This is an amount that the provider has to remove from his books. There are two types of write off: One is contractual write off and the other one is adjustments. Contractual write off are those wherein the excess of billed amount over the carrier’s allowed amount is written off. The fee schedules of each carrier will be loaded in the billing system. When you are posting the EOBs these fee schedules in the system also called system allowed amount would pop up. The difference between the billed amount and the system allowed amount will be the write off, if the EOB allowed amount is less than the system allowed amount. Otherwise the difference between the billed amount and the EOB allowed amount would be the write off.
Adjustments are amounts such as discounts, professional courtesy and other special items that are identified by the provider as those that need not be collected or collected at a lower rate.
A provider is prohibited from billing a Medicare beneficiary for any adjustment (Its a write off) amount identified with a CO group code, but may bill a beneficiary for an adjustment amount identified with a PR group code.
Medicare contractors are permitted to use the following group codes:
CO Contractual Obligation (provider is financially liable);
CR Correction and Reversal (no financial liability);
OA Other Adjustment (no financial liability); and
PR Patient Responsibility (patient is financially liable).
Identifying Contractual Adjustments
The Michigan Department of Community Health (MDCH) defines a contractual adjustment as the difference between the provider’s charges less any third party obligations (payment plus co-pays, deductible and co-insurance).
Contractual adjustment amounts for outpatient hospitals are identified on the payer’s (Medicare or commercial carrier) remittance advice with the following group and adjustment reason codes (ARCs):
An adjustment amount identified by an ARC not included in this list is not considered a contractual adjustment. Reporting Contractual Adjustments MDCH strongly encourages submission of electronic claims, as the UB-92 claim form does not accommodate reporting contractual adjustment amounts. For electronic claims, the total contractual adjustment amount must be reported in a CAS segment at the claim level.
If a paper claim is submitted, the contractual adjustment amount must be added to the total payment and reported as a single value in Field Locator 54 – Prior Payments. Providers who work with billing agents are responsible for ensuring the contractual adjustment amounts are reported correctly on both electronic and paper claims.
Adjudication of Claims with Contractual Adjustments
Any contractual adjustment amount reported for dates of service on or after July 1, 2006 will be applied as a reduction in charges. This reporting will reduce the provider’s original billed charges for all services to the coinsurance and deductible amounts (net)
For outpatient hospital claims, the total contractual adjustment amount will be prorated across all lines and used to reduce the line charges (e.g., if a claim line’s reported charge is 50% of total charges, 50% of the contractual adjustment amount will be applied as a reduction to the line charges).