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Charge Description Masters (CDMs) 101

Updated: Jun 18

I get my bill and it's littered with numbers and values that are foreign to me. The cost of my care is $X amount (usually in the tens to hundreds of thousands for the entire service).

This is traditionally what I hear from people having services rendered in a healthcare setting. What does this all mean; where do these numbers and values come from, and what are they based on? These are questions I hope to answer as we break down the Charge Description Master (CDM).

A CDM or Charge Master is just a file. It is a list of all services or supplies offered by a healthcare establishment. This means every hospital, every specialist, provider group, private practice, laboratory, medical supplies have a list. The comprehensive list is published every year by the Centers for Medicare & Medicaid Services (CMS). Each service is represented by a 5-character alpha-numeric, or just numeric code. These codes then have specific descriptions of what they are, what services or supplies they represent. Every year CMS adds, removes, replaces, and or modifies this code list. The codes themselves are more commonly known in the Healthcare field as one of the following:

  • HCPCS (pronounced Hick-Picks) - Healthcare Common Procedure Coding System

  • CPT - Current Procedural Terminology

Explaining the Codes

"HCPCS Level I is the CPT coding system; HCPCS Level II is usually referred to as HCPCS codes." -

The CPT list is a joint effort between CMS and the American Medical Association (AMA). AMA owns and maintains the list, while CMS publishes the list.


So let's say Charlie is experiencing a painful rash on his leg that is causing swelling. Four days earlier his Primary Care Provider (PCP), had reviewed the rash and provided some topical steroid ointment. It was communicated that if the rash or swelling got worse to head to the emergency department. It's worse, so he heads to the ED, gets triage, evaluated, and then is determined he needs fluids and antibiotics for his now infection. The antibiotic administration is both oral and intravenous for the next 48 hours, so the ED provider admits him into the hospital.

While in the hospital, they decide to also take a sample of the weeping swollen rash, and get it sent off for testing. Charlie recovers and a few weeks later he gets his Explanation of Benefits (EOB) from his insurance.

Side note, this is great news, as an EOB indicates that the hospital and /or its often separately contracted providers have submitted a claim to the payor for processing and reimbursement.

The EOB has some of the following words or codes (this depends on how statements have been set up)

  • Level 4 emergency room visit (99284)

  • Culture test (87070)

  • Inpatient hospital stay (99222)

  • Inpatient hospital stay/same day discharge (99234)

  • Intravenous infusion (96360)

Please note, there would likely be many more CPTs included, but this is just to provide examples of what these codes and or descriptions may look like on and EOB or patient statement.

These are the CPTs or HCPCS that come off of the CDM. A service is rendered or a supply is utilized, and it is documented by medical staff into the patient's Medical Record (MR) as notes, orders, labs, tests, results, etc. Now, we cannot just use these unique patient instances, in the form of a medical record, to submit to an insurance carrier (payor). Every provider or hospital uses a different shorthand and template and there are too many service lines. Hence the CDM and all its lovely codes! This list is a cross walk between the medical record used for care, and the claim used for billing. What sits in between these two areas is coding. Coders read a MR and determine what type of care or supplies was used for what type of service, and they look on their entity's CDM to find the approved code based on description.

But wait! The EOB or patient statement had dollar values tied to each line item. Yep, the CDM is not just a list of codes and descriptions, it is also a list of fees, the cost of each unit of that service or supply.

Charlie: "My emergency department visit and 2-day stay in the hospital (with treatment and medications and labs and orders) cost $15,000! And my insurance only paid $385.98!" Charlie is a Medicare patient and was seen late in the calendar year.

The conversation normally goes on to frustration of why Healthcare cost so much, or why insurance does not cover or pay more. Two things, (1) Medicare covered all of Charlie's visit, so his insurance is working as designed, and (2) Charlie has no understanding how the CDM is designed and set for each healthcare entity.

I am guessing since you are still reading this article that you have heard or have the same two sentiments for any healthcare visit. To understand how the Healthcare reimbursement model works, you have to understand the CDM. And to understand how a CDM is set, you have to understand CMS and Medicare. Even if you are years from Medicare coverage!

Setting a Baseline

Healthcare is not like any other field in the USA, other than it is based on a free market. This is also because no where in any other field are we legally required and responsible for outcomes. Think about it, if you don't pay your water or power bills, they get cut off. You don't pay your phone bill; it gets cut off. You default on your car payment; it gets taken away. You miss payments for college tuition, you get expelled and are no longer an enrolled student. You don't pay your contractor; the work does not get completed. You do not have money to pay for gas or groceries, then you do not get them. Can you imagine having a wound that needed stiches, and you can't pay so they take them out? Or needing a harmful growth removed, and you default on a payment so they have the growth medically put back on you? It's absolutely ludicrous to think about if healthcare operated the same way as any other service.

