Denial Codes in Medical Billing: A Comprehensive Guide

The world of medical billing can be complex and challenging to navigate. Healthcare providers and billing professionals often encounter claim denials, accompanied by denial codes. Denial codes serve as the key to unraveling the mystery behind these claim rejections, providing vital information about the reasons behind the denials. Understanding these denial codes is crucial for efficient revenue cycle management (RCM) and ensuring accurate reimbursement for healthcare services. 

This article covers the different denial codes, the common reasons for denial codes to occur, and how to avoid them. Whether you are a healthcare professional, a billing specialist, or simply a curious individual seeking to understand the intricacies of claim denials, this comprehensive guide will provide you with all the knowledge and insights you need on denial codes. 

Denial Codes in Medical Billing 

Insurance companies use denial codes to ascertain the justifications for fully or partially denying a healthcare claim. Denial codes provide specific explanations for why a claim was rejected, allowing healthcare providers and billing professionals to understand the basis for the denial and take appropriate action to resolve the issue. Denial codes provide transparency and clarity regarding claim rejections, making it beneficial for patients and providers alike. 

Denial codes are usually found in electronic remittance advice (ERA). ERAs provide healthcare providers with detailed information regarding the payment, denial, or adjustment of claims submitted to insurance payers. ERAs have numerous unique codes that cover a wide range of claim statuses as well as claim denials. These details could include remittance advice remark codes (RARC), claim adjustment reason codes (CARC), and claim adjustment group codes (CAGR). 

Claim Adjustment Group Code (CAGR) 

Claim Adjustment Group Codes (CAGCs) are standardized denial codes used in Electronic Remittance Advice (ERA) transactions to indicate the category or type of adjustment being made to a healthcare claim. Two alpha characters are used in claim adjustment group codes to identify who is responsible for paying the unpaid portion of the claim balance. They are used in conjunction with claim adjustment reason codes by health plan providers. 

Following are the claim adjustment group codes: 

1. Contractual Obligation (CO):

   This code describes the difference between what a provider charges and what the payer will pay. Such claim balances are typically written off by healthcare organizations. 

2. Corrections and Reversal (CR):

   This code denotes that a previously adjudicated claim has been rectified or reversed by health plan companies. To highlight the material, they use the CR code with PR, CO, or OA. 

3. Other Adjustment (OA):

   In the event that no other group code meets the adjustment criteria, health plan organizations utilize this one. The claim is completely paid. 

4. Payer Initiated Reductions (PI):

   When a payer thinks the adjustments are not the patient’s responsibility, they may use this code. 

5. Patient Responsibility (PR):

   PR assigns responsibility for payment to the patient or their secondary insurance company. Deductibles, copays, and coinsurance are all included in PR amounts. 

Claim Adjustment Reason Code (CARC) 

Claim Adjustment Reason Codes (CARCs) are standardized denial codes used in electronic remittance advice (ERA) transactions that explain financial adjustments. If no changes are made to the claim, no CARC code is assigned. In these circumstances, the CARC column in the Electronic Remittance Advice will be blank. Claims’ financial adjustments can be easily determined with the use of claim adjustment reason codes (CARCs). 

Remittance Advice Remark Code (RARC) 

Remittance advice remark codes help provide additional information for an adjustment given by CARC. There are two types of RARCs:  

1. Supplemental:

   Without making any distinctions, they are also referred to as RARCs and offer more details regarding CARCs.   

2. Informational:

   Also known as alerts, they provide information on remittance processing.  

Payers are required to use CARCs and RARCs that have been endorsed by X12-recognized code set maintainers under the Health Insurance Portability and Accountability Act (HIPAA). Using these codes will help you explain any adjustments. Through the CARC and RARC Committees, you can also ask for brand-new codes or suggest changes to already-existing ones. The requests must come with a suggested language for the updated or new code. A description of the code’s purpose and how to utilize it must also be included.  

