UB04 Condition Codes Code 27: Patient Referred by a Physician with a Financial Interest in the Entity

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Overview

Condition Code 27 on the UB-04 claim form (Fields 18–28) is defined by the Noridian Condition Codes list as: “Patient referred to a sole community hospital for a diagnostic laboratory test.” ^[1] This code indicates that the patient’s referral originated from a physician and was directed specifically to a Medicare‑designated sole community hospital (SCH) for the purpose of receiving a diagnostic laboratory service. The code helps payers identify claims that involve a referral to a hospital that, due to its isolated geographic location or other criteria, is considered the sole source of essential inpatient care for its service area. By reporting Code 27, the provider signals that the laboratory test is part of an outpatient or inpatient encounter that stems from a formal referral arrangement, and that the receiving facility qualifies under Medicare’s sole community hospital status. The code is one of many condition codes used to convey special circumstances that affect claim processing, payment, or coordination of benefits. Its correct use ensures that the claim is adjudicated in accordance with Medicare policies regarding referrals to sole community hospitals. ^[1]

When to Use

Condition Code 27 should be used when a patient is referred by any physician to a sole community hospital for a diagnostic laboratory test, and the hospital meets the Medicare definition of a sole community hospital (SCH). The referral must be documented in the patient’s medical record, and the laboratory test must be diagnostic (not screening or therapeutic) in nature. This code applies to claims submitted by the sole community hospital that performed the test, whether the service is billed as part of an inpatient stay or an outpatient encounter. Providers should verify that the facility is currently classified as a sole community hospital by the Medicare Administrative Contractor (MAC) before applying Code 27. The code may be used in conjunction with other condition codes (e.g., Code 01 for military‑related services) if multiple circumstances apply, but each condition code must be separately justified. Notably, Code 27 as defined in the Noridian source differs from commonly circulated descriptions—it specifically references a referral to a sole community hospital, not a referral by a physician with a financial interest. ^[1] Therefore, providers must ensure they are applying the correct definition from their MAC’s official condition code list. Failure to confirm the facility’s SCH status could lead to claim denial or recoupment.

Step-by-Step Claim Example

A 68‑year‑old female patient visits a primary care physician in a rural county. The physician suspects a thyroid disorder and orders a comprehensive metabolic panel and thyroid function tests. Because the nearest clinical laboratory is located 45 miles away at a Medicare‑designated sole community hospital (SCH), the physician issues a written referral for the patient to receive these diagnostic lab tests at that hospital. The patient presents to the SCH outpatient laboratory on March 15, 2025. The hospital’s billing department prepares a UB-04 claim for the lab services. Additional condition codes may be entered if applicable (e.g., Code 04 for informational billing), but Code 27 is the primary qualifier. The claim includes the appropriate revenue codes (e.g., 030x for laboratory), CPT/HCPCS codes for the tests, and the referring physician’s NPI in Field 76. The claim is submitted to Medicare Part B. ^[1]

Common Mistakes & Audit Red Flags

One frequent mistake is using Condition Code 27 for a lab test that is performed at a hospital that does not have sole community hospital status. Providers must verify SCH designation through their MAC’s publicly available lists or provider enrollment data. Another error is applying the code to a screening lab test (e.g., routine annual blood work) rather than a diagnostic test ordered due to a specific medical condition — the code explicitly states “diagnostic laboratory test.” ^[1] Audit red flags include claims that contain Code 27 but lack a referring physician’s order or NPI, or that show the lab test was performed at a facility that is located in an urban area with other laboratory options. Payers may also flag claims where Code 27 is paired with another condition code that contradicts the referral scenario (e.g., Code 02 for workers’ compensation). Providers should ensure that the medical record includes clear documentation of the referral and the SCH’s sole‑source role. Lastly, some billers mistakenly use the unofficial variant “Patient Referred by a Physician with a Financial Interest” — this is not the definition supported by the Noridian source and could trigger a compliance review. ^[1] Always rely on the official MAC‑published code list.

Related Codes/Fields

The table below lists other condition codes from the same Noridian source that are relevant to referral or facility‑type scenarios and may appear on the same UB-04 claim as Code 27.

Code	Meaning (from Noridian Condition Codes)	Source
26	VA eligible patient chooses to receive services in a Medicare Certified Facility.	[1]
28	Patients and/or spouses EGHP is secondary to Medicare.	[1]
44	Inpatient admission changed to outpatient.	[1]
46	Nonavailability statement on file.	[1]
76	Back-up dialysis in-facility.	[1]

These codes may be reported in Fields 18–28 when multiple conditions apply, but only if each is separately documented and justified. For example, a veteran who is referred to an SCH for a diagnostic lab test would require both Code 26 and Code 27. ^[1] ---END---

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References

[1] Noridian Condition Codes — https://med.noridianmedicare.com/web/jea/topics/claim-submission/condition-codes