8.3 Worked Case 2 — Hospital Inpatient + Commercial
Key Takeaways
- An inpatient hospital stay generates a facility claim on the UB-04 (837I) reimbursed under a Medicare Severity Diagnosis Related Group (MS-DRG), separate from the surgeon's professional claim.
- The operating surgeon's professional services are billed separately on a CMS-1500 (837P) under the physician fee schedule, independent of the hospital's UB-04.
- When a patient age 65+ has active employer-sponsored commercial coverage and Medicare, Medicare Secondary Payer rules make the commercial plan primary and Medicare secondary.
- The primary payer's electronic remittance advice (835 ERA) must be received and posted before the secondary Medicare claim is submitted.
- ERA group codes — CO (contractual obligation), PR (patient responsibility), and OA (other adjustment) — tell the biller how each adjustment is classified.
Case Narrative (Fictional)
Patient: Diane Pruitt, age 67, still actively employed full time. She is enrolled in her employer-sponsored commercial group health plan and is also enrolled in Medicare Part A and Part B.
Encounter: Ms. Pruitt is admitted as a hospital inpatient at Cedar Ridge Hospital for a planned surgical procedure. Dr. Marcus Hale, an orthopedic surgeon, performs the surgery. She stays three nights and is discharged in stable condition.
Two distinct bills arise from this single admission:
- The hospital facility charges (room and board, operating room, supplies, nursing, drugs).
- The surgeon's professional service (the operative work itself).
Two Claims, Two Forms
A single inpatient admission almost always splits into separate facility and professional claims.
| Component | Billed by | Claim form | Reimbursement basis |
|---|---|---|---|
| Facility charges | Cedar Ridge Hospital | UB-04 (electronic 837I) | Medicare Severity Diagnosis Related Group (MS-DRG) |
| Professional services | Dr. Hale's practice | CMS-1500 (electronic 837P) | Physician fee schedule |
The hospital's UB-04 groups the admission into an MS-DRG — a single bundled payment for the inpatient stay based on the principal diagnosis, procedures, comorbidities/complications (CC/MCC), and severity. The surgeon's CMS-1500 is completely separate and is paid line by line under the fee schedule. A common exam trap is assuming the surgeon's fee is included in the hospital's DRG payment; it is not. The UB-04 also carries data the CMS-1500 does not, including revenue codes, type of bill, and condition codes.
Coordination of Benefits (COB)
Ms. Pruitt has two coverages, so coordination of benefits (COB) rules decide order. Under Medicare Secondary Payer (MSP) rules, when a beneficiary is age 65 or older and covered by a group health plan through current, active employment (her own or a spouse's) at an employer with 20 or more employees, the commercial group plan is primary and Medicare is secondary.
Process for both the hospital and the surgeon:
- Submit to the commercial plan first as the primary payer.
- Wait for the primary payer's electronic remittance advice (835 ERA) and post it.
- Submit the secondary claim to Medicare, attaching the primary payer's payment and adjustment information so Medicare can calculate its secondary payment.
Submitting to Medicare first would cause a denial directing the biller to bill the primary plan. If the employer had fewer than 20 employees, the order would reverse and Medicare would be primary — another fact the stem can flip.
Expected ERA Group Codes
When the commercial plan's 835 ERA arrives, each adjustment line carries a group code that classifies the dollars, paired with a Claim Adjustment Reason Code (CARC):
| Group code | Meaning | Typical use on this claim |
|---|---|---|
| CO | Contractual Obligation | The negotiated write-off between billed charge and allowed amount; not billable to the patient. |
| PR | Patient Responsibility | Deductible, coinsurance, or copay Ms. Pruitt owes; this is what flows to Medicare as secondary. |
| OA | Other Adjustment | Adjustments that are neither a contractual write-off nor patient responsibility. |
| PI | Payer Initiated Reduction | Reductions the payer deems not the patient's fault and not contractual. |
When building the Medicare secondary claim, the biller reports the primary plan's allowed amount, paid amount, and the PR balance so Medicare can determine how much, if anything, it pays toward the patient-responsibility portion. Posting the CO write-off correctly is equally important: billing a CO amount to the patient violates the provider's contract and is a compliance risk.
How the MS-DRG Payment Works
The hospital does not get paid per line for an inpatient stay. Instead, coders assign a principal diagnosis, any secondary diagnoses (flagged as CC or MCC), and ICD-10-PCS procedure codes. A grouper software maps those to a single MS-DRG, and the hospital receives one bundled payment regardless of the itemized charges on the UB-04.
This is why a three-night stay and a four-night stay for the same procedure can pay the same amount, and why comorbidities and complications matter — adding a documented MCC can move the case to a higher-weighted DRG. The surgeon's CMS-1500, by contrast, is paid strictly per CPT line under the physician fee schedule. The two payment systems are independent, which is the central teaching point of this case:
- Facility (UB-04 / 837I): one MS-DRG payment for the whole admission.
- Professional (CMS-1500 / 837P): line-by-line fee-schedule payment for the surgeon.
Why Sequencing Errors Are Costly
If the biller sends Ms. Pruitt's claim to Medicare first, Medicare's system detects active group coverage (employers report this through the MSP questionnaire and CMS's Coordination of Benefits & Recovery contractor) and denies, instructing the biller to bill the primary plan. That denial restarts the clock and can push the claim toward a timely-filing problem.
The correct sequence — primary commercial plan, post the 835, then secondary Medicare with the primary's allowed/paid/PR data — keeps both claims clean. The same logic applies to the hospital's UB-04 and the surgeon's CMS-1500: both bill the commercial plan first. A useful checklist for any two-payer case:
- Confirm primary vs secondary using the COB rule (here, MSP active-employment age 65+ at a 20+ employer).
- Bill the primary; do not bill the secondary until the primary 835 posts.
- On the secondary claim, transmit the primary's allowed amount, paid amount, and PR balance.
- Post CO write-offs but never write off legitimate PR before the secondary adjudicates it.
In Case 2, which claim form does Cedar Ridge Hospital use for the inpatient facility charges?
How is Dr. Hale's surgical professional service billed relative to the hospital's claim?
Ms. Pruitt is 67, actively employed at a large employer, and covered by both her employer's group health plan and Medicare. Which payer is primary?
Place the billing steps for Ms. Pruitt's claim in the correct sequence.
Arrange the items in the correct order
On the commercial plan's 835 ERA, which group code identifies the contractual write-off that cannot be billed to the patient?
When the biller builds Ms. Pruitt's secondary Medicare claim, which ERA group-code amount is most relevant to report from the primary remittance?