No one yet has figured out a formula or come up with a chart to tell hospitals when and how much to change their pricing. Tools that take the guesswork out of this essential but complicated task would be worth their weight in--well, increased revenues.

Without such tools, hospitals have to figure out pricing strategies on their own.

Years of reimbursement challenges coupled with skyrocketing labor and technology expenses have spurred hospitals to explore other avenues to enhance their revenue growth. Many are returning to a strategy that enjoyed more popularity a decade ago when fixed-fee payments were less dominant in the payer mix: strategic price modeling.

Compared with pricing strategies of years past, today's enhancement efforts are more limited in scope because the fixed-fee payment population grows every year. Still, pricing can be a highly effective strategy for hospitals in today's market. Through strategic, appropriate pricing, healthcare institutions can boost their revenue, fund greater access to capital, and remain financially viable.

It's not Wal-Mart

For the most part, research shows few differences in pricing behavior between not-for-profit and for-profit hospitals. And both types of hospitals struggle with the absence of a "magic" formula or industry standard to

Not long ago, many volume-hungry hospitals put marketplace issues before cost when determining pricing. But after years of tight margins and escalating costs--particularly in labor and supplies such as drugs, implants, and surgical devices--administrators are less pained at losing volume. Instead, they want higher revenues per unit, which they can achieve through strategic pricing. Hence, cost has regained its throne as king.

Getting an accurate sense of labor, supply, and other expenses is critical for a successful pricing strategy. That means determining the cost per procedure by DRG code, APC code, or payer, says Edward B. Carlson, vice president and CFO at Munson Healthcare, a regional not-for-profit healthcare system in Traverse City, Mich. Time studies, value units, and other basic cost-accounting techniques can help finance departments to drill down data to that level.

"You need some sense of what the relationship of cost-to-charge is at the procedure level, as opposed to just an overall ratio," says Carlson.

Charging Ahead with the CDM

Hospitals hoping to improve their revenue with pricing strategies often begin by gathering information. They start by turning a critical eye toward their chargemaster, or charge description master (CDM).

Keeping a CDM current and compliant can be a challenge for many organizations faced with constantly changing CPT codes and ever-evolving rules and regulations. But an accurate CDM and effective claims process are two of the hospital's most important allies, particularly under the CMS outpatient prospective payment system.

To ensure accurate claims and appropriate payment, the hospital must maintain its CDM. Ongoing maintenance of the CDM involves many steps, including:

* Eliminating rarely used or inaccurate codes

* Adding missing charges

* Correcting mismatched CPT and revenue codes

* Reviewing charges for accurate structure in the APC payment environment

* Making sure the CDM is compliant with all CMS regulations

Administrators at Seton Healthcare Network in Austin, Tex, have conducted strategic pricing studies for several years, aided by various software programs that help them determine where they'll get the best returns on pricing adjustments, based on their payer mix and market constraints. Douglas D. Waite, the network's senior vice president and CFO, is surprised by how many hospitals still don't follow similar strategies.

"Hospitals whose payer mix is very high in fixed payments from Medicare or Medicaid may not think this process is worth the investment in lime or money," says Waite. "Or they may have a lot of contracts that limit the size of their annual price increases or limit where they put those increases. But even for those hospitals, I would say it is worth the investment."

At Seton Healthcare Network, part of Ascension Health, administrators determine where they will get the best return on pricing opportunities on a charge-by-charge basis, not just a department-by-department basis.

"When we run the chargemaster, we might have 30,000 line items or more that we will review charge by charge with our department directors," Waite says. "We want to ask them if we will be pricing ourselves out of the market or encountering compliance issues if we change charges.