CARC 197 / CO-197: Prior Authorization Denials in Medical Billing

Claim Adjustment Reason Code (CARC) 197 identifies a claim or service adjustment involving absent precertification, authorization, notification or pre-treatment requirements. Medical billers may encounter this adjustment on an Electronic Remittance Advice (ERA) when a payer determines that a required authorization-related process was not completed.

CARC 197 may be reported with the CO (Contractual Obligation) adjustment group as CO-197. However, the adjustment reason alone does not establish exactly what information is missing, whether an authorization was previously obtained or which corrective action the payer will accept.

In this guide, we'll explain what CARC 197 means, how it appears in an X12 835 version 5010 transaction, how it differs from other authorization-related adjustments, and how medical billers and EDI professionals can investigate and respond to these denials.

What Is Prior Authorization in Medical Billing?

Prior authorization is a review process in which a healthcare payer evaluates a request for a particular service, treatment, item or procedure before the service is furnished.

Depending on the healthcare program or insurance plan, a payer may also require precertification, advance notification or another related review process.

These processes may help the payer determine whether certain coverage requirements have been satisfied before a claim is submitted.

Not every healthcare service requires prior authorization. Requirements can vary by payer, insurance product, service, provider arrangement and date of service.

Important: Receiving prior authorization does not necessarily guarantee payment of a subsequent claim. The claim may still be subject to applicable eligibility, benefit, coding, coverage and other payment requirements.

What Does CARC 197 Mean in Medical Billing?

X12 defines CARC 197 as an adjustment involving absent precertification, authorization, notification or pre-treatment requirements.

When this code appears on an 835, the payer is reporting that an authorization-related requirement was not satisfied according to its adjudication.

However, CARC 197 alone does not explain whether the provider failed to obtain authorization, whether a related notification was missing or whether the payer's records contain an error.

For example, a provider may have documentation showing that an authorization was approved before the service. If the payer nevertheless reports CARC 197, the provider should compare the authorization information against the claim and investigate why the payer did not recognize it.

The provider should also confirm that the particular service was subject to the reported requirement for the relevant date of service.

What Is the Difference Between CARC 197 and CO-197?

CARC 197 identifies the adjustment reason. CO-197 combines that reason with the CO (Contractual Obligation) adjustment group code.

CARC 197 should be interpreted with the actual adjustment group reported by the payer. Medical billers should not assume that the same reason code always has identical financial responsibility implications.

Important: A correctly reported CO adjustment generally represents an amount that is not the patient's financial responsibility because of an applicable contractual obligation or regulatory requirement. The provider should not transfer an unpaid CO-197 adjustment to the patient simply because the payer issued no payment. If the reported adjustment or underlying authorization determination appears incorrect, the provider should investigate the adjudication and follow the applicable payer's correction or dispute procedures.

Common Issues to Investigate With CARC 197

When CARC 197 appears on an ERA, several possible circumstances may need to be investigated. The exact reason and acceptable resolution depend on the payer's requirements.

Not every issue listed above should be reported using CARC 197. For example, an authorization number that does not apply to a billed service may be reported with a different CARC. The complete remittance and payer explanation should determine how the claim is investigated.

CARC 197 vs. Other Authorization-Related Codes

X12 maintains several adjustment reason codes that address different authorization or notification circumstances. These codes should not be treated as interchangeable.

For example, a missing required authorization and an authorization that was obtained but exceeded are different issues. The reported CARC helps identify which type of adjustment the payer communicated.

Likewise, the presence of an authorization number does not necessarily establish that the authorization applies to every service submitted on the claim.

Where Is CARC 197 Reported in the X12 835?

In the X12 835 version 5010 transaction, CARC 197 is reported in a CAS (Claim Adjustment) segment with an applicable adjustment group and monetary amount.

The CAS segment may appear at the claim level in Loop 2100 or at the service level in Loop 2110.

For the first adjustment in a CAS segment, CAS01 identifies the adjustment group, CAS02 identifies the CARC and CAS03 identifies the associated adjustment amount.

Additional adjustments may appear within the same CAS segment when they share the same group code. CARC 197 does not necessarily appear in the first reason-code position.

Example 1: Reading a CO-197 Authorization Denial

Consider a hypothetical medical service with a submitted charge of $200. The payer determines that a required authorization-related process was absent and reports the full service charge under CO-197.

Hypothetical educational excerpt using fictional billing information. This is not a complete X12 835 transaction. The procedure code and amounts are illustrative and do not establish that this service requires authorization from any particular payer.

Understanding the Example

In this illustration, the entire $200 charge is adjusted under CO-197 and the payer issues no payment for the service.

