Chargemaster Maintenance: Identifying and Fixing Rates Set Below Payer Allowables

Keeping the chargemaster (CDM) updated is key to optimizing revenue, but when dealing with thousands of line items and constant contract changes, how are you supposed to keep up? 

MSOs and physician groups in acquisition mode have an even bigger challenge when they suddenly become responsible for multi-state, multi-plan chargemasters and need to mesh data. Chargemaster maintenance becomes a resource-draining game of constant catch-up.

But without consistent chargemaster maintenance, revenue is at risk. 

One missing or inaccurate code within a chargemaster can have a profound impact on revenue. Errors get replicated across multiple bills over time, after all. Small errors accumulate quickly, leading to rework related to claim edits and denials.

Old and inaccurate chargemasters are a direct cause of revenue leakage. Faulty data leads to net revenue loss due to claim rework, skewed financial analysis, operational drag, and more. Chargemaster issues contribute to tens of thousands (or even millions for hospitals) in losses for healthcare organizations. Like many healthcare organizations, you may often fail to devote the time and resources necessary to optimize your chargemaster. 

How will you approach chargemaster maintenance? Here, we review exactly what this important task involves and the approaches your healthcare peers are using to make sure they keep the chargemaster accurate and up-to-date all throughout the year.

What is chargemaster maintenance? 

Healthcare chargemaster maintenance is the continuous and systematic process of reviewing, updating, and verifying all elements within a healthcare organization's comprehensive list of billable services and items (the chargemaster) to ensure accuracy, regulatory compliance, and optimal reimbursement. This includes validating and updating service codes (like CPT/HCPCS), descriptions, prices, revenue codes, and other associated data points to reflect current services offered, payer requirements, and governmental regulations, thereby supporting an efficient and effective revenue cycle.

Keeping the chargemaster and payer contracts aligned is essential for accurate billing, optimal reimbursement, and minimizing preventable revenue leakage. If the chargemaster rate is higher than the contract rate, the payer reimburses at the contract rate; if it’s lower, "lesser of" clauses mean the provider is paid the lower chargemaster amount. These discrepancies are the source of net revenue leakage. 

Tasks involved in chargemaster maintenance

Below, we delineated the extent of the work it takes to keep the chargemaster in line with agreed-upon rates in the contract. 

Maintaining an accurate and contract-compliant chargemaster is not a once-a-year task but an ongoing, year-round commitment. While some activities are continuous, others align with specific industry update cycles or internal strategic planning.

Today, many healthcare organizations have one or more members on the revenue cycle team handling the chargemaster. Given the constantly changing nature of charges, providers tend to keep the chargemaster close, resisting outsourcing it to a third-party service provider. 

Ongoing & frequent tasks (daily, weekly, monthly)

• Monitoring for regulatory & coding alerts: First and foremost, your revenue cycle team must stay vigilant for ad-hoc updates, clarifications, and instructions on proper reporting from CMS, AMA, and your private payers. These can be released frequently and at irregular intervals, necessitating prompt review and action. Because they are avoidable, denials caused by missed payer updates are particularly frustrating to revenue cycle teams.  Brush up on how to stay on top of all payer policy changes here. 
• Processing new service/supply requests: As departments introduce new procedures, services, drugs, or supplies, promptly add them to the chargemaster following established written protocols. Assign appropriate codes, revenue codes, and prices.
• Addressing claim edits & denials: Investigate claim denials or edits related to chargemaster issues as they arise. With denial rates now at 15%, finding root causes and rectifying them translates into meaningful net revenue capture. Correcting errors at the source in the chargemaster prevents recurrence, boosting revenue integrity long-term.
• Departmental communication & liaison: Maintain open communication channels with clinical and ancillary departments to ensure services provided are accurately reflected and captured.  
• Regular chargemaster team meetings: The team responsible for chargemaster maintenance should meet regularly (e.g., monthly or even semi-monthly) to discuss ongoing issues, upcoming changes, and process improvements.

Quarterly reviews

Beyond the daily vigilance required to maintain a healthy chargemaster, a structured quarterly approach addresses broader updates and reviews essential for long-term accuracy and compliance. These periodic deep dives ensure the chargemaster stays aligned with significant industry changes and departmental needs.

• Implement official coding updates: The American Medical Association (AMA) and Centers for Medicare & Medicaid Services (CMS) release quarterly updates for CPT and HCPCS codes typically on January 1, April 1, July 1, and October 1. These changes must be incorporated into the chargemaster ASAP.
• Departmental chargemaster reviews: Ancillary departments should conduct brief reviews of their sections of the chargemaster, ideally monthly, but at least quarterly, to ensure accuracy and currency.
• Review of seasonal services: Adjust the chargemaster for services with seasonal variations, such as flu shots or other specific vaccinations or diagnostic tests that are offered during particular times of the year. Ensure accurate pricing and coding for these periods.
• Coding audits: Conduct coding audits quarterly to ensure compliance and identify any potential issues.

