There are between 5 and 10 percent medical claim denials on average, according to the AAFP.

But this isn’t necessarily a set average. You see, there are many different studies that yield different results. Though not many of these results seem to fall below that range.

Another report by the Centers for Medicare and Medicaid Services (CMS) for instance reports differently. In 2020, across HealthCare.gov insurers, reports show that 18 percent of in-network claims resulted in claim denials.

These denial rates vary from individual providers as well. This is largely due to the lack of standardization within the healthcare system. And as you can see, this showcases the struggles that facilities have with denial management services on a daily basis.

The good news is, there is standardization when it comes to the denial codes themselves. But what are denial codes? Let’s dive in.

What are Denial Codes?

Denial codes are sort of like the last piece of that puzzle you’ve been working on. You know, like that 1,000-piece puzzle you thought would be fun to do but 10 minutes into it you regret it.

Healthcare insurance companies assign these codes to claims that are unable to process. Receiving a denial code will help you understand your next steps in being able to get that claim processed correctly. This includes what a claim might be missing, or what information it didn’t need in the first place.

Denial codes explain why insurance cannot cover a patient’s treatment costs so medical billers can resolve and resubmit the claim. This not only benefits the patient, but it benefits the provider as well.

Without being able to process claims, you don’t get paid.

So where can you find a denial code? It’s good practice to start with electronic remittance advice (ERA). ERAs contain a lot of different codes that cover a variety of statuses for claims. And of course, I wouldn’t be mentioning ERAs if they didn’t cover denial codes.

ERAs are an explanation from the insurance provider about how they adjust claim charges based on aspects like:

Contract agreements
Secondary payers
Benefit coverage
And more

What are ERAs also good for? For getting more information on claim denials, of course! You can find more denial code information by thoroughly reading the ERA. This information might include claim adjustment group codes (CAGR), claim adjustment reason codes (CARC), and remittance advice remark codes (RARC). Let’s go over what each of these are!

Claim Adjustment Group Code

Claim adjustment group codes help to determine who’s financially responsible for an unpaid amount of the claim balance. Claim adjustment group codes contain two alpha characters to represent who’s responsible in combination with claim adjustment reason codes (CARC).

Here are the five claim adjustment group codes:

Contractual Obligation (CO): This code refers to the amount between what the practice/provider bills and the amount allowed by the payer. This is of course when you are in-network with them. This amount is what the provider must adjust from the claim and the patient is not responsible for this amount.
Corrections and Reversal (CR): This code marks that payers corrected or reworked a formerly adjudicated claim. You can use the CR code with CO, PR or OA to note revised information.
Other Adjustment (OA): Billing professionals use this code when CO nor PR apply. In other words, this applies when there is no contractual obligation or patient responsibility on the claim. The claim is fully paid.
Payer Initiated Reductions (PI): A payer may use this code when they believe the adjustment is not the responsibility of the patient. Check the reason code for additional information about this code.
Patient Responsibility (PR): This code helps patients understand which portion of the bill they are responsible for. These may include copays, deductibles, and coinsurance amounts. You will also see this code if the patient does not have coverage on the date of service.

Claim Adjustment Reason Code

While looking over claim adjustment group codes, which explain who’s financially responsible for a claim balance, consider claim adjustment reason codes (CARC) too.

These codes explain the applied financial adjustments.

If the healthcare provider doesn’t make an adjustment to the claim, there will be no CARC code included in the ERA.

Claim adjustment reason codes (CARCs) are handy when determining claim financial adjustments. If the payer does not make any adjustments to the claim, then don’t expect there to be a CARC!

Remittance Advice Remark Code

Remittance Advice Remark Codes (RARC) are good for providing an additional explanation for an adjustment given by a CARC. RARCs also can give more information about remittance processing.

There are two types of RARCs…

Supplemental: These codes make up the majority of RARCs. They’re also known as RARCs without further distinction and provide further information about CARCs.
Informational: These codes are also known as alerts. These alerts convey details about remittance processing and are not related to a specific adjustment or CARC.

CARCs and RARCs are different that clearinghouse level rejections.

Now that we have a general understanding of what it takes to read a denial code, let’s look at a few examples.

