CO-70: Cost Outlier Adjustment

What Does CO-70 Mean?

CO-70 designates the cost outlier adjustment as a contractual write-off. The payer applied the prospective payment system's cost outlier formula and determined that the hospital will receive an additional payment above the standard DRG amount, but only for the defined percentage of costs exceeding the fixed-loss threshold. The remainder is the provider's contractual obligation to absorb.

CARC 70 appears on remittances when a hospital case qualifies as a cost outlier under the payer's prospective payment system. Unlike CARC 69 (day outlier), which adjusts per-diem charges for extended stays, CARC 70 addresses the total cost of the case. When a hospital's billed charges — converted to costs using the cost-to-charge ratio — exceed the DRG payment plus a fixed-loss threshold, the case becomes a cost outlier and the payer reimburses a percentage of the costs above that threshold.

Cost outlier cases typically involve patients with severe complications, extended ICU stays, multiple procedures, or rare conditions that demand resource-intensive care far beyond the norm for their DRG. The adjustment amount on the ERA reflects the difference between the hospital's billed charges and the calculated outlier payment. Because the cost outlier payment is a defined portion of costs above the threshold (Medicare pays 80% of costs exceeding the threshold), there will always be a write-off component.

CARC 70 almost exclusively carries Group Code CO, making it a contractual adjustment the provider absorbs. You will occasionally see OA-70 in coordination of benefits situations. Monitoring cost outlier frequency by DRG helps identify charge capture problems, coding opportunities, and cases where clinical documentation improvement could shift a case to a higher-weighted DRG with a more favorable payment.

Common Causes

How to Resolve

Validate the cost outlier threshold calculation, audit coding and charge accuracy, then post the contractual write-off or challenge the calculation with supporting data.

1. Reconstruct the outlier payment calculation Calculate: (billed charges x cost-to-charge ratio) - (DRG payment + fixed-loss threshold). The outlier payment should be 80% of this excess under Medicare. Compare your calculation to the payer's adjustment.
2. Verify the cost-to-charge ratio Confirm the payer used the correct hospital-specific cost-to-charge ratio. An outdated or incorrect ratio can significantly alter the outlier payment amount.
3. Check for DRG optimization opportunities If the DRG assignment appears low for the clinical scenario, work with your CDI team to determine if additional documentation or a coding query could support a higher-weighted DRG that reduces the outlier gap.
4. Post write-off or appeal If the calculation is accurate, post the CO-70 contractual adjustment. If any input to the formula was wrong, submit a reprocessing request with the corrected data.

Common RARC Pairings

The RARC code tells you exactly what triggered the CO-70:

How to Prevent CO-70

• Implement robust charge capture audits to ensure all high-cost items are accurately recorded without duplication
• Conduct concurrent CDI reviews on high-acuity cases to capture complications and comorbidities that support appropriate DRG assignment
• Monitor cost-to-charge ratios and update CMS promptly when significant shifts occur
• Track cost outlier cases by DRG to identify patterns where coding optimization or charge capture improvements could reduce future adjustments
• Review payer contracts to understand cost outlier threshold calculations and payment methodologies specific to each payer

General Prevention

• Implement robust charge capture processes to ensure all high-cost items and services are accurately recorded and coded
• Conduct concurrent clinical documentation improvement to support the medical necessity of resource-intensive care
• Monitor cost-to-charge ratios for high-acuity DRGs to anticipate and manage cost outlier cases
• Perform regular coding audits to prevent errors that could inflate billed charges or misrepresent the complexity of care
• Review payer contracts to understand cost outlier threshold calculations and payment methodologies

Also Filed As

The same CARC 70 may appear with different Group Codes:

Related Denial Codes