Annual reviews

Short-term maintenance involves quick changes, but your annual focus should be a more comprehensive and strategic overhaul of the chargemaster. This yearly deep dive ensures the entire system aligns with overarching financial goals, major regulatory shifts, and long-term operational integrity.

• Comprehensive pricing review: At least annually, conduct a thorough review of pricing within the chargemaster. This should reflect changes in costs, market dynamics (including competitor pricing), new technology, and alignment with payer contract terms. Many organizations time this with their fiscal year planning.
• Strategic review & goal alignment: Assess how the chargemaster supports the organization's overall financial and strategic goals. This may involve analyzing revenue generation, productivity, and competitive positioning.
• Review written protocols & processes: Annually review and update the written protocols for chargemaster maintenance, including approval workflows and responsibilities.
• Staff education & training: Ensure relevant staff are educated on chargemaster policies, procedures, and the importance of accurate charge capture.

As-needed year-round

 As-needed updates are critical for reacting swiftly to new contracts, internal shifts, or external audits, ensuring the chargemaster remains a dynamic and accurate tool. Watch for these events at your organization: 

• Payer contract updates: When new payer contracts are signed or existing ones are amended, review and update the chargemaster immediately to reflect negotiated rates, terms, and "lesser of" provisions.
• Internal process changes: Updates to the chargemaster may be necessary due to internal process changes, such as department restructuring or the implementation of new ancillary systems that interface with charge capture.
• New technology or FDA approvals: When new medical technologies, devices, or FDA-approved products are introduced, they must be added to the chargemaster with appropriate coding and pricing.
• Response to external audits: If external audits (recommended every 2-3 years) identify discrepancies or non-compliance, immediate updates should be made to rectify these issues.
• Selection/update of chargemaster maintenance software: Periodically evaluate and update chargemaster maintenance software to ensure it meets the organization's needs for automation, compliance, and efficiency.

Regularly updating the chargemaster to ensure rates are above all contracted allowables is crucial to win full reimbursement. By distributing these tasks and maintaining a continuous cycle of review and updates, healthcare organizations can ensure their chargemaster remains accurate, compliant, and optimized for revenue integrity.

Support from contract and chargemaster management software 

Due to the amount of work it takes to keep the chargemaster up-to-date, most have turned to contract management solutions to check and conduct many of the tasks delineated above. 

AI-driven, automated contract and chargemaster software uncovers instances where chargemaster rates fall short of contract allowables, providing a direct path to stem revenue leakage and recover missed net revenue. These systems also generate precise reports on "lesser of" clause triggers, guiding your team to implement targeted chargemaster updates that secure fair reimbursement. Automated intelligence also pinpoints underperforming codes and payers across your entire enterprise by consolidating data. These insights speed analysis and the rollout of corrective actions. Large practices, physician groups, and MSOs with diverse, multi-state locations save significant time and hassle relying on the work carried out by contract and chargemaster software. 

Take a quick, self-guided tour through a powerful contract management and chargemaster maintenance tool: 

Your staff will appreciate getting assistance from software, particularly since the chargemaster maintenance expertise they lack is built in. Automated monitoring helps your team consistently address discrepancies between actual payments, contracted rates, and chargemaster rates. Only with coherence between these three can you most effectively optimize revenue. 

Driving chargemaster revenue leakage: the lesser-of clause

Probably the biggest driver of denials and even compliance breaches due to out-of-date and inaccurate chargemaster data is the lesser-of clauses in payer contracts. Next time you review your contracts, take a close look at how the lesser-of clause is worded. 

In our post Lesser-of Clauses in Payer Contracts: How to Negotiate and Win, we urge you to negotiate for contract language that reduces the payer’s routes to paying less. You are well within your rights to limit the lesser-of clause execution. 

A "lesser-of" clause allows insurers to pay the lower of the provider's billed charge or the negotiated contract rate. If outdated chargemaster rates lead to billing below the contracted amount, the provider is underpaid. 

The "lesser-of" clause, when activated, can lead to considerable aggregate revenue depletion. For instance, a $50 shortfall on a single CPT code, if triggered 500 times annually, results in a $25,000 revenue deficit for just one procedure. This financial vulnerability is particularly acute for MSOs, where such losses are compounded across multiple sites and payers.