Remittance advice remark codes (RARCs) help by providing any additional information for the reasons spelled out by the CARCs. When talking about types of RARCs there are two: Supplemental and Informational.

Supplemental RARCs or “RARCs without further distinction”, provide further explanations for the already described CARCs. Informational RARCs are alerts that convey details about remittance processing.

Under the Health Insurance Portability and Accountability Act (HIPAA), payers must use CARCs and RARCs approved by X12 recognized code set maintainers. By using these, you can readily explain any adjustment in a claim payment.

You can also request new codes or suggest existing code revisions through the CARC and RARC Committees. The requests must include suggested wording for the new or revised code. They must also include an explanation of how to use the code and why it is necessary.

The CARC Committee is open to review these requests 3 times a year while the RARC Committee reviews them 12 times a year.

Common Reasons for Denial Codes

A claim denial lacks specific criteria set by the insurance company. This could be in regard to insurance coverage plans, limits, or an untimely filing error.

A few of the most common healthcare denials to watch out for are…

Patient Eligibility: The first and most important step to avoid common denial reason codes is to make sure the patient is actually eligible for the service based on their insurance plan.
Lack of Prior Authorization: Prior authorization is a process that healthcare organizations must take to before performing a service to make sure the payer will pay it
Missing Information: If a required field isn’t filled out, this will trigger a claim denial. Social security numbers to plan codes, modifiers, addresses, and more are some examples.
Medical Necessity: Although oftentimes assumed, insurances evaluate their own list of criteria on whether or not a medical procedure is necessary.
Service Not Covered By Payer: When a medical biller doesn’t check with a patient’s insurer to make sure coverage extends to the procedures and services given.
Duplicate Claim or Service: Claims will get flagged and denied if they mimic the information of another claim. This includes having the same beneficiary, services performed, date of services, and healthcare provider.
Service Already Adjudicated: When adding benefits for one service into the payment for another previously handled service.
Limit For Filing Has Expired: If claims aren't in before the deadline an insurance company sets, they’ll face a denial.

Just by knowing these reasons for claim denials, you can help yourself by implementing a plan to prevent them. Then you won’t even have to worry about those pesky denial codes!

But, as it were, right now you do. So let’s take a look at a few common denial codes.

Common Denial Codes in Medical Billing

CO-4

Insurance companies send out denial code CO-4 when a required modifier is missing or the procedure code is inconsistent with the modifier used. You’re probably thinking, “What is a modifier?” Let’s detour from CO 4 for a minute.

A modifier is a 2 character numeric (or alphanumeric) code that couples with CPT codes to flag that there is an alteration of a service without changing the code or definition. Without the correct modifiers you can expect to have a difficult time receiving payments.

So if you receive denial code CO 4, here are a few things you can do to take action:

Review to see if the coding team really did use the incorrect modifier or perhaps forgot to apply it.
If this is the case and your team did miss adding the correct modifier, update the mistake and resubmit your claim.

If you find your coding team did forget to apply the appropriate modifier, consider these steps:

If the insurance denies your claim even with the correct modifier, you can reach out to the claims department so they can reprocess it.
If they disagree, you can take the final step of submitting an appeal with any supporting documents you have.

CO-11

When looking at common denial codes, CO 11 is one of the more prevalent ones.

To put it plainly, CO 11 stands for a claim with a diagnosis code that does not match with the procedure. A diagnosis code is an important tool used to define the medical concern during a doctor visit. This diagnosis code must then be consistent and relevant for the medical services mentioned. If not, you will receive denial code CO 11.

Oftentimes you receive this denial code because there’s a mistake in the coding. An incorrect diagnosis code is likely the culprit, so the first thing to do is to check for that. Refer to your coding team and look over the patient’s record to ensure that there is not a typo or another error.

If there is an error or a diagnosis that is missing, use this information to correct the claim and resubmit it. However if you cannot find an error, you have the option to appeal the claim. Remember that if you do decide to appeal the claim, always provide any records that back up the medical necessity of the procedure for the diagnosis.

CO-15

Denial code CO 15 means that the claim you entered has the wrong authorization number for a service or a procedure.

