Denied & Rejected Claims

Claims Must Clear Many Checks

After medical claims have been created, they are checked for errors and omissions during processing:

  • May be checked by practice management software prior to transmission.
  • After being uploaded to the clearinghouse.
  • When received by the insurance payer after being transmitted from the clearinghouse.

Even when claims have been accepted for processing or adjudication by the insurance payer, the claim may still be adjusted or denied due to coding issues.

When claims get rejected or denied, the provider does not get paid. The longer a claim remains unpaid, the less likely it will be paid.

Reasons Claims are Rejected

When claims are denied or rejected, the causes typically fall into one of three categories:

  • Administrative (Incomplete info, data mismatch, typo’s)
  • Coding Errors
  • Documentation Errors

These errors are identified when the claim is transmitted electronically from the clearinghouse to the insurance payer. These are usually administrative issues. They may also be identified by the insurance payer when received from the clearinghouse or provider.

There are also errors detected during processing by the insurance payer as indicated on the ERA or EOB. These errors are usually coding or documentation errors but can also be administrative or because data doesn’t match what the payer has for a patient or provider.

Claim Rejection Reason & Adjustment Codes

When insurance payments are adjusted, reason or explanation codes will be provided on the remittance advice.​

  • CARC – Claim Adjustment Reason Codes
  • RARC – Remittance Advice Remark Codes

All insurance payers are required under HIPAA laws to use ANSI standards for CARC and RARC codes to explain remittance advice adjustments or explanations.

There can be several types of adjustments to insurance payments given on the ERA or EOB and explained by the CARC code.

Common Denial Reason Codes

Typical reason codes on an Electronic Remittance Advice (ERA) describe why a claim is denied for reasons other than administrative or typographical errors. These include:

  • Incomplete claim information
  • Out-of Network provider used
  • Failure to obtain preauthorization
  • Service not medically necessary
  • Benefit not covered
  • Patient no longer covered
  • Pre-existing not covered by patients policy
  • Lower level service appropriate
  • Procedure and diagnosis codes incorrectly linked
  • Multiple codes submitted for that are included in a bundled service

​The claim appeal process should be used when additional explanation or documentation will address these issues and hopefully resolve the claim.

When Claim Errors are Detected

Error’s encountered at the clearinghouse or when initially received by the insurance payer may not follow the CARC or RARC conventions. Payers and clearinghouses have different conventions and explanations in explaining why a claim was rejected. Explanations may include reference to the location or “loop” in the electronic file which can be difficult to understand.
Once accepted by the insurance payer, any claim adjustments or denials should be explained using the standard CARC and RARC codes.

Appealing Denied Claims

The claim appeal process is used when additional explanation or documentation will resolve the insurance payers reason for denial or reduction in payment. The appeal process is also used when the provider or their biller doesn’t agree with the payers reason for denial or adjusted payment.

The remittance advice will provide instructions for appealing a claim. Insurance payers have a different process for appealing a denied claim. Some may require a form to be completed and signed by the provider. Others may accept a letter of appeal and provide instructions. Many have an online appeal process that allows additional information to be sent or uploaded electronically.
Medicare or government payers may require use of a standard appeal form such as the CMS-20027 appeal form.

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This topic covered in more detail in Online Fundamentals of Medical Billing Course