Q&A: The chargemaster's relationship to cost reporting

Q: Please explain the relationship between the chargemaster and cost reporting.

A: The Medicare cost report is a year-end report of statistical and financial data used in determining the cost of services provided to Medicare beneficiaries throughout the year. Prior to the establishment of the prospective payment methodology, the Medicare cost report would be used to determine the Medicare program’s liability to a hospital by computing the difference between the hospital’s estimated Medicare cost and the Medicare payments the hospital received during the year. Most state Medicaid programs also require that cost reports be filed using the Medicare annual cost report as the basis of the Medicaid cost report.

A cost accounting and cost reporting principle is that both expense and revenue should match in the hospital GL and with associated revenue codes used on the department’s charges in the chargemaster. Matching expense with revenue is required for accurate CCR development from the cost report. CCRs are applied to billed charges on claims when Medicare uses claims to develop the payment rates.

CMS has published a crosswalk between revenue codes and cost report cost centers used in both the inpatient and outpatient prospective payment systems.

Editor’s note: For more information, see The Chargemaster Essentials Toolkit.  

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