Medical billing is an integral part of the medical industry. It ensures timely reimbursement to healthcare providers for the treatments and services they have provided to the patient. However, medical billing can be complex and, if not done accurately, lead to denial. Thus, it is essential to understand the denial codes so these errors can be minimized. It ensures a smooth claim process with appropriate and timely reimbursement.
In this blog, we will understand what denial codes are, their importance, and commonly occurring denials. We will also examine what steps you can take when a claim is denied.
What are Denial Codes? It’s Purpose & Scope
Denial codes are specific codes used by insurance companies to state the reasons why the claim is denied or partially paid. These codes give detailed explanations about claim rejections and what steps can be taken to resolve the issue. Denial codes are a part of the Explanation of Benefits (EOB) statement or Remittance Advice (RA) that is sent by insurance companies to the healthcare provider stating the rejection reasons.
With the list of denial codes, each addresses a particular issue including rejection reasons, billing errors, the billing process, patient eligibility, insufficient documentation, or incorrect coding.
What is The Purpose And Scope Of the Denial Code In Medical Billing?
Denial codes are mainly used to state the reason why the claim is not paid by the insurance company. The purpose of the denial code is:
- Communicating the Reasons: States the reason why the claim was denied. It helps identify the issue and resubmit the claim, remove the billing errors, and get a timely reimbursement.
- Mode of communication: Serves as a mediator between the insurance company and healthcare provider. It promotes transparency in the entire claim process.
- Support follow-up actions: helps the healthcare provider to take the necessary steps for resubmission, appeal, and correcting claim errors.
- Streamline claim processing: With a detailed category of denial is it easy to navigate the error and resolve it right away.
Aspects Of Denial Codes:
Here are 3 major aspects of denial codes:
- Claim Adjustment Group Code (CAGC)
Electronic Remittance Advice (ERA) transactions use Claim Adjustment Group Codes (CAGCs) to state the changes made in healthcare claims. It helps identify what claim was denied or adjusted. Additionally, two alpha characters are used if the claim balance is not initially paid.
The claim Adjustment Reason Codes provide additional details of why the changes happened. Thus, it collectively represents who is responsible for the unpaid balance and what caused the adjustment.
Below are the claim adjustment codes:
Contractual Obligation (CO): The difference between what the provider has charged and what the insurance company will pay. Healthcare Organizations write these codes while dealing with any claim balances.
Corrections and Reversal (CR): Used by healthcare companies to state the reason why the claim was previously denied, reversed, or corrected. The CR code is also used with PR, CO, or OA to indicate material.
Other Adjustment (OA): If none of the group codes fulfills the adjustment criteria then OA is used.
Payer-Initiated (PI): If the payer determines the adjustments are not the patient’s responsibility.
Patient Responsibility (PR): It assigns the responsibility to the patient or their secondary insurance company for payment procedures. PR includes deductibles, copayments, and coinsurance.
2. Claim Adjustment Reason Codes (CARC)
Claim Adjustment Reason Codes (CARC) are standard denial codes in ERA transaction that states the financial adjustments.
3. Remittance Advice Remark Codes (RARC)
Remittance Advice Remark Codes (RARC) provide additional information regarding the Claim Adjustment Reason Codes (CARCs) to clarify adjustments.
The two types of RARCs are listed below:
- Supplement RARCs: Offer additional explanation about CARC to specify the reasons for adjustments.
- Informational RARCs: General information or alerts about the remittance process
The Health Insurance Portability and Accountability Act (HIPPA) has set a standardized set of codes to promote consistency and clarity in communication.
What Are the Reasons for Denial Codes? Common Denial Codes & How to Resubmit?
Denial codes state the reason for claim denials or any adjuments made in the previously submitted denials. Denial codes are used for the following reasons:
- Improper or Missing Information: missing or improper information such as missing social security numbers, modifiers, or addresses leads to claim denials.
- Lack of Authorization: healthcare organizations always have prior authorizations. It ensures that payers cover specific services. However, if there is a lack of authorization then it results in claim denials.
- Patient Eligibility Criteria: The patient is covered only under the insurance plan they are eligible for.
