Claim denials and rejections are not uncommon in medical billing because 10s of reasons can push a claim back or strike it out for good. But when you don’t know what’s causing the problem, you submit the same errors over and over, which delays your paychecks and clogs your pipeline.
As a result, insurance companies keep your money while your staff wastes hours on rework. Therefore, it’s crucial to understand the reasons your claims often return with ‘denied’ written in bold on them.
This blog explains some common denial codes in medical billing and what they mean for a practice. Keep reading to understand the rules around denial codes to avoid repeating the same mistakes on your filings.
What are Denial Codes?
Insurance companies use a code to describe why a claim was not paid, called a denial code. Put simply, it’s the official explanation for why your money is being withheld by the payer.
Note that a denial code is different from a rejection, which happens because of an error/typo before a claim even enters the system. But if you get the claim back with a denial code on it, it tells that your paperwork made it through the system, but the payer decided the service wasn’t covered or the information was incorrect.
| Fact: Clean claims (claims with zero errors) are mostly paid within 14 days, and denied claims can take 60-90 days to resolve. |
Who Issues Denial Codes?
When all payers in the country use the same denial codes, it reduces confusion. Therefore, denial codes are maintained in the form of a standard list for payers and providers to track.
That said, your insurance company is the one that places a denial code on your claim and sends it back to you. The insurance adjuster or its automated system reviews your filing, and if there is an error, it selects a specific code from the mentioned national list. You will likely find these codes on your Electronic Remittance Advice (ERA) or Explanation of Benefits (EOB).
How are Denial Codes Categorized?
Denial codes are categorized based on who is responsible for the unpaid balance, if not the insurance company (as per them). Payers call them ‘group codes,’ and they appear as two letters at the start of every denial to mark the next responsible authority.
Here are the main categories of medical billing denial codes:
CO: Contractual Obligation
When you see CO at the start of a denial (such as CO-16), it means the doctor’s office is responsible for the unpaid balance. Payers use these codes when there is a filing error or a certain rule in the doctor’s contract with the insurance company.
Notably, a provider cannot bill the patient for this outstanding balance and is required to either write off the loss or resubmit the claim after fixing the highlighted error.
PR: Patient Responsibility
A PR denial code means the patient owes money that the insurance company refused to reimburse to a provider. This code doesn’t show because of filing errors (as happens with CO codes) and reflects the terms of the patient’s insurance plan, like the deductible or co-insurance amount one is required to clear.
| Fact: Most billing software can be programmed to automatically move PR balances to patient statements to save your staff’s hours of manual work. |
OA: Other Adjustments
The OA category is a catch-all that payers use when a denial doesn’t fit into a contract error or a patient’s deductible. It simply means that the provider or patient is not responsible for the remaining balance, and the biller should look closely to determine the next step in their billing cycle.
For instance, if a patient has two insurance plans, the primary payer will use ‘OA’ as a denial code to show that the remaining balance should be sent to the secondary payer (not the doctor or the patient).
The Most Common Denial Codes
Understanding the codes on your remittance advice can stop the cycle of unpaid claims and keep your revenue flowing. Interestingly, most of these denial codes appear because of preventable errors and can be fixed easily.
Here are some denial codes that might be choking your claim cycle:
CO-16: Missing/Incomplete Information
When the insurance company receives your claim, but some information is missing, it doesn’t process further, and you see a CO-16 denial. Even small mistakes, like an incorrect ZIP code, can trigger this code.
But luckily, fixing this is easy. You should note the remark codes sent with the denial to see which box was left empty and fill it to put the claim back in the system. Notably, when you work with medical billing experts, they cross-check all pieces of information to ensure a CO-16 doesn’t stop your claims since filling in the correct information is an essential requirement.
CO-18: Duplicate Claim or Service
You receive a CO-18 denial when an insurance company receives a bill that’s already in their system. Sometimes, a billing team resubmits a claim because they have not received a payment, but since the system sees it as a duplicate, it points out a CO-18 error.
You can avoid these denials by checking if a claim is already paid or if its status is showing as pending. Auditing pending claims before resubmitting can prevent a denial and keep your billing history clean.
CO-22: Coordination of Benefits (COB)
When a patient has two insurance plans, it can create some confusion in the ‘order of payment,’ and cause a CO-22 denial code. For example, if a patient has Medicare and private insurance, both might play ‘hot potato’, and the provider’s payment will be unnecessarily delayed.