While the RARC Committee examines these requests 12 times a year, the CARC Committee only does so three times a year. 

Reasons for Denial Codes  

A claim is denied with denial code if it lacks the specific criteria set by the insurance company. Some of reasons for unexpected claim denial include: 

Missing Information 

When collecting information, a lack of any important information can result in a denied claim. This can include social security numbers, modifiers, addresses, etc. 

Lack of Authorization 

Before providing a service, healthcare organizations must go through the prior authorization process to ensure that the payer will pay for it. Lack of prior authorization can result in denied claims. 

Patient Eligibility 

This includes verifying that the patient is genuinely qualified for the service under the terms of their insurance plan. 

Medical Necessity 

Insurance companies assess their own set of criteria to determine if a medical procedure is necessary. 

Duplicate Claim or Service 

If a claim contains information that is identical to another claim, it will be identified and refused. 

Limit for Filing Expired 

If insurance companies don’t file claims before the deadline, those claims will be denied.  

Service Not Covered by Payer 

When a medical biller fails to confirm with a patient’s insurance company whether the coverage includes the treatments and services provided. 

Understanding these common causes for claim denial will help you implement a strategy to avoid these issues.  

To learn more, read about the common issues that lead to claim denials. 

List of Denial Codes in Medical Billing

 

According to statistics one in seven of all claims gets denied, amounting to over 200 million rejections every day. The average cost to rework a denial is $25. With such a huge number of denials, providers lose a large amount of revenue just by reworking denied claims. A lot can be saved in terms of claim rework if providers understand the denial codes. The most common are as follows: 

CO-4 – Required Modifier Missing 

When a necessary modifier is absent or when the procedure code conflicts with the modifier that was utilized, insurance companies send out denial code CO-4. A modifier is a two-character numeric (or alphanumeric) code that is used in conjunction with CPT codes to indicate that a service has changed without affecting the definition or code. You can anticipate having trouble getting paid without the proper modifiers. 

What to do next? 

If you receive denial code CO-4, you should: 

• Double check if your coding team used the wrong modifier or missed it completely. 
• Update the error and resubmit the claim. 

If your team did not use the proper modifier, take the following actions into consideration:  

• You can get in touch with the claims department to get it reprocessed if the insurance company rejects your claim even with the proper modifier.  
• If they disagree, you can go to the last step and file an appeal with all relevant evidence. 

CO-11 – Error in Coding 

The denial code CO-11 denotes a claim with an incorrect diagnosis code for the procedure. An essential tool for describing the medical issue during a visit to the doctor is a diagnosis code. The diagnosis code must then be accurate and pertinent for the listed medical services. If not, you will be given the CO-11 denial code. 

What to do next? 

The first thing you need to do if you get denial code CO-11 is: 

• Check for any incorrect diagnosis codes. 
• Refer to your coding team and check patient records for typos. 
• Use this information to correct the claim and resubmit it if there is a mistake or a diagnosis is missing.  
• However, you have the choice to appeal against the claim if you are unable to uncover an error.  

Always offer any records that support the medical necessity of the procedure for the diagnosis if you decide to challenge the claim. 

CO-15 – Missing or Invalid Authorization Number 

Denial code CO-15 is used if you give the insurance company the incorrect authorization number for a service or procedure. Prior clearance from the health insurance provider is required to obtain coverage for specific patient services or treatments. After approval, block number 23 on the CMS-1500 form must be filled out with the previous authorization number. If this is not done correctly, it often results in a denied claim. 

What to do next? 

If insurance companies deny your claim with denial code CO-15: 

• Refer to your billing team to check whether prior authorization requests were submitted. 
• Double-check block 23 on the insurance form to check for errors. 
• Put the claim on hold while attempting to obtain retroactive authorization if pre-authorization information is unavailable. 

CO-16 – Lack of Information  

Health plan providers use the denial code CO-16 to reject claims with missing information. Modifiers that are absent or are used incorrectly are one of the main causes of such denials. A few reasons for CO-16 rejections include technical and demographic mistakes, inappropriate modifiers, missing Social Security numbers, and invalid CLIA (Clinical Laboratory Improvement Amendments) numbers. 