$200 submitted charge - $200 CO-197 adjustment = $0 payer payment

The example shows one possible outcome. CARC 197 does not necessarily mean that every service on a claim was denied or that all associated adjustments must equal the full submitted charge.

Important: As reported, the $200 CO adjustment is not the patient's financial responsibility. The provider should not transfer the adjustment to the patient simply because the payer did not pay. If the authorization requirement or payer determination appears incorrect, the appropriate response is to investigate the adjudication and applicable review options.

Example 2: A Claim With Both Paid and Denied Services

A claim may contain more than one service, with different payment and adjustment outcomes. In this hypothetical example, the payer pays one service while adjusting another under CO-197.

Hypothetical educational excerpt, not a complete 835 transaction. The procedure codes are illustrative; no particular authorization requirement or coverage determination is implied for these services.

How the Amounts Balance

The claim balances as follows:

$300 submitted charges - $30 CO-45 - $150 CO-197 = $120 payer payment

The first service was paid after a contractual adjustment, while the second service received no payment because of the reported authorization-related adjustment.

Important: The presence of CARC 197 does not establish that an entire claim was denied. Medical billers should review the complete CLP, SVC and CAS information to identify which services and amounts were affected.

How RARCs Can Provide Additional Information

CARC 197 identifies an authorization-related adjustment, but the payer may provide additional information through Remittance Advice Remark Codes (RARCs), claim correspondence or an online provider portal.

When RARCs are reported at the service level of an X12 835, they may appear in an LQ segment using qualifier HE.

RARCs provide supplemental explanations or informational messages. They do not independently change the payment or adjustment amounts reported through the CLP, SVC and CAS segments.

Not every CARC 197 adjustment includes the same RARC, and the available additional information depends on the payer's reporting. Providers should review the complete remittance and any other payer communication rather than assume a specific remark code must accompany CARC 197.

Prior Authorization Denial vs. Medical Necessity Denial

Authorization-related adjustments and medical necessity denials can be related, but they are not the same.

CARC 197 indicates an absent authorization-related requirement. CARC 50 indicates that the payer considers the service non-covered because it does not meet the applicable medical necessity criteria.

An authorization may involve clinical review, but a CARC 197 adjustment should not automatically be treated as proof that the service was medically unnecessary.

Similarly, receiving authorization does not establish that all subsequent claim payment requirements have been satisfied.

How to Investigate a CARC 197 Denial

The following steps provide a general approach for investigating an authorization-related adjustment.

Step 1: Review the Complete Remittance

Identify the affected claim or service, the adjustment group, CARC 197 amount, any accompanying RARCs and available payer correspondence.

Determine whether the adjustment applies to the entire claim or only certain services.

Step 2: Verify the Authorization Requirement

Confirm whether the service required precertification, authorization, notification or another related process under the patient's coverage and the payer's requirements applicable to the date of service.

Requirements should not be assumed solely from the type of procedure or from another insurance plan's policies.

Step 3: Review Existing Authorization Records

If an authorization or notification was previously obtained or submitted, review the available confirmation, reference numbers, dates and service information.

Determine whether the documentation applies to the affected service, provider and relevant time period.

Step 4: Compare Authorization and Claim Information

Compare the submitted claim against the authorization or notification records to identify possible discrepancies.

Review the payer's explanation to determine whether the problem concerns an absent requirement, a mismatch or another authorization-related condition.

Step 5: Contact the Payer or Review Official Instructions

If the adjustment remains unclear, use the appropriate payer resources to confirm the reason and available resolution options.

The payer may have different procedures depending on whether authorization existed, the original request was incomplete or an authorization was never obtained.

Step 6: Determine the Appropriate Follow-Up

If the issue involves incorrect claim information, determine whether the payer permits a corrected claim.

If an authorization was not obtained, verify whether the payer allows any applicable reconsideration, retrospective review or exception. These options are not guaranteed and should not be assumed available.

If the provider disputes the payer's authorization determination, follow the applicable review or appeal procedures and deadlines.

Step 7: Verify the Subsequent Outcome

Retain the relevant authorization records, payer correspondence, submission details and any review decision.

Review subsequent adjudication information to determine whether the denial was upheld, corrected or reversed and whether financial responsibility changed.

Corrected Claim vs. Authorization Review or Appeal

The appropriate response to CARC 197 depends on the underlying issue and the procedures the payer permits.

Repeatedly resubmitting an unchanged claim does not establish that the missing requirement has been satisfied and may result in duplicate processing problems.

Submitting a corrected claim also does not necessarily preserve an appeal deadline. Providers should verify the relevant payer requirements before choosing a resolution process.

