The Importance of CARC and RARC Codes in Claims Management

Was your claim denied, or did you receive a lower payment than expected from your insurance company? In either case, understanding the reason is crucial in addressing the issue effectively. This is where the role of CARC (Claim Adjustment Reason Codes) and RARC (Remittance Advice Remark Codes) comes into the picture. These codes offer a clear explanation as to why a claim was adjusted or denied, thus facilitating better communication between providers and insurers while streamlining the revenue cycle.

Read this blog to learn what these codes represent, the difference between them, and how they are used in claims processing.

Understanding CARC and RARC Codes

What is a CARC?

Claim Adjustment Reason Codes (CARCs) indicate the reasons for any discrepancies between the amount billed by a healthcare provider and the amount paid by the insurance company. They are basically standardized codes used to convey information about adjustments made to a healthcare claim. If no adjustments are made, there will be no CARC in the claim.

CARC and their descriptions can be found in the Explanation of Benefits (EOBs) and Electronic Remittance Advice (ERAs). Healthcare providers can review these codes to determine whether claims need to be manually posted, reworked, or billed directly to the patient instead of the insurance company.

CARCs are categorized into group codes represented by two alpha characters. These include –

• CO: Contractual Obligation
• PR: Patient Responsibility
• OA: Other Adjustment
• PI: Patient Initiated Reduction
• CR: Corrections and/or reversal

Now, let’s take a look at some common CARCs that healthcare providers receive in response to their claim filing.

CO-18: This denial code appears when a claim is an exact duplicate of a previously submitted claim. It means that the newly filed claim mentions the same service rendered to the same patient by the same provider on the same date and place of service. The claim is rejected because the provider has already been compensated for the service.

CO-22: This code is flagged as a result of confusion in the coordination of benefits (COB). This means that the payer denied the claim because the patient has multiple health insurance coverages, and a different payer is responsible for the cost of billed services. So, essentially, the healthcare provider submitted the claim to the wrong insurance company.

PR-204: This denial code is triggered when the patient’s current benefit plan does not cover the service, equipment, or drug billed by the provider. The insurance company issues this denial code to convey that the billed service is excluded from the benefits, and the patient must cover the cost on their own.

OA-27: This is a common denial code that indicates that the patient rendered services after the insurance coverage had expired. Therefore, the insurance company is no longer responsible for the incurred costs.

Here’s the full list of CARC codes.

What is a RARC?

A Remittance Advice Remark Code (RARC) works alongside CARC to provide detailed information on why a claim was denied or adjusted by the insurance payer, including their rights to appeal rights, missing paperwork and documents the provider must refer to. It was originally developed as a proprietary list by Medicare and later incorporated into the HIPAA regulations, subsequently becoming an industry standard.

There are two types of RARCs — supplemental and informational.

Common RARCs and Their Meanings

Let’s look at some common RARCs—each one shows a different message, gives more details, or tells providers the next steps to fix them.

M17: This remark code indicates the payment has been approved because it was determined that the provider was unaware and could not reasonably have been expected to know that the service provided would typically not be covered for this patient. However, it also serves as a warning that in the future, the provider will be responsible for charges related to the same service(s) provided under similar circumstances.

M20: A supplemental RARC indicating that the HCPCS code stated in the claim is either missing, incomplete, or invalid.

M31: A commonly used informational RARC denoting that the provider is responsible for all the patient’s waived charges, including coinsurance, because the services were deemed medically unnecessary or constituted custodial care. According to the limitation of liability provision, the patient is relieved of all expenses.

Healthcare providers can appeal this denial, but the request must be filed within 120 days of receiving this alert.

N517: This alert is usually used with a ‘CO’ CARC denial code and indicates that the provider did not follow the contract obligations or misunderstood the terms, failing to give information specifically requested by the payer. Hence, the provider must “resubmit a new claim with the requested information.”

Here’s the full list of RARC codes.

Key Differences in CARC and RARC Application

According to Medicare’s policy, CARC and RARC codes should be used in all adjusted remittance advice and coordination of benefits transactions regardless of the electronic or paper formats. Moreover, the HIPAA rulebook makes their use compulsory for all electronic data ERA transactions.

Although both CARC and RARC serve the primary purpose of offering guidance to the healthcare provider for denial management and resolution, they are applied for distinct reasons.

Let’s check out the differences and learn how CARCs and RARCs are applied:

1. All Adjusted Claims Have CARCs, But Not RARCs
   Any adjusted or rejected claim will be sent back with a Claim Adjustment Reason Code (CARC) to notify the healthcare provider of the reason why this happened. There could be hundreds of reasons for claim denial or payment reduction, and each CARC will reflect a specific reason. Hence, CARCs appear on all adjusted or denied claims.

   However, RARCs are only used with the CARCs when the payer believes the provider requires a deeper explanation of why the final payment was the same as the amount mentioned on the bill. Thus, RARCs only appear on some adjusted or denied claims.

2. CARCs are Generic, RARCs are Specific
   CARCs offer only generic information on why the claim was denied or adjusted. For instance, denial code 26 says, “exact duplicate claim/service.” Just looking at this, the provider won’t get to know what part of the claim or service was a duplicate.

   In contrast, RARCs offer specific and additional information that may be beneficial in accepting or rejecting the claim denial. For example, the RARC M9 alert denotes that the patient is in their tenth rental month for a medical item, meaning the provider must offer them the option to switch from a rental to a purchase agreement.

3. RARC Alerts Offer Information on Remittance Processing, But CARC Doesn’t
   Between CARC and RARC codes, only RARCs have alerts. An alert notifies the healthcare provider how the adjustment was calculated, which laws and regulations were applied during claim adjudication, and what steps should be considered (e.g., appeal the decision, refund/collect the amount to/from the patient, or visit the payer’s official website).

   In stark contrast, CARCs are general descriptions of denial codes. They don’t have alerts and only highlight the broader reason.

Why are CARC and RARC Codes Important?

As a healthcare provider, it is very important to understand CARC and RARC because:

• They help with accurate claim processing by letting providers know why a claim was denied, reduced, or adjusted.
• Through RARCs, providers get more specific guidance on what action needs to be taken next.
• They allow providers to improve their billing procedures, reduce the chances of error, and ensure proper reimbursement. Thus streamlining the RCM process.
• They help providers stay compliant with the insurance policies.

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Even the most skilled medical coders encounter claim denials. They have to meticulously decode CARC and RARC codes in electronic remittance advice to correct claims and appeals.

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