You will need prior approvals to receive proper coverage for certain procedures or treatments. After you gain this approval, you must then enter the correct prior authorization number in block number 23. This block is on the CMS-1500 form.

Receiving this denial code means there is a hiccup somewhere in this process. You should address this denial code first by:

Review claim to see whether your team submitted the prior authorization request.
Recheck block number 23 for any errors.

If the pre-authorization information is not available, attempt to get retro-authorization for the claim.

CO-16

Denial code CO-16 is probably one of the most common denial codes you will come across. You will receive a CO 16 code if you submit a claim with missing information or missing/incorrect modifiers. Some other reasons for CO 16 include:

Demographic errors.
Technical errors.
Invalid Clinical Laboratory Improvement Amendments (CLIA) number
Missing social security number

To fix CO 16 claim denials, you should pay attention to any accompanying remark codes. These remark codes are there to help you further define what information is missing so you can make changes accordingly.

CO-18

Payers use the denial code CO-18 with RARC N522 to deny duplicate claims, which happens if you:

Submit the same claim twice for a service, medication, or treatment.
Resubmit a claim without letting the insurance company know you corrected it.
Provide the same service multiple times on the same day without a modifier.

A specific example might look something like the following: Say you are eager to make sure a specific claim goes through processing as quickly as possible. You send the claim to both the patient’s primary insurance and their secondary insurance. Essentially you are just trying to receive reimbursement from either one.

But what you didn’t know is that the primary insurance provider already sent the claim to the secondary payer. Now, the secondary insurer denies your claim because it is a duplicate. Quick note here, you can check the electronic remittance advice to see whether or not the primary insurance provider crosses a claim over to the secondary one. This of course saves you from needing to resubmit the claim and deal with time-consuming claim denials.

When dealing with claim denial CO 18, you should first contact the insurance provider. By doing so you can quickly uncover any duplicate reasons you might otherwise be unaware of and also verify the claim’s processing status. If you are sure you submitted the claim only once, you can request the health plan company to reprocess it. Alternatively, you can also file an appeal if there seems to be no reasonable cause for the denial.

CO-22

I touched on this while talking about denial code CO 18, but sometimes a patient may have more than one payer. I’m talking about primary, secondary and tertiary insurance providers of course. This coordination of benefits can confuse the billing process and complicate collecting on reimbursements.

For example, if you bill secondary insurance companies for services only covered by primary providers, they will deny the claim and send back denial code CO 22. To avoid this denial code, submit the claim to the primary health insurance plan first. After that, you can then send the remaining balance to the secondary or tertiary providers.

Another way to avoid running into denial code CO 22 is to make sure patients’ insurance information is up to date as well as coordination of benefits information.

CO-27

You can expect to receive denial code CO 27 when a patient undergoes services or treatment after their health insurance expires. Unfortunately, this denial code is pretty difficult to resolve. That is why it is important to perform insurance eligibility verification checks before seeing the patient.

However, if you do come across CO 27 denials, consider the following:

Confirm the insurance policy’s effective and expiration dates.
See if the patient has any secondary insurers.
Appeal the claim if the policy is still active. It might be a mistake by the insurance provider!
If the patient doesn’t have active insurance, bill them directly.

CO-29

Denial code CO 29 means that you sent a claim after the submission deadline. Each health plan has its own claim submission timeframe, so make sure you are familiar with your payer’s!

If you receive denial code CO 29, make sure to:

Check the date you submitted the initial claim.
Review the date submitted and calculate whether this happened before the filing deadline.
Take proof of timely filing to file for an appeal.

CO-45

Last but not least, I’ll go over the denial code CO-45. This code marks a fee that exceeds the highest allowable amount for a service charge. The adjustment can also not duplicate any provider adjustment amount from the prior payer’s decision.

This denial code is also able to be part of group code PR (Patient Responsibility), depending on the liability.

PR-45 comes into play when there is some patient responsibility within the adjustment. To put it more simply, it usually involves deductibles and copays.

CO-167

At the end of the day, health insurance plans can’t cover every procedure a patient might need. In these cases, payers will use denial code CO 167 to reject the claims that don’t fall under their coverage.