Medicare, Medicaid and Commercial Payer Considerations

Authorization requirements differ among healthcare programs, commercial insurance products and provider arrangements. A standardized CARC does not establish identical rules across all payers.

Original Medicare

Original Medicare has specific prior authorization and pre-claim review programs for certain services and items. These requirements do not apply universally to all Original Medicare claims.

Providers should determine whether an applicable Medicare program requires authorization or pre-claim review for the service and date of service, and follow the relevant Medicare Administrative Contractor instructions.

A favorable prior authorization or pre-claim review decision does not independently guarantee claim payment. Other Medicare payment and coverage requirements may still apply.

Medicare Advantage

Medicare Advantage plans may require prior authorization for particular services, subject to applicable CMS requirements.

Providers should verify the plan's requirements, any applicable authorization approval and the procedures available when a claim receives an authorization-related adjustment.

Medicare Advantage authorization and reconsideration procedures should not be assumed identical to those of Original Medicare.

Medicaid

Medicaid fee-for-service programs and Medicaid managed care organizations may have different authorization requirements, subject to applicable federal and state rules.

Providers should verify whether authorization or notification was required under the specific state program or managed care plan and review the applicable resolution procedures.

Commercial Payers

Commercial insurers may require prior authorization, precertification or notification for specified services based on the patient's plan, coverage terms and applicable policies.

Providers should verify the requirements effective for the relevant service date and determine whether any approval applies to the billed services and provider.

Even when an authorization was approved, the payer may still evaluate other claim payment requirements during adjudication.

Clearinghouses and Billing Applications

Clearinghouses and billing systems may help retain authorization reference numbers and transmit applicable claim information.

However, successful electronic submission or acknowledgment does not prove that a required authorization was obtained or that a payer will approve payment.

For EDI professionals, preserving the original adjustment group, CARC, payment amounts and any accompanying RARCs is important when investigating authorization-related denials.

How to Help Prevent Authorization-Related Denials

Accurate authorization records and timely verification of coverage requirements may help reduce avoidable authorization-related claim denials.

Recommended practices include:

• Verify applicable authorization requirements before services are furnished
• Confirm the patient's insurance coverage and applicable plan
• Retain authorization approvals, notifications and related correspondence
• Check applicable service dates, authorized services and provider information
• Submit required authorization information accurately when billing
• Review authorization requirement changes and effective dates
• Investigate authorization-related adjustments promptly
• Track recurring authorization denials by payer and reason

These practices do not guarantee payment, but they can help identify authorization-related issues before or during claim processing.

Official CARC 197 Definition

X12 maintains the official Claim Adjustment Reason Code list, including CARC 197.

For the current code definition and related adjustment codes, refer to X12 Claim Adjustment Reason Codes.

CARC 197 should be interpreted with the actual adjustment group, relevant RARCs and the complete payer adjudication. The reason code alone does not establish which authorization process was required or whether a particular follow-up action is permitted.

Frequently Asked Questions About CARC 197

Key Takeaway

CARC 197 identifies an absent precertification, authorization, notification or pre-treatment requirement according to the payer's adjudication. When reported with the CO adjustment group, it appears as CO-197.

In an X12 835 version 5010 transaction, CARC 197 is reported in a CAS segment at the claim level in Loop 2100 or the service level in Loop 2110.

The presence of CARC 197 does not necessarily mean the entire claim was denied, and it does not independently establish patient financial responsibility.

For medical billers and EDI professionals, the appropriate response is to verify the actual authorization requirements, review available authorization records, examine the remittance and determine which correction or review options the payer permits.

Most importantly, an authorization-related denial should not be treated as an automatic patient-billable balance or as proof that no authorization was ever requested. Providers should follow the requirements applicable to the specific payer and coverage.

Related Eclaims Articles and Resources

• What Are Claim Adjustment Reason Codes (CARCs)?
• How to Read an X12 835 ERA: Claim Payments, Adjustments & Denials
• What Are Claim Adjustment Group Codes (CO, PR, OA & PI)?
• CARC 50 / CO-50: Medical Necessity Denials in Medical Billing
• CARC 16 / CO-16: Missing or Incorrect Claim Information
• 277CA Claim Status Lookup

Disclaimer: This article provides general educational information about CARC 197, authorization-related claim adjustments and electronic healthcare remittance transactions. It does not replace official X12 implementation guides, payer policies, provider agreements or applicable laws and regulations. Authorization requirements, correction procedures, appeals and patient liability rules vary by payer and may change. Always verify the requirements applicable to the patient's coverage, the specific service and the date of service.