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Payor Denials 101

Updated: Sep 29, 2023

Disputes, Appeals, Resubmissions. These are the core departments and actions taken when we get Denials from payors. But what exactly are they and how do they work?

This document (I hope) will give you a breakdown of Denials in the healthcare space, and how to focus on them.


What are Denials?

Any response from a payor that is not payment in full, processing less than full billed charges. Here, with this simple sentence, the confusion with the term "denial" begins. Most people use the term "denial" to mean instances where the payor did not pay as expected. This is a very good use of the term. But not THE use of the term when you think about denials.


Denials are codes; ANSI group codes, CARC codes, RARC codes (we will get into these all momentarily). These denials are the payor indicating why they can't or won't pay you what was billed. Now, if you understand the difference between a Gross Charge and Net Charges (or how Gross Charges are netted down), then this makes perfect sense why denials are any and ALL responses from a payor. This means good, bad, and info-only responses are all denials. Why? Because payors rarely (to never) pay or allow our Gross Charge amounts. This is the Charge Description Master (CDM) amount tied to a specific type of patient care; a HCPCS or CPT code. Each amount is a number we scanned our market for, to create a upper limit that made sense for all payor processing.


This term is used a little too loosely if you ask me. Not that you did. So think of the term denial as being instead the term "response". Translate it in your head every time you hear it.


Where do Denials sit within the Revenue Cycle?

Denials are responses from a payor. So they sit in the space after billing and AR follow-up, because they are the response that you have received. If you did not get the response, then the claim would still be in AR follow-up. If they were processed, then they would be in payment posting, and/or in process for collecting the patient portion.


How are Denials different than Rejections?

Rejections are via a clearinghouse. They are claims that have been rejected from getting to the payor. In my mind, I would still consider them unbilled since they did not actually get to the payor completely.



What are Denial Codes?

  • ANSI Group Codes - American National Standards Institute Group Codes. This organization created standard codes for the denials space. ANSI Group codes are the following:

PR - Patient Responsibility

CO - Contractual Obligation

OA - Other Adjustment

PI - Payor Initiated Reductions

CR - Correction to or Reversal of a prior decision


This link provides great definitions of each of these codes and how they are used:


  • CARC - Claim Adjustment Reason Code. These are the codes to communicate how an account was processed by a payor, or why it was not processed, and what additional or subsequent actions need to be taken by the biller to complete the collection process of charges outstanding.

X12 creates and maintains the standard codes and their descriptions. This link will take you to the CARC list:


  • RARC - Remittance Advice Remark Code. These are additional information codes that provide supplemental details to the CARC response. Basically, if the CARC is too vague and you are not sure how to process an account, look at the RARC.

X12 creates and maintains the standard codes and their descriptions. This link will take you to the RARC list:


Grouping Denial Codes

Nearly every Revenue Cycle vendor I have interacted with has an internal grouping for the CARCs and RARCs. They allow for targeted trend identification by payor, and assigning representatives to worklists. They may be grouped or identified in terms of Hard vs Soft denials.

  • Hard Denials - Will result in needing to appeal in many cases because the payor has indicated that the service is not covered/non-covered.

  • Soft Denials - Will result in a correction or a resubmission in order to process the claims.

I feel like this article provides a fair overview of categorizing Hard vs Soft denials:

There are also categorizations like Preventable or Unpreventable. This points to upstream, often pre-billing processes and steps to prevent denials. Think of Patient Access, Coding Edits, and Billing Edits being the places where robust focus on preventing denials should occur.

I wrote an article about Edit points within the Revenue Cycle that may help expand on areas to focus on for downstream denials prevention.


The final type of grouping we will go over are the CORE-defined Business Scenarios. They are somewhat limited, defined to only 4 categories, but they will point your denials management teams and processes in the right direction.

  1. Additional Information Required – Missing/Invalid/Incomplete Documentation

  2. Additional Information Required – Missing/Invalid/Incomplete Data from Submitted Claim

  3. Billed Service Not Covered by Health Plan

  4. Benefit for Billed Service Not Separately Payable

While updates come out regularly, it is a great way to see how CARC and RARC codes map to these 4 categories. However, I will say based on the 3.7.1 June 2022 version, not all CARCs and RARCs are mapped to one of these categories. As of 08/01/22, out of the current 294 CARCs only 187 are mapped, and for the 1076 RARCs, only 743 are mapped. That leaves a LOT left out to map for your specific processes.

Here is where the non-standards of healthcare RCM come into play for the denial space. Each company can either build off this CORE 4 list, or start from scratch and build out their own list. The combinations of mapping to how you monitor and work the CARCs and RARCs are endless.


I would love to share a link and give you a full mapping list of how all CARC and RARC codes should be categorized, but alas, I have yet to find anything comprehensive. Even I have resorted to creating my own additional categories after the initial 4. No matter how you sort and map our the codes for your business processes, the main idea is that you understand how a payor is using them, and how to follow those trends to prevent as many denials as possible.

I am often shocked at how few RCM companies look heavily at these trends as a core part of the business. They may look at the top denials, but I would go deeper. Look at the codes, the trends for the last 6 months to a year. Look at the impacted volume of inventory, what payors have any chronic behavior that needs to be assessed or escalated. Call on populations of these claims to understand the underlying issues. Often you will find endless opportunities within the denials space that will help any and all payors and clients.


I would love to hear what other questions you have about denials, or what new or chronic payor denial trends you are currently feeling in this space. Please feel free to contact me and we can start breaking down the hidden world of RCM together.



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