Therefore, the patient must call their insurance company and confirm which plan is primary. And since most insurers take this information from the policyholder (not the doctor’s office), a provider’s front desk can prevent this by double-checking for secondary insurance during check-in.
CO-27: Coverage Terminated
A CO-27 denial code means the patient was not covered by their insurance when they visited the doctor. Their policy might have been cancelled or expired, and hence, the payer will mark their claim.
A provider can avoid these denials by catching them while entering a patient’s information in the system. The reception desk can use real-time eligibility checks for every visit and see if a certain policy is active. If the insurance is terminated, they can ask the patient for their new insurance card or collect payment upfront.
But if CO-27 is received, the provider will bill the patient directly because the insurance company won’t be responsible for their costs.
CO-29: Timely Filing
All insurers set a window for claim filing (mostly 90 to 180 days). If a provider misses the deadline, the payer will refuse to pay. Since you cannot undo this denial, first check if you actually missed the filing deadline, as sometimes the payer’s system can glitch.
And if you, i.e., the provider, did miss the timeline specified by a payer, you’ll have to write off that bill. Also, note that you cannot legally bill the patient for a deadline that your office missed.
| Pro-Tip: Timely filing denials (CO-29) cannot be appealed unless you can prove that the clearinghouse had a technical glitch. |
CO-50: Medical Necessity
Sometimes, insurance companies decide that the treatment a patient received was not essential for their condition. The payer views a performed service as optional or excessive, and not a medical requirement. Eventually, the provider receives a denial code number CO-50.
However, submitting a clinical appeal can overturn this denial. If the biller sends a letter of medical necessity written by the doctor, it can resolve this problem. The said lletter should clearly explain a patient’s medical history and why this treatment was the vital next step for their health.
CO-97: Bundled Services
Payers often bundle minor procedures into one larger payment for a primary service and send one claim for multiple services. However, it can cause CO-97 denial because the insurance company might believe the service a provider billed is already covered under a different payment. If that happens, it helps to resubmit the claim with a specific modifier to unbundle the performed procedures/services and charge for them as standalone items.
CO-167: Diagnosis Inconsistent with Procedure
CPT codes are standard numbers to report specific medical, surgical, and diagnostic services provided. It’s the standard language used in medical billing to ensure all stakeholders understand what is being done and why.
Moreover, providers are required to keep these codes consistent with the diagnosis codes to prove that the treatment was appropriate for the patient’s condition. But if the procedure code does not match the reason for the visit, the payer will return the claim with the CO-167 denial code.
CO-197: Pre-Authorization Missing
Insurers require you to seek approval before prescribing expensive treatments, such as surgeries or MRIs. But if you miss this authorization, you’ll receive a CO-197 denial.
Sadly, not much can be done after the procedure has been performed. However, you can try to ask for a “retro-authorization,” a permit request after service has already been provided.
But know that insurance companies rarely grant these unless you can prove there was a medical emergency. Otherwise, the only way is to ensure pre-authorization during scheduling and never start a high-cost procedure without it.
PR-1: Deductible
A deductible is the fixed amount a policyholder must pay for healthcare before the insurance company begins to pay its share. This is a threshold, and until you have spent that particular amount on your care within the year, your insurance provider doesn’t step in. After you hit that limit, the insurer starts covering the remaining costs for the rest of the year.
In medical billing, the provider receives a PR-1 denial when the insurance company has assigned the service cost to the patient.
Put simply, if your deductible is $1,000, and this is your first doctor’s visit of the year, you’ll pay the entire bill. But if you have paid $900 toward your deductible, you would only be responsible for the remaining cost (the last $100) of the current bill. No need to mention that the insurer doesn’t pay a dime until that $1,000 target is reached.
| Note: PR-1 is the most common PR code you will see at the beginning of every calendar year because that’s when patient plans reset. |
PR-2: Coinsurance
Coinsurance is the percentage of a medical bill you pay after meeting your deductible. It’s a shared cost between you and your insurer. For example, if your plan has a “20% coinsurance” rate, the insurance company covers 80% of the amount, and the remaining 20% goes out of the patient’s pocket.
So when a provider sees a PR-2 denial code, it means the insurance company has paid its portion of the claim and assigned the rest to the patient. It also means the provider will now bill the patient for the remaining balance, as the insurance portion is already settled.
CO-4: Procedure Code Invalid
CPT codes are updated every year to reflect medical advancements, and old ones are deleted or revised if needed. So when a billing claim returns with a CO-4 denial, it means the provider submitted an invalid or unrecognized claim.
