Medical Claim Denials: Common Reasons Claims Are Denied

Medical claim denials are a common challenge for healthcare providers, medical billers, billing companies and revenue cycle management teams. A claim may be denied because of coverage limitations, incorrect billing information, missing authorization, coordination of benefits, medical necessity requirements or other payer-specific rules.

Understanding why a medical claim was denied is the first step toward determining the appropriate action. Some situations require correcting claim information, while others may involve requesting reconsideration, submitting supporting documentation or filing an appeal.

In this guide, we'll explain the most common reasons medical claims are denied, how denial information appears on an Electronic Remittance Advice (ERA), and how medical billing and EDI professionals can investigate and resolve claim issues.

What Is a Medical Claim Denial?

A medical claim denial occurs when a health insurance payer has processed a claim or service and determined that payment will not be made for all or part of the submitted charges.

During claim adjudication, the payer evaluates information such as member eligibility, covered benefits, provider participation, diagnosis and procedure codes, authorization requirements and applicable payment policies.

A denied claim does not necessarily mean that the entire claim was denied. A payer may approve some services while denying others, or reduce payment for individual service lines.

Denial information is typically communicated through an Explanation of Benefits (EOB), a provider remittance advice or an Electronic Remittance Advice (ERA), commonly transmitted using the X12 835 transaction.

It is also important to understand that not every payment adjustment represents a denial. Contractual reductions, deductibles, copayments and coinsurance may appear as adjustments on otherwise successfully processed claims.

Medical Claim Rejection vs. Denial: What's the Difference?

Although the terms rejection and denial are sometimes used interchangeably, they represent different situations in the medical claim processing lifecycle.

For example, a claim containing an invalid subscriber identifier may be rejected during initial claim validation. Once corrected, it can generally be submitted again for processing.

However, if the claim passes initial validation and the payer determines that the patient did not have active coverage for the date of service, the claim may be denied during adjudication.

For additional information, see our article on Rejected Claim vs. Denied Claim and our 277CA Claim Status Lookup resource.

Common Reasons Medical Claims Are Denied

Medical claim denials can occur for many reasons, and the specific requirements vary by payer, plan and claim type.

The following categories represent common denial scenarios encountered in Medicare, Medicaid and commercial insurance billing. They are practical examples rather than a statistical ranking of denial frequency.

These denial categories are not mutually exclusive. A claim may contain several adjustments, and a single adjustment may require reviewing multiple pieces of information before the underlying issue can be identified.

Understanding Denial Codes on an Electronic Remittance Advice

When an insurance payer processes a claim, the X12 835 Health Care Claim Payment/Advice transaction may communicate claim payments, service-line payments and associated financial adjustments.

Three standardized code types help explain claim and service adjustments:

1. Claim Adjustment Group Codes

Claim Adjustment Group Codes identify the general category of financial responsibility associated with an adjustment.

Common group codes include:

• CO: Contractual Obligation
• PR: Patient Responsibility
• OA: Other Adjustment
• PI: Payer Initiated Reduction

Group codes are important when determining how an adjustment affects the provider's accounts receivable and whether an unpaid amount is potentially the patient's responsibility.

The group code alone does not establish whether a patient may legally be billed. Provider contracts, applicable laws, coverage requirements and other patient liability rules must also be considered.

In the X12 835 version 5010 transaction, Claim Adjustment Group Codes are reported in the CAS (Claim Adjustment) segment. The CAS segment can appear in Loop 2100 for claim-level adjustments or Loop 2110 for service-line adjustments. The group code is reported in CAS01, followed by a Claim Adjustment Reason Code (CARC) in CAS02 and the associated adjustment amount in CAS03.

2. Claim Adjustment Reason Codes (CARCs)

CARCs explain the reason a payer made a financial adjustment to a claim or service. When combined with a Claim Adjustment Group Code, they provide additional information about why a payment was reduced, denied or otherwise adjusted.

For example, the following CARCs may appear with the CO (Contractual Obligation) group code:

• CO-16 (Missing or Incorrect Information): The claim or service contains missing, incomplete or incorrect billing information. An accompanying remark code is required to help identify the issue.
• CO-4 (Procedure and Modifier Mismatch): The procedure code is inconsistent with the modifier reported on the claim.
• CO-50 (Medical Necessity): The payer determined that the service does not meet its applicable medical necessity requirements.

In these examples, CO represents the adjustment group code, while 16, 4 and 50 represent the individual Claim Adjustment Reason Codes. In the X12 835 transaction, these values are reported separately in the CAS segment, with the group code in CAS01 and the CARC in CAS02.

CARCs are not limited to denials. They are also used for ordinary payment adjustments, including patient cost sharing and contractual payment reductions. The appropriate follow-up depends on the reason code, accompanying remark codes and the payer's processing requirements.

3. Remittance Advice Remark Codes (RARCs)

RARCs provide additional information about a payment adjustment or communicate other remittance information. When used with a CARC, a RARC may help identify the specific information or condition associated with an adjustment.

For example, a general claim-information adjustment may be accompanied by a remark that helps identify which part of the claim requires further review.

