the 0301 = CMS lab revenue center). We see also the CPT code 80047. And the Chargemaster price? It's $791. The CMS lab fee schedule price is $13.73. (For those readers already doing the math in their head, the ratio is 791/13 = 60X).
Immunoassay, not specified. See Cedars code 83011268 (8301+1268), and familiar CPT 83520, is $350. (CLFS is $13.73).
The short text on the Chargemaster does not appear to be the same as the CPT short text.
The Cedars Chargemaster is arranged by Cedars item number (0301-1286 is followed by 0301-1287 followed by 0301-1288), these Cedars sequences don't match the order of CPT codes, being neither in CPT order nor in descriptor alphabetic order. I have no idea how Cedars created the particular serial order of the tests which seems random relative to the CPT code book.
Cedars lab code Chargemaster prices from high to low
The winner? HLA Class I&II, High Res, is 81378, $55,578.
81445 is defined by AMA as tumor genes, 5-50. CMS pays $600. Code 81445 is used multiple times on multiple Chargemaster lines, each time with a different Cedars number and different text. These different forms of "targeted genomic sequence analysis" show charges from $33,842 to $31,072. Those are multiples of about x50 of the CMS price of $600.
HCV genotyping, 87902, is $3,959.
87633, viral panel, 12-15 targets, is $5,258. KRAS gene analysis, 81275, is $3647 (CMS CLFS, $193.)
Some Cedars genetic tests match the Medicare CLFS, though. While some genetic tests are 50X the CLFS price, others are 1X or 1.5X the CLFS price. Quite a few Cedars genetic tests more or match the CLFS schedule. 81162, BRCA 1 & 2, is $2074, and 81225, CYP2C19, is $168.
Altogether, 196 codes in the CPT genetic series are included on the Cedars Chargemaster (81162-81503).
"Unlisted codes" on Cedars Chargemaster. A few Cedars codes map to unlisted codes (e.g. Cedars 0309-1651, Trofile (an HIV sequencing test) mapped to 87999*, other microbiology code, charge $1960.
In Pathology, there is a distinct Cedars number 0310-0364, Urovysion (a patented FISH test from Abbott), mapped to CPT 88121 with charge $1960.
In Pathology, 88344, multiplex immunohistochemistry, is $929. IHC estrogen receptor is 88361, $969. Screening PSA, G0103, is $343. (On the CMS CLFS, PSA, $19; for PSA the Cedars charge is 19X).
Cedars lists inpatient and outpatient prices; outside lab medicine, in some examples I looked up, like radiology codes, the inpatient price was 30% higher.
When You've Seen One Chargemaster, You've Seen One Chargemaster
For Cedars, many codes didn't list a separate inpatient price, and I believe this means it is the same as the outpatient price. Below, we turn to CPMC, where every code has both an inpatient and outpatient price, though some are the same, and no lines list the CPT code.
California Pacific Medical Center
This one has more lines than Cedars Sinai (9600 vs 7500). Each line lists an 8-digit CPMC item number, but these codes (unlike Cedars) don't appear to be built on top of and related to CMS revenue codes. Each line shows the CPMC code number, a text descriptor, and then the CMS revenue code (e.g. 0301 chemistry). Then the inpatient price, and outpatient price. For many services, the inpatient and outpatient prices are the same. At least in this spreadsheet version, there's no listing of closest CPT code, unlike Cedars.
In order to scope out the CPMC chargemaster for labs, I had to sort by Revenue Code. Including pathology codes (310, 311, 312) this included only 1040 total codes, about half as many as Cedars. They intermingle pathology and laboratory codes.
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| CPMC intermixes Path and Lab codes; not CPT codes shown |
CPMC doesn't offer CPT code crosswalks, but I compared a few lines by text name.
PSA (CPMC 40900103) was $153 outpatient, $188 inpatient. Recall it was $343 at Cedars and $19 at CMS.
Basic Metabolic Panel was $123 outpatient, $259 inpatient. (Note that at CPMC, from code to code, the ratios inpatient/outpatient prices aren't the same).
Procalcitonin, a biomarker for infection, was CPMC code 40900473, $344 outpatient, $476 inpatient. (CMS CLFS is circa $30).
Sorting CPMC by high price, the highest was HLA 1&II typing, $1640 inpatient, $1451 outpatient. Fetal fibronectin, an immunoassay, tallied $821 outpatient, $1010 inpatient. In situ hybridization per probe was $437 ouitpatient, $794 inpatient. Trichomonas direct probe was $299 outpatient, $790 inpatient (the delta near to 3X). CMS price for pathogen direct probe is circa $30.
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PS. Hope this blog is helpful. I probably spent 8 hours figuring this out.
Nothing fancy, but the Excel Chargemasters and derivative worksheets (like sort-by-price) that I used today are in the cloud here.
In issuing reports on outlier payment overpayments, OIG also explains the system; see outlier payment OIG reports from 2017 and 2019 and one in progress here.
Inpatient ICD-10 procedure codes can be longer than 5 digits. For example, the new technology inpatient code for the T2 microbial test is ICD-10 XXE5XM5, 7 places.
Dark Report, March 3, had an article that United Health Care and other papers are "cracking down" on hospital lab payment rates. Recall that in the commercial lab world, payers often contract for chemistry tests at below the CMS CLFS rates, whereas hospital charges may be 20X higher.
Further Reading
See an online article, "Intro to Chargemasters," here.
Venders create and manage Chargemasters for hospitals, here.
There's a Chargemaster Alternatives alliance organized by HFMA and Leavitt Partners and cooperating hospital groups - here.
See an HFMA letter to CMS, 09/2019, on Chargemaster problems - 19 pages, one more exciting than the next - here. Seriously, this is the graduate course in cost-to-charge. For example, they write that cost-to-chart has gone from .33 in 2009 to .25 in 2020 - so the reported charges for a $10,000 inpatient stay are now $39,000, instead of $29,000. They propose a novel DCM, or Direct Cost Model, to rebase CMS payments and calculations. These include CMS weighting of DRG, weighting of outpatient APCs, and calculation of outlier payments for DRGs.
*For inpatients, all lab tests are bundled. In general, for Medicare hospital-related outpatients, all lab tests are also bundled (clin chem, microbiology) except for human genetics. People watching CMS with a magnifying glass may have noticed that CMS made an exception recently, unbundling COVID testing in the hospital outpatient setting and allowed its reimbursement ($50) to be made separately from other hospital care on that outpatient day. Generally, other microbiology outpatient hospital related tests are bundled to the office visit or procedure. So is clin chem, etc. For example, the Cedars Chargemaster is also an outpatient chargemaster, and the Trofile code 87999 is a code nonpayable by CMS in outpatient setting and bundled in an inpatient setting..