When handling denial code CO 167, you should:

Review (ICD-11) diagnosis codes in case of errors.
Contact your payer to find out which diagnoses are not covered.
Make any adjustments necessary, then resubmit the claim as corrected.

What to Do After Receiving a Claim Denial

First of all, don’t panic. You’re not the only one dealing with claim denials. In fact, in 2021 there were a little over 48 million claim denials. For some perspective, this accounted for 16.6% of all claims submitted in that year! That is a lot of lost revenue.

But all hope is not lost so long as claim appeals are an option. When talking about claim appeals, I’m talking about submitting your denied claim back to an insurer for further review. Include any documentation that might support your internal appeal and make sure to file it within 180 days of receiving the claim denial notice.

After you complete and submit the internal appeal, the insurance company must notify you with a written decision following their review. If they still deny the service, you can then look into an external review with an independent third-party.

Just a side note for you: before you request an external review, you must first ask the payer to reconsider the decision through an internal appeal. Can’t skip over this step!

Anyway, with an external review, insurance companies no longer get the final say over whether to pay a claim.

There are 2 steps in the external review process:

File a written request within four months after the date you receive a claim denial notice.
The external review will either side with the insurer and uphold their decision, or decide in your favor. No matter the outcome, your insurer must accept the external reviewer’s decision.

Tips on How To Avoid Denials

For those who have been in the business for a while, you probably know a few tricks of the trade when it comes to avoiding these pesky claim denials. But I’m a firm believer that you can teach an old dog new tricks… not to call anyone an old dog here.

Anyway, as claim management processes and technology continue to advance, there will always be updates in the way medical billing teams approach filing claims. Whether it be through better education, more efficient streamlining of workflow, or more accurate data analysis, taking preventative measures will always be the first line of defense against denials.

Tip #1: Educate Your Team

I’ll be the first to congratulate you on being a true professional because you’ve read the majority of this blog post about denial codes in medical billing. But, you still have an entire staff of billers that likely haven’t.

At the end of the day, your organization’s denial landscape is only as good as your staff. In other words, if your team doesn’t understand what to look out for when it comes to some of the most common denials…you’re still going to experience them at a high rate.

Let’s go over an example based on the denial code CO-18. Part of decreasing the rate of CO-18 denials involves utilizing modifiers 7 and 59 respectively depending on the number of lines on the claim. Even after instituting that within your organization, you might still receive CO-18 denials due to “crossover”.

Understanding that level of detail on one specific type of denial only happens through educating your team.

Tip #2: Stay Up To Date

I haven’t even mentioned the fact that medical billing processes and technology are always changing.

It seems like everywhere you turn you see some type of new software that claims to be the latest and greatest in the revenue cycle management space. And while that may well be, that doesn’t mean it will help a billing team that isn’t properly trained.

Just like technology and software is always changing, so are medical billing rules and regulations. You might as well throw your money away if you decide to invest in software while your employees don’t understand the data they are working with.

Different codes discontinue each year, while others are new to the scene. To limit the direct impact claim denials have on your cash flow, make sure your medical billing team stays on top of these rules and changes through continued and regularly updated education.

Tip #3: Leverage The Right Clearinghouse Partner

Based on how technologically-driven the healthcare industry is as a whole, it’s likely that you have the right business partners.

Completing tasks manually can open up your administrative workflow to all kinds of (otherwise preventable) errors. Whether it be a typo or a late submission, as we can see from this blog, all mistakes are costly in one way or another.

That’s why investing in software to help you store and manage your claims is essential. Some examples of software that is helpful for submitting “clean” claims are:

Medical Billing Solutions
Medical Practice Management Software
Medical Claims Processing Platforms
Electronic Health Records
Clearinghouse Services

The ultimate goal of a clearinghouse is to act as a central point for your claim submission process. It should also help you manage your denied claims. If your current clearinghouse partner doesn’t do that, you need to switch. If it does, keep reading this section.

But, what separates any run-of-the-mill clearinghouse partner from a great one is the additional claim services. What do I mean by that?

One of the most valuable features that you should look for in your clearinghouse partner is claim scrubbing.