If it happens, the provider should find the current CPT equivalent for the service provided and resubmit the claim. Also, make sure your billing software receives the annual CPT update automatically to prevent code-related denials.
CO-109: Claim Not Covered by Payer
If you send a claim to UnitedHealthcare when the patient is covered by Aetna, the payer will naturally deny it and use code CO-109. Such errors can happen when a patient switches plans or changes jobs but doesn’t update the doctor’s office. You can avoid this problem by scanning the patient’s insurance card at every visit and running an eligibility check to confirm which company is currently responsible for the bill.
CO-24: Charges are Covered by Another Payer
A CO-24 denial means your health insurance is refusing to pay because another company is responsible for the bill. This is common with accidents. For example, if a patient gets injured while working, their health insurance might deny the claim and state that the bill must go to Workers’ Compensation since the injury happened on the job.
CO-45: Charges Exceed the Allowed Amount
When a provider’s charged or coated price is higher than the insurance company’s allowed price, denial code CO-45 is used. For example, if you bill $200 for a check-up but your contract says the price is $150, the insurance company will pay the $150 and label the extra $50 as CO-45. And since you have a contract with the insurance company to accept their set amount, you must accept this lower amount and are legally forbidden from billing the patient for that extra $50.
What Happens to a Practice Because of Common Denials?
Denials can result in a financial leak in a medical practice and threaten its sustainability. Repeated errors trigger a chain reaction in the filing process and result in the following issues:
Lost Profit
This one is the most obvious. Every denial is a direct hit to your income, and some errors are even unfixable. For example, if you didn’t file a claim on time, you’ll have to write off the entire cost. Sure, you paid for the staff and the medical supplies, but since you didn’t follow system rules, you’ll receive zero dollars in return.
Administrative Overload
Fixing a mistake takes twice as much work as doing it right the first time. Once you receive a denial, the billing team has to figure out the problem and resubmit paperwork. They might even have to hunt down doctors’ notes and call insurance adjusters to complete the denial code’s requirements. All of this can take hours of staff time, and you’ll eventually pay more in labor costs than normal.
Patient Frustration
Small medical practices prioritize patients’ convenience to maintain their clientele. But if there are claim-related errors in bills caused by you, you’ll receive angry phone calls. And this goes without saying that patients who feel stressed by unpredictable bills are less likely to return, even if they loved the medical care you provided.
Do Insurance Companies Try Their Best Not to Pay or Pay the Minimum?
Of course, insurance companies are for-profit businesses, so their systems are programmed to pay the lowest amount possible under the contract. It’s understood that payers use automated software to scan every claim for the smallest error.
In case a provider’s documentation is unclear, the insurance company will downcode the claim and pay for a cheaper service instead of what was performed. So while there is no personal vendetta against a medical practice, the payers’ processes are automated, and any mistake on your end is a win for their profit margin.
Fixing Common Issues Can Up Your Revenue
If you don’t want to leave money on the table, fix common billing mistakes. Paying attention to simple rules and details will prevent the re-work that exhausts your staff and get you more money in the account. When a claim is submitted without errors the first time, you get paid faster and avoid filing backlogs.
And that’s what BilNow has mastered. We make sure your claims are clean and perfect before they are ever sent. We handle the confusing codes and constant insurance changes so you don’t have to.
So work with us and get ready to see a revenue jump by 25% within the first three months, as well as a 99% first-pass claim acceptance.
We’re the all-rounders of medical billing!
FAQs
Can my clearinghouse cause a denial?
No, a clearinghouse causes a rejection. It stops claims with typos or formatting errors before they reach the insurance company. In a way, this rejection is helpful because it lets you fix mistakes without waiting for a formal insurance denial.
Is it better to correct a claim or appeal it?
You correct a claim for simple errors like wrong dates or codes. But if your claim is 100% correct and the insurance company refuses to pay based on their judgment or policy, then you appeal.
What to do if a denial code doesn’t make any sense?
Look for the remark codes on your statement for additional details. But if you’re still not sure why a claim is denied, call the insurance provider representative and ask specifically what documentation or data point was missing.
Can a provider bill the patient for a Contractual Obligation (CO) denial?
No, they cannot do it. A CO code is a write-off you agreed to in your contract with the insurance company. So if you bill the patient for these amounts, it is balance billing, and it is illegal in most cases.