- Need for Medical Care: Insurance companies have a pre-defined criterion to evaluate whether medical care is needed or not.
- Duplicate or Similar Claims: if two or more claims have duplicated or have similar information then they are likely to get rejected.
- Late or Expired Claims: If the medical insurance company fails to file the claim before the expiration or file after the expiry date then it will result in denial.
- Service Not Covered by Payor: When the patient’s insurance plan and services under it are not verified by the medical biller.
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Common Medical Billing Denial Codes
Claims are rejected daily. According to statistics one out of seven claims are denied. Not only does it take time to identify the error and resubmit but also requires additional costs for denial rework. This cost can be saved if the provider understands the denial codes accurately.
Some of the common medical billing denial codes are listed below:
CO-4: Omission of Required Modifier
If there is an issue with the modifier or the procedure code then the CO-4 denial code is sent by the insurance company. The modifier is a two-digit code added with the service code to denote that something in the service has changed, but the basic service remains the same.
CO-11: Error in coding (incorrect diagnosis code)
This code is issued if the wrong diagnostic code has been submitted. It is mandatory to add the correct diagnostic code because it describes the patient’s condition and treatment is suggested accordingly
CO-15: Missing or invalid authorization number
CO-15 is used if you provide the wrong or missing authorization number to the insurance company. It indicates that no prior authorization is given.
CO-16: Incomplete information (missing details or modifiers)
CO-16 is used when the claim is denied with missing information.
CO-18: Double billing
When a duplicate or similar claim is submitted more than once. It occurs if the changes are not indicated, or the same service is given multiple times without using the accurate modifier.
CO-22: Coordination of Benefits (COB)
Co-22 code is used if more than one payer is covering the patient. So, it is used to consider who will be the primary, secondary, or tertiary payer of the patient.
CO-27: Expenses incurred after insurance expired
If the patient is no longer eligible for the insurance program or it has expired then CO-27 is used to indicate the expenses incurred after insurance has expired.
CO-29: Filing deadline expired
CO-29 is used to indicate the claim has not been paid and the time limit has expired.
CO-45: Excessive fees charged
CO-45 Code is issued when the service charges are higher than the maximum allowable fee. It can also be a part of the Patient Responsibility (PR) group code.
CO-97: Already adjudicated (bundled services)
CO-97 is used when the bundled services result in claim denial. Evaluation and management (E&M) services come under this category because these services are not paid separately by the insurer.
CO-167: Diagnoses not covered
CO-167 is used when the claim for service is not covered under the insurer’s policy.
Steps to Take After a Claim Denial
It is essential to understand and take the necessary steps after claim denials. The steps are as follows:
- Documentation is an integral part of your claim to be reconsidered by an insurer after denial.
- The appeal must be filed within 180 days after receiving the denial.
- After the internal appeal, the Insurer must provide a written response after a thorough review of the claim.
- Once the insurer performs the external review, then they will have no authority over the claim payment decision.
Frequently Asked Questions (FAQs)
1. What is the difference between a denial code and a rejection code?
The denial codes are defined as the claim has been submitted but the payment is denied for a particular reason. Whereas, the rejection code is defined as a claim that did not begin to process due to misinformation or technical errors.
2. Can I appeal a claim that has been denied?
Yes, you can appeal for the denied claim. However, the appeal process requires additional supporting documents or states the issues that have led to the denial.
3. How can I prevent claim denials?
To prevent claim denials check if the information, coding, and prior authorizations are correct. In addition, check if the documentation is attached to the claim.
4. How long do I have to appeal a denied claim?
The time to appeal a denied claim varies by insurance company. But, typically it is between 30 to 180 days from the date of denial.
5. What should I do if I keep receiving the same denial code?
If you are repeatedly receiving the same denial code it is recommended to identify the root cause. Check and make necessary corrections before resubmitting the claim.
Conclusion
To conclude, denial codes are crucial for medical billing. It serves as a communication between the healthcare provider and the insurance company. Denial codes may seem complex to use but they simplify the billing process. These codes efficiently reduce future denials, ensure timely reimbursement to healthcare providers, and make the Revenue Cycle Management (RCM) smooth.
Also Read: CO-45 Denial Code, Its Causes and Solution