Claim scrubbing is essentially a “spell check” for your claims. It allows you to ensure that there aren’t any errors in your claims before you submit them to an insurance payer. Since clearinghouses deal with millions of claims and payer connections, they should be the expert in all submission requirements. Thus, they should be able to help you.

Tip #3: Real-Time Eligibility

One of the worst mistakes that healthcare organizations that have high denial rates do is not having an eligibility process in place.

Eligibility is the process of checking with an insurance payer that the services rendered to a patient are within the scope of their insurance plan. To put it more simply, insurance organizations don’t cover every procedure for all of their patients.

Now, I could write an entirely different blog post on the intricacies associated with different insurance plans. But, that would be closer to a dissertation than a blog post.

Anyway, the point I’m trying to make with all of this is that eligibility is a must-have process your organization should institute.

Of course, the best option for your organization to ensure that you’re keeping your denial rate down is to institute real-time eligibility. This is another feature your clearinghouse partners should offer. Basically, it speeds up the process via a lookup form.

Tip #4: Understand Your Payers

Understanding how your most common insurance payers operate is a great tool of the trade.

For example, Aetna might have a different timely filing limit for claim submissions compared to BlueCross BlueShield. In other words, if you sent one claim to each at the same time 120 days after the date of service, one might come back as a denial. Not good.

When considering your practice’s carriers, make sure you have the following information:

The deadline, address, and submission requirements for timely filing. As well as the same information but for appeals.
Deadline, address, and submission requirements for corrective claims.
The contact information of the carrier representative you work with.

When you know your carrier’s policies, you are equipped to better respond to their actions. These companies will often include updated information on their websites, if not provide you with a hard copy of their policies when you sign a new contract with them.

Your clearinghouse partner should offload a lot of the pressure of understanding each of your insurance payers. Since they act as the central point and exist to help increase your bottom line, they should alert you of upcoming submission deadlines automatically.

Tip #5: Run Audits

A great way to tackle the issue of high denial rates is through strong strategies and processes. Okay, sounds great… but also very vague.

You’re probably wondering what constitutes a strong process! Well, having a system to investigate unpaid claims, uncover insurance carrier trends, and better appeal rejections per the provider’s contract are three strategies to start with.

Laying the foundation with these strategies while educating your team to track, measure, and analyze claim denial trends can help better prevent errors and categorize denials.

Tip #6: Track the Claim Process

Have you ever heard of the saying, “trust the process”?

It’s a great saying and can apply to many different scenarios, but not ones having to do with processing claims.

As much as I would love to tell you that all you need to do is worry about getting that claim out the door to the insurance carrier, I’d be lying to you.

Following-up with claim submissions is key. Keeping track of the claim throughout the payment process can help you catch problems early. The lifecycle of a claim needs monitoring at every stage to ensure a streamlined and efficient process.

Continuing to stay alert for any errors in the claims process means finding solutions faster and avoiding lost or delayed revenue.

Tip #7: Data Entry Errors

Front-end claim systems are pretty stingy when it comes to what they will reject and what they will accept.

In fact, millions of claims are automatically denied due to data entry errors such as misspelled names, incorrect ID numbers, etc.

A common data entry error would be recording a patient’s name by their nickname instead of their legal name.

So let’s say Bob comes in for an appointment, so you record his name as Bob instead of Robert (as it appears on the insurance card). This situation may cause the claim to be rejected.

Make sure you verify all of the patient’s insurance and demographic information before their visit, and then again when they come in for the appointment.

Conclusion

Running into claim denials is going to be inevitable. It’s not a question of whether or not health insurance companies will deny claims, but instead when and why.

Treating each denial as a learning experience will help signify workflow issues that you can not only correct, but then prevent from happening again in the future. Preventing denials is the easiest and most cost effective way to increase your revenue cycle efficiency.

In the ever-changing world of health claims, denials don't have to be a dead end.

With over two decades in the business and expert knowledge of claim-handling strategies, our clearinghouse solution allows you to focus on doing what matters most—building your practice!

Enjoy lightning-fast processing times with greater administrative efficiency; it's never been easier.