Benefits of regular chargemaster maintenance

Effective alignment between the chargemaster and your payer contracts is key to revenue optimization. With it, you can: 

• Facilitate fair payer negotiations: An accurate and updated chargemaster provides the necessary pricing data to support negotiations with insurance companies, helping providers secure fair reimbursement rates and better contracts. 
• Ensure accurate billing and reduce denials: A well-maintained chargemaster with correct codes (CPT/HCPCS), descriptions, and prices reduces billing errors, decreases claim denials, and accelerates payment collections, leading to improved cash flow and a more efficient revenue cycle
• Maximize reimbursement: By strategically setting and maintaining chargemaster rates, healthcare organizations maximize revenue for services rendered. This includes ensuring that all billable procedures and supplies are captured and appropriately priced.
• Support data integrity for financial strategy: The chargemaster is a vital source of financial and operational data. Keeping it up-to-date maintains data integrity, which is crucial for accurate financial reporting, informed decision-making, and strategic planning related to revenue.

In essence, while the "list prices" on a chargemaster are rarely the final payment amount, they are a fundamental component of the revenue cycle. Diligent maintenance and strategic setting of these rates are essential for healthcare providers to avoid underpayments, negotiate effectively, and ultimately optimize their revenue.

How do chargemaster rates set lower than payer allowables happen? 

While generally unintentional and detrimental to revenue, several factors can influence or lead to healthcare organizations setting their chargemaster rates below what payers are willing to reimburse:

• Outdated chargemaster data and infrequent updates: Chargemasters have often been built over decades with varying degrees of resource commitment. Too often, historical prices no longer align with current payer contracts. Managing numerous, complex contracts with varying reimbursement methodologies, fee schedules, and "lesser of" clauses is a significant challenge. Juxtapose this burdensome task with a healthcare shortage and a lack of contract and fee expertise, and chargemaster maintenance drops on the administrative priority list.
  Flawed or simplistic pricing methodologies: Some healthcare organizations use overly simplistic pricing strategies, such as a standard markup over costs or a fixed multiple of Medicare rates. While Medicare is a significant payer, its fee schedules may not align with the higher allowables of many commercial payers. Some providers admit to having no standardized method for price setting at all. Instead, they rely on generic formulas based on past costs, which may not reflect current payer contract values. If the chosen multiple or markup isn't high enough to exceed all commercial payer allowables for every service, payers underprice. 
• Lack of resources or expertise: Effective chargemaster management requires dedicated resources, expertise, and often specialized software. Providers with constrained budgets may lack the personnel or tools to continuously monitor and adjust thousands of line items against numerous payer contracts, leading to errors and outdated rates.
• System errors or misconfigurations: Errors in data entry, issues with billing system configurations, or problems with automated updating processes can inadvertently lead to incorrect (and potentially too low) charges being applied. 
• Focus on competitive positioning for certain services: Healthcare organizations are often aware of competitor charges and the need to align with those. While strategic for attracting self-pay patients or for services where patients price-shop, it’s important to make sure your market-driven pricing doesn’t fall below the allowable rates for certain contracted payers.
  Delayed implementation of payer fee schedules: If there's a lag between when a payer updates its fee schedule (potentially increasing allowables) and when the hospital incorporates these changes into its chargemaster, a temporary period of undercharging can occur.

Awareness of these chargemaster maintenance factors underscores the necessity for proactive, detailed, and continuous chargemaster maintenance to ensure rates are optimized to capture all legitimately earned revenue.

Establish diligent chargemaster maintenance with MD Clarity

Proactive and precise chargemaster maintenance is fundamental to preventing revenue loss from underpriced services. Only when you regularly analyze payer contracts, compare charges to allowables, and adjust rates strategically can you ensure the chargemaster and your payer contracts cohere. 

To thrive in an environment where new procedures and codes emerge every day, providers who support their chargemaster and revenue cycle teams with AI-driven, automated solutions find they can capture revenue in the most timely and consistent manner. 
MD Clarity’s RevFind streamlines this process by:

• Revealing discrepancies between rates listed in the chargemaster and those payers have agreed to in contracts. 
• Flagging potential “lesser-of” charge discrepancies to prevent revenue loss.
• Highlighting underperforming CPT codes and locations to target improvements.
• Enabling scenario modeling for proposed contract terms, offering clear revenue forecasts.
• Analyzing payer contract performance to equip providers with negotiation points and strategies.

This approach ensures data-driven decisions, reduces administrative burdens, and most of all safeguards revenue integrity.

Schedule a demo to see how RevFind can alert you to the contract v. chargemaster rate discrepancies that trigger revenue-draining lesser-of clauses.

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