What to do next? 

To fix denial code CO-16 claim denials: 

• Check the accompanying remark codes and make changes. 
• Double-check the clinical notes for missing information. 
• Get your claims scrubbed by a clearinghouse before submitting them. 

CO-18 – Duplicate Claim 

Insurance companies reject duplicate claims by using the denial code CO-18. This happens if you request the same service or treatment twice, resubmit the claim without specifying that it has been adjusted, or perform the same service more than once on the same day without a modifier. Another possibility is that you send the claim to both primary and secondary payers. The secondary insurer rejects your claim if the primary insurer has already forwarded it to it. To find out if the primary insurance company transferred the claim to the secondary one, you need to look at the electronic remittance advice. 

What to do next? 

If your claim was denied with denial code CO-18: 

• To find out why there are duplicate policies, contact the insurance company.  
• Check the status of the claim’s processing.  
• If you are certain that you only submitted the claim once, ask the health plan provider to process it again.  
• If the health plan provider doesn’t give a good justification for the refusal, file an appeal. 

CO-22 – Coordination of Benefits 

If a patient has coverage from more than one payer, the coordination of benefits specifies the criteria for choosing their primary, secondary, and tertiary insurance providers. The denial code CO-22 will be used by tertiary insurance companies to reject your claim if you bill them for services provided by secondary providers. 

What to do next? 

In case of a denial code CO-22: 

• Check insurance eligibility to find the primary insurance providers.  
• Update the clients’ benefit coordination data.  
• Decide where to submit the claim. 

CO-27 – Expenses Incurred After the Patient’s Insurance Expired 

Health plan providers will reject your claims if you provide treatments to customers after their insurance has expired using the denial code CO-27. Before appointments, you should verify your insurance eligibility to prevent such denials. 

What to do next? 

If you get denial code CO-27: 

• Verify the start and end dates of the insurance policy and get in touch with the claims division.  
• Ask patients whether they have any additional insurance providers.  
• If the policy is still in effect, send the claim back for reprocessing because even insurance companies sometimes make mistakes.  
• You must bill patients if they have no active insurance. 

CO-29 – Limit for Filing Expired 

Any claim you submit after the deadline will be rejected using the denial code CO-29. The following are some instances of claim filing deadlines:  

Aetna: It permits hospitals to submit claims 12 months following the date of service. Within 90 days of the date of service, doctors must submit claim forms.  

Cigna: After the date of service, participating healthcare providers must submit claims within 90 days, and out-of-network providers must do so within 180 days.  

TRICARE: You have one year from the date of service to submit claims.  

United Healthcare: You have 90 days from the date of service or discharge to request payment of benefits. 

What to do next? 

In order to resolve denial code CO-29: 

• Verify the date you handed the health plan provider your initial claim.  
• Determine if you filed the claim before the deadline by making a calculation. 
• File an appeal if you can demonstrate that it was submitted on time. 

CO-45 – Charges Exceed Fee Schedule 

This denial code is used when a fee is higher than the maximum permitted service charge. Additionally, no provider adjustment amount from the previous payer’s decision may be duplicated in the adjustment. Depending on the liability, this rejection code may also be a member of the PR (Patient Responsibility) group code. In other words, it typically entails copays and deductibles. 

What to do next? 

When submitting a replacement claim with the denial code CO-45: 

• All suitable HCPCS codes must be included to describe the services rendered. 
• It is also crucial to attach any supporting evidence required to back up the claim and guarantee proper processing. 

CO-97 – Service Already Adjudicated 

Bundled services are procedures carried out in a single treatment. When you submit several claims for bundled services, health plan providers decline claims using denial code CO-97. This category includes evaluation and management (E&M) services since insurance companies don’t pay you for individual services rendered; rather, they pay an overall sum for services rendered.  

