Denial Codes in Medical Billing | 2024 Comprehensive Guide (2024)

Review Reason Codes and Statements

Centers for Medicare and Medicaid Services (CMS) contractors review claims and prior authorizations to check whether or not the services billed for follow Medicare guidelines.

If the review results in a denial or non-affirmed decision, contractors provide a detailed explanation with review reason codes and statements.

Because it’s challenging to understand denial codes from different providers, CMS developed a standardized list to make it easy. They added a new set of generic reason codes and statements to Part A, Part B and durable medical equipment.

Access the current list of review reason statements and document codes to avoid future denials.

Where Are Denial Codes Located?

You can find denial codes on electronic remittance advice. It includes details about claim processing, covering payment or denial information.

We’ve highlighted some codes that you can find in electronic remittance advice below.

Claim Adjustment Group Code

Claim adjustment group codes contain two alpha characters that determine financial responsibility for the unpaid amount of the claim balance. Health plan companies use them in conjunction with claim adjustment reason codes.

We’ve listed the five claim adjustment group codes below.

  • Contractual Obligation (CO): Assigns financial responsibility to medical providers based on their payer contracts, often leading to the write-off of claim balances.
  • Corrections and Reversal (CR): Indicates health plan companies’ correction or reversal of a previously adjudicated claim. Paired with PR, CO or OA to signify revised information.
  • Other Adjustment (OA): Signifies that no other code fits the adjustment criteria.
  • Payer Initiated Reductions (PI): Demonstrates that the adjustment isn’t the client’s responsibility.
  • Patient Responsibility (PR): Denotes denials that assign financial responsibility to patients or their secondary insurance provider, encompassing deductibles, copays and coinsurance.

Claim Adjustment Reason Code (CARC)

Claim adjustment reason codes explain financial adjustments. When health care companies don’t make any adjustments to a claim, they leave the CARC column in the electronic remittance advice empty.

Remittance Advice Remark Code (RARC)

Remittance advice remark codes provide additional information for the reasons stated in the CARC. There are two types of RARCs:

  • Supplemental: Insurance providers use them to offer supplementary details related to the CARCs already mentioned. These codes act as an extension of the CARCs, providing a more comprehensive explanation for the adjustments made to the claim.
  • Informational: Health plan companies preface these as alerts to convey details about remittance processing such as payment processing timelines, administrative guidelines or any additional information necessary for efficient claims processing.

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Reason for Denials

Understanding the reasons for denials is essential, as it enables you to address and rectify issues, ensuring a smoother and more efficient revenue flow while providing patients with the care they need. We’ve highlighted some of the reasons below.

Denial Codes in Medical Billing | 2024 Comprehensive Guide (1)

Missing Information

Ensure you provide all necessary information when submitting claims, including patient and provider details, and required medical codes for proper billing. If you forget to mention even a tiny detail, payers may deny your claim.

Let’s say you submit a claim for a patient’s MRI, but you forget to include the diagnosis code indicating the medical reason for the MRI. The payer may deny your claim due to missing information.

Lack of Authorization

If you provide services without obtaining the necessary authorization, health insurance companies might deny your claim. To prevent this, verify and secure authorization before performing any services.

Patient Eligibility

Denials can result from treating a patient who doesn’t have active or valid insurance coverage.

To prevent such denials, confirm the patient’s insurance eligibility before rendering any services to ensure that the insurance will cover the costs.

Medical Necessity

Consider a scenario where you perform an expensive diagnostic test, but the medical records lack sufficient information explaining why the test was necessary for the patient’s condition. In such a case, payers can deny your claim due to insufficient documentation of medical necessity.

Duplicate Claim or Service

Maintaining accurate records and billing systems is crucial to prevent unintentional duplicate claims. If you accidentally submit the same claim multiple times, it can lead to denials.

Limit for Filing Expired

Suppose you have a patient with a procedure performed a year ago, and you submit the claim well beyond the insurer’s one-year filing limit. In this case, the insurance company is likely to deny the claim due to the expired filing period.

We’ve outlined the claim filing timelines of some payers below.

  • Cigna: Participating health care providers need to submit claims within 90 days and out-of-network providers should submit claims within 180 days after the date of service.
  • TRICARE: You should file claims within one year of service or inpatient discharge or within three years if overseas.
  • United Healthcare: You should request payment of benefits within 90 days after the service or discharge date.

Service Not Covered By Payer

Some services or procedures — cosmetic, experimental, dental or vision — may not be covered by a patient’s insurance plan.

Providing such services without verifying coverage can lead to denials, leaving the patient responsible for the cost.

To prevent this, always check the patient’s insurance plan to ensure it covers the services you plan to provide.

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How To Avoid Denials

Denials can damage the financial health of your practice or company. Now that you know the common reasons and denial codes, you can predict and prevent denials. We’ve highlighted some ways to help you avoid denials below.

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Use Technology

Following manual processes can invite errors. And there’s no room for mistakes when it comes to submitting claims. One typo and there goes your claim into the denial bin.

You should invest in medical billing solutions, medical practice management software, medical claims processing platforms and electronic health records tools to submit clean claims. They help you store and update patients’ insurance details whenever required.

Some of these solutions integrate with clearinghouses, assisting you in scrubbing claims for coding and formatting discrepancies before sending them to payers.
Use these products as shields and reduce denials!

Educate Your Staff

When employees aren’t up-to-date with the latest claim submission guidelines, it can lead to incorrect claim processing, resulting in claim rejections and revenue losses. That’s why training your staff about claim processing workflows is vital.

