Anuraag Srivastava
A lot of precision, compliance, and thorough understanding of various codes, used by insurance payers, goes into the medical billing process. Often when healthcare claims are submitted, they don’t always get approved for pull payment immediately. This is where the role of Claim Adjustment Reason Codes (CARC) and Remittance Advice Remark Codes (RARC) comes into play. CARC and RARC are used to communicate the reasons for which a claim might be denied or returned. These are the essential details that are helpful for the healthcare providers and billing specialists as it makes them understand why a claim was modified or denied and what the next steps for resubmissions of appeals are.
Mastering CARC and RARC codes is essential for effective revenue cycle management. This guide will talk about the functionality of these codes, why they matter, and how to use them in claims processing.
Understanding the CARC and RARC codes
CARC and RARC codes essentially serve as a standardized message from insurance payers regarding the processing of medical claims. This acts as a bridge for the communication gap between the payers and providers by providing specific reasons for claim adjustments, reductions or even denials.
What is CARC?
Claim Adjustment Reason Codes (CARC) codes indicate why a claim was not paid as per expectations. Typically, these codes are numeric and tells us about the adjustments made to the claim’s payment. This could be due to contractual obligations, patient responsibility, duplicate billing and many other reasons. Every standard description that provides insights into the payer’s decision is associated with a CARC code.
For example:
CO-45 (Contractual Obligation – Adjustment due to provider contract restrictions)
PR-1 (Patient Responsibility – Deductible amount applied to claim)
OA-18 (Other Adjustment – Duplicate claim or service detected)
What is RARC?
While CARC code provides a reason for claim adjustment or denial, Remittance Advice Remark Codes (RARC) codes provide additional context to the codes. They often provide further details or instructions to the provider regarding the next step. These codes are alphanumeric and help providers understand the actions they should be taking to resolve the issue.
Examples of RARC codes include:
N130 (Additional documentation required for claim processing)
M15 (Separately billed services must be submitted as a new claim)
N517 (Requested information was not received in a timely manner; claim denied)
A structured language for medical claims processing in the form of CARC and RARC codes ensures that payers and providers remain aligned.
What is The Difference Between CARC and RARC codes?
CARC code provides the primary reason for claim denials or adjustments, while RARC code provides additional details or instructions related to the denials. But that’s not the only difference. CARC codes apply to all payers - be it Medicare or commercial insurers, while RARC codes just provide payer-specific information to enhance the understanding of claim decisions, wherever required.
Importance of CARC and RARC Codes in Medical Billing
CARC and RARC codes are important for the healthcare revenue cycle. Without these standardized codes, claim adjudication would be an issue as providers would struggle to understand why claims were denied or adjusted. There are several reasons why it's important. The primary reason is that it allows providers to understand why a claim wasn’t processed in the way it was supposed to, preventing confusion and delays in reimbursement.
Billing professionals can also take corrective action and resubmit the claims accurately after decoding the adjustment reasons.CARC and RARC codes also help providers understand the rationale for denial along with necessary supporting documentation that’s missing in the original claim submission.
There are many billing softwares that use these codes to automate claim tracking and generate reports on denial trends. This helps providers identify areas for improvement in the workflow as well as claim submissions. Additionally, understanding these codes ensures that healthcare professionals adhere to payer rules. This reduces claim rejections and compliance risks.
Common CARC and RARC Codes and Their Meanings
While there are hundreds of CARC and RARC codes, some are more commonly encountered in medical billing. Here are a few frequently used codes and their meanings.
Common CARC Codes:
CO-24: Charges covered under a capitation agreement or managed care plan.
CO-97: The benefit for this service is included in the payment/allowance for another service.
PR-204: This service or procedure is not covered under the patient’s current benefit plan.
CO-22: This charge exceeds the contracted amount.
Common RARC Codes:
M51: Missing/incomplete/invalid procedure code.
N290: Missing or invalid rendering provider identifier.
N345: Incorrect claim form or format submitted.
N522: Duplicate claim submission.
Understanding these codes can significantly improve billing accuracy and prevent unnecessary claim rejections. Knowing about important healthcare terms can help navigate challenging claim decisions.
How to Use CARC and RARC Codes Effectively
A systematic approach is effective for using CARC and RARC codes. Some best practices include updating codes on a periodic basis. It is done by regulatory bodies such as the Centers for Medicare & Medicaid Services (CMS).
It is also important to monitor denial trends using reports. This can help identify recurring issues and implement corrective measures to reduce future rejections. Another task that would help ensure efficiency in claim processing and appeals is educating medical billing professionals on how to interpret these codes.
Many electronic health record (EHR) and billing systems have an ability to autopopulate CARC and RARC codes by using their in-built system. This contributes to reducing manual errors and simplifying claims submissions.
If at all a claim denial is unclear or seems incorrect, reaching out to the payer for clarification can help resolve disputes quickly. When resubmitting claims, just ensuring the necessary corrections, additional documentation, and appeal letters should reference the specific CARC and RARC codes used in the denial.
The Future of CARC and RARC Codes in Healthcare
The use of CARC and RARC codes is expected to evolve. This will be the result of advancement of healthcare technology. These codes are likely to be integrated into a predictive analytics system by using machine learning and AI. This will allow providers to preempt claim denials before submissions.
Additionally, more real-time claim adjudication will be enabled by enhancing the interoperability between providers and payers. As the transition towards value-based care models begin, it will impact how the codes are used. New payment modalities might introduce additional reason codes. This could be related to quality metrics and patient outcomes.
You can use PCH Health for all your healthcare needs. Our services include identifying compliance changes, modifying clinical documentations, and conducting medical code audits, all of which can enhance CARC and RARC codes management. Request a demo to know more.