What to do next? 

To address denial code CO-97: 

• Check whether the procedure code belongs in the inclusive, exclusive, or bundled category  
• Once you’ve identified the procedure code type, get in touch with the coding division and inquire as to whether a modifier can be used before resubmitting the claim.  
• Ask the claims department how to file an appeal. 

CO-167 – Diagnoses Not Covered 

Not all procedures are covered by payers. Claims that do not fall under their coverage area are denied using the denial code CO-167. 

What to do next? 

The following steps should be taken to address denial code CO-167:  

• To find mistakes, look at the ICD-11 denial codes.  
• To find out which diagnoses are not covered, speak with your insurance company.  
• Resubmit the claim as a corrected claim after any necessary changes. 

What to Do After Receiving a Claim Denial

Now that we have covered the causes of claim denials and the different claim denial codes, let us discuss what you can do after receiving them. 

When submitting a claim appeal back to an insurer for further review, make sure you have proper documentation that supports your internal appeal. Make sure your appeal is filed within 180 days of the claim denial notice. The insurance company must provide you with a written decision following its review after you complete and submit the internal appeal. You can then investigate having an external review conducted by a neutral third party if they continue to reject the service. However, don’t forget to submit an internal appeal requesting the payer to reevaluate the choice. Insurance companies no longer have the final say in whether to pay a claim after an external review.  

External review consists of the following steps: 

• Within four months after the day, you get a claim denial notification, submit a written request.  
• The external review will either support the insurer’s judgment and agree with them, or it will rule in your favor. No matter what happens, your insurer must accept the conclusion reached by the outside reviewer. 

How To Avoid Claim Denials in Medical Billing 

Around $262 billion in claims get denied, which is equal to about $5 million in claim denials per year. You can avoid claim denials if you follow the following strategies: 

Train Staff 

Employees are likely to handle claims incorrectly if they are not aware of the most recent claim filing rules. This may result in claim denials, revenue loss, and financial strain on the patients. It is crucial to educate your team about claim processing routines for this reason. Every employee needs to be aware of insurance policies and payment requirements. 

Insurance Verification 

Claims that are sent to the wrong insurance companies will be rejected. For this reason, you should always check for benefits eligibility prior to appointments to minimize denials and establish financial responsibility as soon as possible. 

Leverage Technology 

Using manual procedures can result in mistakes. And when it comes to submitting claims, there is no room for error. One typo will result in the rejection of your claim. CareCloud’s medical billing software helps avoid unnecessary errors. It also assists you in storing and updating patient insurance information. Before sending claims to payers, clearinghouse integration helps you check them for coding and formatting errors. 

Improve Documentation 

Shorthand notes might become lost in translation as they go from department to department, leading to errors. This is why it is best to use electronic medical records to accurately record patient clinical, insurance, and demographic information. CareCloud also offers a robust EHR that provides a comprehensive view of all patient data. 

Eligibility 

Every healthcare organization must have a system in place for determining eligibility. The process of determining whether the services provided to a patient are within the parameters of their insurance plan is known as eligibility. Insurance companies do not always pay for every surgery for every patient. Implementing real-time eligibility is the best course of action for your business to take to guarantee that your denial rate is kept to a minimum.  

Stay updated 

Insurance companies frequently alter their policies. To lower denial rates, it is crucial to stay informed about the constantly changing requirements for prior authorizations, referrals, and medical necessities set forth by insurance companies. 

Run Audits 

In order to prevent denials, it is best not to repeat old mistakes. To find related trends and fix problems, you should create denial reports. 

Conclusion  

Handling claim rejections is difficult. Insurance companies may reject your claim if there are even slight inconsistencies, costing you a lot of money. Software for medical billing can help you submit accurate claims and prevent you from making mistakes. CareCloud’s Medical Billing software helps you avoid all kinds of errors. With its accurate claim submission, you can enjoy maximized reimbursements and a decrease in claim denials.