So, year after year of laws have helped protect people when it comes to healthcare. Laws like STARK, or Anti-kickback, EMTALA, HIPAA, or NSA, the list goes on. They all work to protect the consumer, the suppliers, the providers, and the insurers. Because if treatment or a visit has to occur, then there must be a process to ensure/protect payment outcomes, since I cannot demand you give back those IV bags full of life saving medications.

Thank goodness healthcare is different! Different also means more complex, more convoluted. This is where understanding how Medicare fits into the picture is so important. Medicare is basically the lowest payment anyone can receive in Healthcare...well, except for Medicaid, but that's for another day. This means that in healthcare, it is expected for people with BCBS, or United, or Cigna, Aetna, Humana (the BUCAHs) or any other commercial plan to pay something more than Medicare rates. They, commercial payors, are higher levels of insurance. They are non-government insurance, and so they should have more benefits, more coverage, etc. based on what a company negotiates for each year.

If all insurance payors only reimbursed at Medicare rates, hospitals and physicians would go out of business. Medicare is not the model, it's the baseline.

Building a CDM

When a new hospital, or private practice, medical entity of any kind is initially established, they have to ask these types of questions:

  • What services are we offering?

  • What are the associated HCPCS/CPT codes associated with our service line(s)?

  • How much will we charge for each service?

  • How much do we expect to get reimbursed at by insurance payors?

  • How do we protect against the variable rates that each payor will reimburse?

  • How do we create a CDM that allows for in- and out-of-network payors?

They go to master tables at the CMS website! The RBRVU table gives a list of all CPTs and their descriptions as indicated by the AMA. After isolating the codes needed, next you must set a price. The CMS website has a CPT Provider Fee Schedule Tool where you can enter a code, a geographic location (kind of like zip codes via something called GPCI - Geographic Practice Cost Indices, but based on cost of work done, practice expense and malpractice costs) and you will be given the results of what the Medicare Administrator Contractor (MAC) will reimburse for facility and non-facility services.

Another side note, a MAC is a Medicare processor, the government doesn't actually process Medicare claims, they have contracted administrators who gain the rights/contracts to oversee the process on behalf of the government. Different US regions have a different overseeing MAC that also has layers of region-specific coding and billing rules.

Remember, what Medicare reimburses is a baseline. So we need to set our CDM at a rate higher than the CMS prices. But how high? Is there such a number too high? We just need it to be high enough for the market we are in. This is where experience with how payors reimbursement come into play. You can always purchase and review things like Fair Health data that will point you in the right direction. The point is it has to be higher, usually a percent higher that Medicare's rate. 100% = Medicare rate. If I had to guess, 300-1000% is pretty standard for payors across the USA, but that is if they are contracted verses non-contracted. Now that range may seem insane, it is. But the cost of the work done, practice expense and malpractice costs are very different in Tucumcari, New Mexico compared to New York City, New York. So it makes sense that the range of costs would also be different.

Also, what if a payor reimburses at a % of Gross Billed Charges. If I charged $1000 vs $1500 in two different geographic areas, and it's contracted with the payor at 80% of Gross Charges, that $800 vs $1200 reimbursement can really start to add up. Every contract and every payor is different. It makes the most sense to pick something that reflects the market your entity resides in. Then there are more layer, like how it matters about the contractual adjustment that occurs after the payor processes. It's not about the Gross price that is set in the CDM, it's about the Net amount after the contractual adjustment.

The CDM is the gross charges. Then there is processing with insurance. This results in the contractual adjustment taking the account balance to Net Charges. This is the Allowable, any insurance and/or patient responsibility.

Gross Charges = Contractual Adjustment from Insurance + [Net Charges]

Gross Charges = Contractual Adjustment from Insurance + [Allowable]

Gross Charges = Contractual Adjustment from Insurance + [Insurance Responsibility] + [Patient Responsibility]

If you what to really know what healthcare costs, you have to look at the Net Charges, the amount after the payor has processed. The Gross Charge is just a placeholder, a starting point, above Medicare that allows us to not lose money when it comes to highly variable markets and payor relationships.

Said another way, "Providers are REQUIRED to set only ONE billed fee schedule [aka the CDM] which means that they have to set their “Billed Amount” [aka Gross Charge] to the amount the highest payer will pay for the service." -


Healthcare pricing is never going to be easily understood or have mass transparent pricing. Not because people want to overcharge or hide something (okay, maybe there are some people out there with nefarious intentions just like every industry). The main point is that there are layers of complexity and calculations and market evaluations that result in these healthcare cost amounts that do not make any sense to the average individual. Hopefully, this walk-through explained more about healthcare, and offered you insight for why healthcare "costs to much", and/or provided insight into what a CDM is and how it is made and influenced by CMS.


  • The translational language of healthcare, between clinical services and revenue cycle, are HCPCS and CPT codes.

  • The CDM is the set billing fee schedule of Gross charges that are applied to a rendered service or utilized supplies.

  • CMS uses MACs to facilitate the processing and administration of Medicare. These are zip code-like markets splits and weighted by GPCI.

  • True healthcare costs are understood from a Net, not Gross, charge amount.


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