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CARCs and RARCs: What they are and how to use them

When you + your team receive a denied or an adjusted claim from a health plan, you can receive one or both of the following codes:

  • CARC: Claim Adjustment Reason Code
  • RARC: Remittance Advice Remark Code

Payers use CARCs and RARCs to communicate to the healthcare provider why they processed the claim the way they did. Sometimes these codes are referred to as "denial" codes; however, this is not entirely accurate. True, they can explain zero payments, or denied claims, but they can also explain other adjustments to the billed balance.

For instance, that could mean an adjustment based on contractual obligation (CO) which may be immovable on this claim, or it could be labeled as contractual obligation but in fact is based on misinterpretation of the contract, resulting in underpayment.

An example of adjustment:

CO-45
Charge exceeds fee schedule/maximum allowable or contracted/legislated fee arrangement. (Group Codes PR or CO are used with this code depending upon liability). 

An example of denial:

CO-97
The benefit for this service is included in the payment/allowance for another service/procedure that has already been adjudicated. 

Now, both CARCs and RARCs explain why the claim was adjusted, but they don't do it in the same way. A CARC offers the most generic information and will be present on all adjusted claims. A CARC is broken up by a group code made up of two letters AND a numeric value plus a possible letter in front of the numeric value. 

Group codes give the most basic reason for the adjustment. Here are the group codes listed on X12, the official CARC/RARC source as noted on CMS.gov. 

CO Contractual Obligation
OA Other Adjustment
PI Payer Initiated Reduction
PR Patient Responsibility

 

Here are a few examples of the numeric value explanations.

26 Expenses incurred prior to coverage.
39 Services denied at the time authorization/pre-certification was requested.
P15 Workers' Compensation Medical Treatment Guideline Adjustment. To be used for Workers' Compensation only.
B4 Late filing penalty.

 

A RARC, on the other hand, is not always part of the adjusted 835 claim.

RARCs are either supplemental or informational. Most RARCs are supplemental and further explain the CARC adjustment. Informational RARCs have the bolded red-lettered word "Alert" attached to them. They convey important informational advice that you can use to resubmit the claim or send "remittance." It is very important to understand what these RARCs tell you to ensure payment upon remittance.

Like CARCs, a RARC has a numeric code you can look up on X12. Here are some examples of RARCs you may see on your claims. 

M31 Supplemental Missing radiology report.
M20 Supplemental Missing/incomplete/invalid HCPCS.
M17 Informational Alert: Payment approved as you did not know, and could not reasonably have been expected to know, that this would not normally have been covered for this patient. In the future, you will be liable for charges for the same service(s) under the same or similar conditions.
M27 Informational Alert: The patient has been relieved of liability of payment of these items and services under the limitation of liability provision of the law. The provider is ultimately liable for the patient's waived charges, including any charges for coinsurance, since the items or services were not reasonable and necessary or constituted custodial care, and you knew or could reasonably have been expected to know, that they were not covered. You may appeal this determination. You may ask for an appeal regarding both the coverage determination and the issue of whether you exercised due care. The appeal request must be filed within 120 days of the date you receive this notice. You must make the request through this office.

 

You'll use the CARC and RARC (if applicable) to rework a claim. Unless you have a way of bucketing your similar CARCs for simple rework you'll likely need to spend ample time on every claim you wish to rework. And because some line items in a claim can be denied, adjusted, underpaid or overpaid, it gets extremely complex to untangle and resubmit. 

But it doesn't have to be hard.

You can actually track denials and underpayments, see line item detail and dive into a rework inside Rivet.


What is Rivet?

Rivet is a software solution that integrates with your EHR for up-front patient cost estimates (that comply with the No Surprises Act), as well as denied claim and underpaid claim tools.

Request a Rivet demo