This article originally appeared in The Report on Medicare Compliance Volume 24, Number 36 Dated: October 12, 2015

Money may be slipping through hospital hands when commercial payers adjust payments for certain room and board charges, consultants say. Payers are denying charges for “minor medical and surgical supplies” — which are included in room and board charges — even when they don’t actually fall into that category. With losses piling up, hospitals may want to nip this practice in the bud instead of accepting the fraction of money they get back years later at mediation, the consultants advise.

“You need to vigorously defend your charges” in this area, which centers on revenue code 270, said Chris Baggott, president of Medlinks Inc., at a Finally Friday webinar sponsored by the Appeal Academy Sept. 18.

He is seeing commercial payers go after an aspect of room and board charges in a way he finds disconcerting. Medicare addresses room and board charges — a colloquialism for routine inpatient services — in its Provider Reimbursement Manual. Sec. 2202.6 states that “Inpatient routine services in a hospital or skilled nursing facility generally are those services included by the provider in a daily service charge — sometimes referred to as the ‘room and board’ charge. Routine services are composed of two board components; (l) general routine services, and (2) special care units (SCU’s), including coronary care units (CCU’s) and intensive care Units (ICU’s). Included in routine services are the regular room, dietary and nursing services, minor medical and surgical supplies,  medical social services, psychiatric social services, and the use of certain equipment and facilities for which a separate charge is not customarily made.”

Baggott contended that commercial payers — which he said use Medicare rules as guidelines — have seized on the concept of “minor medical and surgical supplies” to deny hospitals millions of dollars of reimbursement. The vehicle for this is revenue code 270, which is used to report medical/surgical supplies on Medicare and other claims. Private payers “are sweeping that entire revenue code and subcategories into a pile and saying these are all part of room and board,” which means they should not be charged separately, Baggott said. “It’s a revenue code 270 issue at its heart.”

Suppose a diabetic patient is admitted to the hospital for a foot wound that won’t heal. The patient is taken to the operating room for a debridement, and in the days after, the wound is repeatedly cleaned and dressings changed. The commercial payer reimburses the hospital for the IV antibiotics, but it refuses to pay for IV supplies and bandages. “They are defining this as minor medical supplies that are bundled into room and board,” said Baggott. The payers are relying on the Provider Reimbursement Manual’s reference to minor medical supplies, but “IVs and associated IV supplies are not ‘minor’ medical supplies. Bandages are not ‘minor’ medical supplies.” Of course, Band-Aids are minor medical supplies, and hospitals should not charge payers for them. But to roll the other items into room and board “is ridiculous,” Baggott said.

He called that a “gross misinterpretation” of the rule. “It’s meant to suck you into mediation two years from now,” where the hospital’s contracting and legal teams will sit across from the payer representatives, negotiating for much less money than the hospital is entitled to, he contended.

There are several payers sweeping charges for medical supplies into routine room and board, Baggott said. “We have seen this done en masse.” He called it a contracting issue and cautioned hospitals that the longer they let it go, “the harder it will be to unravel.”

Strategies to Minimize Losses

Here are Baggott’s strategies for preventing revenue code 270 payment adjustments and similar problems with commercial payers:

  •  “Unsilo” your facility. The 270 sweep “will come up as a denial, and your business folks will see it,” he said. “This department should not sit alone” and deal with the payers as if sweeping in medical supplies to room and board charges was a routine payment adjustment. “Suggest to people up the chain [that] it would be great to have the audit committee meet quarterly and talk about denials and what’s going on in contracting,” Baggott said. People from the C-suite should be there; “bring issues forthrightly onto the table and bring out a plan of action,” he suggested. “It’s a rare facility that, at contract negotiation time, asks its auditing department, ‘is there anything you want to add? Can we listen to issues that might be important to you?’”
  • Break down the walls between the people who manage denials from recovery audit contractors and the people who handle commercial-payer denials, Baggott suggested. “Anything that is a review of medical records and results in a refund is an audit,” he said. “Are you talking at all? Are you tracking, doing data analytics and coming together as a facility and saying, ‘what are my audit losses, what are my denials, my coding — [both] my DRGs and my commercial?’ Are you vigorously trying to protect your money? The way to do that is to bring your losses under one umbrella and talk about how those losses are occurring.”
  • Set parameters on commercial payer audit practices if possible. When payers request medical records, hospitals tend to produce them at their own expense, he said. But Baggott recommended a different approach. “If it could result in recoupment, it is an audit. I think you can say, ‘if you want to review medical records, come to the facility and review them on site,’” he said. Payers are cooperating with this pushback; “it probably sounds out of the box for folks, but it is happening on a large scale,” Baggott said. “Maybe give them your audit policy that says, ‘we don’t release medical records. We will be happy to let you review the medical records, and here is how we do that.’”
  • Ensure the coding department stays on top of changes to revenue codes and connects them to different hospital departments, Robert Chacon, a Medlinks project manager, said at the webinar. “Contracts may need to be revised depending on what revenue codes encompass.”
  • Anticipate the potential to lose money through medical supplies at the time you negotiate your contract, said Sharon Easterling, president of Recovery Analytics in Charlotte, N.C. “This is something you should be thinking about at the time you write your contract…so you never have to face the argument [that] you should have to pay for these things because it’s rare the payer will give in on appeal,” she said.

Downside to Taking on Payers?

Challenging payers on specific claims is worth a shot, but the more money that’s at stake, the more resistance hospitals will face, said Ernie de los Santos, president of the Appeal Academy. “If they let you ‘win’ on any substantial volume of dollars in a year, watch for the payer to try to cut that much and more from your overall contract in the next round of negotiations. Your contracting team should at least be aware of this, whether they can fight it or not,” he said. De los Santos has heard some hospitals fold sup-plies into room and board charges rather than argue with payers. “While that might seem easier and expedient, it is improper, as it inflates general costs for everyone, not just the cases that in fact needed those supplies, such as anesthesia,” he noted. Contact Baggott at, Chacon at, de los Santos at and Easterling at


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