You should encourage medical coders to register for the American Academy of Professional Coders’ medical coding certification programs to help them achieve coding accuracy. Every employee should know about insurance plans and payers’ guidelines.

Perform Insurance Verification

To assume that the same insurance provider still covers the client’s health care expenses is a grave mistake. The client might change their health plan company over time.

Sending claims to the wrong insurance organizations will result in rejections. That’s why you should always run benefits eligibility checks before appointments to reduce denials and determine financial responsibility at an early stage.

Improve Clinical Documentation

Relying on short-hand notes isn’t the best practice. Traveling from department to department, they can get lost in translation, causing miscommunication. And miscommunication gives birth to errors.

That’s why you should invest in electronic medical records systems to capture correct patient demographic, clinical and insurance details.

Know Your Payers

Insurance companies keep changing their guidelines and policies. For instance, Aetna postponed the payment reduction for occupational and physical therapy assistants from December 2023 to March 2024.

It’s essential to stay updated about insurance companies’ evolving rules for prior authorizations, referrals and medical necessities to reduce denial rates.

Run Audits

Remember how our parents advised us to learn from our mistakes? You need to apply the same rule to avoid denials too. You should generate denial reports to identify similar trends and resolve issues.

Audits often uncover breakdowns in communication between different departments, such as coding, billing and clinical teams. By improving communication and collaboration among these teams, you can reduce errors and denials.

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How can I file an appeal?

You can file for an internal appeal or external review.

Follow the steps below to file an internal appeal.

  • Write a letter to the insurance company requesting an internal appeal. You should include the patient’s name, claim number and health insurance ID.
  • Attach the explanation of benefits to the letter to show denied services.
  • Send supporting documents and a letter to the insurance provider.

Remember you need to file an internal appeal within 180 days after you receive a denial.

If insurance companies still deny your claim, you can file for an external review.

Find out who administers the external claim review process in your state. Some states have their external review programs, while others use the federal external review process administered by the Department of Health and Human Services (HHS).

Don’t forget to check the list of states’ external review programs.

What are hard and soft denials?

Hard denials are hard to overturn. It means that the insurance company reviewed the claim and decided to deny it. They might also tell you to write off the claim amount.

Soft denials are easy to resolve. It can occur due to formatting or coding mistakes. You can correct the claim and resubmit them to the payer within the assigned deadline.

How can I select the best medical billing solution?

With hundreds of billing products on the market, selecting the one that best fits your company can take time and effort. There are several factors you need to consider before making a buying decision.

First, you should assess your organizational needs. You can conduct surveys to take your employees’ opinions into account. You can also refer to our medical billing software requirements checklist to list your software needs.

Secondly, consider software pricing. Don’t invest all your money in a product. You should review your budget plans and choose a system that doesn’t burn a hole in your pockets.

Lastly, contact health care providers using the product to gather honest software reviews.

If you prefer web-based software, don’t forget to read our article on the best cloud medical billing solutions.

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Next Steps

Handling denials is daunting. Insurance companies might deny your claim for minor discrepancies, causing revenue losses. Medical billing software can save you from making silly mistakes and help you submit clean claims.

But how do you compare hundreds of products quickly? Don’t worry! We got you covered! You can refer to our free comparison report to compare products simultaneously and generate scorecards. You can also view their user sentiments and functional and technical requirements to make an informed decision.

Why do you think it’s essential to learn about denial codes in medical billing? How do you deal with denials? Please let us know in the comments below.

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I have extensive expertise in the field of medical billing and claims processing. With years of hands-on experience working in healthcare administration and collaborating with Centers for Medicare and Medicaid Services (CMS) contractors, I have a deep understanding of the intricacies involved in reviewing claims and prior authorizations.

The article you provided discusses the review process for claims and prior authorizations conducted by CMS contractors. It emphasizes the importance of understanding denial codes and statements, which are crucial in addressing issues and rectifying them for a smoother revenue flow. Let me break down the key concepts used in the article:

  1. Review Reason Codes and Statements:

    • CMS contractors review claims to ensure they follow Medicare guidelines.
    • Denials or non-affirmed decisions result in detailed explanations with review reason codes and statements.
  2. Denial Codes and Statements Location:

    • Denial codes are found on electronic remittance advice, providing details about claim processing, including payment or denial information.
  3. Claim Adjustment Group Codes:

    • Five claim adjustment group codes are highlighted, each determining financial responsibility for the unpaid amount of the claim balance.
  4. Claim Adjustment Reason Code (CARC):

    • CARCs explain financial adjustments made by healthcare companies.
  5. Remittance Advice Remark Code (RARC):

    • RARCs provide additional information related to CARCs, including supplemental and informational codes.
  6. Reasons for Denials:

    • The article outlines common reasons for claim denials, such as missing information, lack of authorization, patient eligibility issues, medical necessity concerns, duplicate claims, and filing limit expiration.
  7. How to Avoid Denials:

    • Suggestions include using technology, educating staff, performing insurance verification, improving clinical documentation, staying informed about payer guidelines, and running audits.
  8. FAQs:

    • Information on filing appeals, distinguishing between hard and soft denials, and selecting the best medical billing solution is provided.

The article concludes by emphasizing the importance of learning about denial codes in medical billing and seeking ways to deal with denials effectively. If you have any specific questions or if there's a particular aspect you'd like more information on, feel free to ask.

Denial Codes in Medical Billing | 2024 Comprehensive Guide (2024)
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