In the X12 835 version 5010 transaction, Remittance Advice Remark Codes (RARCs) are reported in different segments depending on whether they apply to the entire claim or an individual service line.

Claim-level RARCs are reported in Loop 2100 using the MIA segment (MIA05 or MIA20 through MIA23) for inpatient adjudication, or the MOA segment (MOA03 through MOA07) for non-inpatient adjudication. Service-level RARCs are reported in Loop 2110 using the LQ segment, with the remark code in LQ02.

Unlike CARCs, which are reported in the CAS segment with adjustment amounts, RARCs provide additional explanatory or informational details.

Important: Do not interpret a denial using the CARC alone when additional remark codes or payer-specific details are available. The combination of group code, CARC, applicable RARC and payer processing information provides a more complete explanation.

The official CARC and RARC lists are maintained by X12 and updated periodically. For complete current code definitions, refer to the X12 Claim Adjustment Reason Codes and X12 Remittance Advice Remark Codes.

Example: How a Medical Claim Denial Appears in an X12 835

Consider a medical billing office that submitted a professional claim containing an office visit with a billed charge of $125.

The payer processes the claim and determines that the service duplicates a previously processed claim.

The following simplified X12 835 service-line segments illustrate how a full adjustment could be reported:

Example: Duplicate Service Adjustment

Illustrative example only. This is a partial X12 835 transaction using fictional billing information and does not represent a complete valid interchange or a payer-specific adjudication decision.

Understanding the Example

In this example, the billed charge is $125, the service payment is $0 and the payer reports a $125 adjustment associated with the duplicate-service reason.

The example does not establish whether the payer's decision is correct. The billing office would need to determine whether an earlier claim was already submitted, whether the service was actually duplicated, and whether the original claim had been paid or otherwise processed.

A duplicate denial should not automatically result in another claim submission. The correct next step may be to verify the original claim, request a review or follow the payer's applicable correction or appeal process.

For more information, see Duplicate Medical Claim Denials: Causes and How to Resolve Them.

Where Are Denial Codes Located in the 835 Transaction?

Within an X12 835 transaction, payment and adjustment information may appear at the claim level or service-line level.

For medical billing applications and EDI developers, it is important to associate each adjustment with the correct claim or service line.

A claim-level adjustment should not automatically be interpreted as applying to every service line. Similarly, a service-line adjustment should be evaluated in the context of that specific service and the other information reported on the remittance.

How to Troubleshoot a Denied Medical Claim

Resolving a medical claim denial begins with understanding why the payer denied the claim or individual service and determining the appropriate follow-up action. The following steps provide a general troubleshooting approach for medical billers and EDI professionals.

Step 1: Confirm the Claim Was Denied Rather Than Rejected

Review the payer's claim status information, remittance advice and available processing reports to confirm that the claim was accepted for adjudication and subsequently denied.

If the claim was rejected before adjudication, the issue generally requires correcting the submission problem rather than following the payer's denial resolution or appeal process.

Step 2: Identify the Claim and Affected Services

Confirm the patient account, payer, dates of service, claim identifier, billed services and payer claim control number, when available.

Determine whether the payer denied the entire claim or only specific service lines. A claim may contain both paid and denied services, so it is important to identify exactly which charges were affected.

Step 3: Review the CARCs, RARCs and Group Codes

Examine the adjustment group codes, Claim Adjustment Reason Codes (CARCs) and any associated Remittance Advice Remark Codes (RARCs) reported on the payer's remittance advice.

When reviewing an X12 835 ERA, check the applicable claim-level adjustments in Loop 2100 and service-level adjustments in Loop 2110. Review the full remittance information rather than relying solely on a shortened denial description displayed by a billing system.

These codes help explain the reason for the adjustment and may identify additional information needed to investigate the denial.

Step 4: Compare the Denial Against the Original Claim

Review the original 837 claim or the information submitted through the payer's portal or paper claim form. Compare the submitted information against the denial reason and any additional payer remarks.

Depending on the denial, relevant information may include:

• Subscriber and patient identifiers
• Coverage and eligibility dates
• Billing and rendering provider NPIs
• Provider taxonomy and enrollment information
• Diagnosis and procedure codes
• Modifiers and place of service
• Prior authorization or referral information
• Other insurance and coordination-of-benefits information
• Original claim submission dates and prior claim references

Focus on the information associated with the denial reason. For example, an authorization denial may require reviewing the authorization records, while a timely filing denial may require examining the original submission date and proof of payer receipt.

Step 5: Determine the Correct Follow-Up Action

Not every denied claim should be corrected and resubmitted. The appropriate action depends on the denial reason, payer requirements and whether the original adjudication was correct.

Depending on the situation, possible actions include:

• Corrected or Replacement Claim: Submit corrected billing information when the payer permits or requires a corrected claim to resolve the issue.
• Claim Inquiry: Contact the payer or review its claim status information to clarify the denial or verify whether the claim was previously processed.
• Reconsideration: Request another review of the payer's payment determination when an applicable reconsideration process is available.
• Supporting Documentation: Provide medical records, authorization information or other documentation through the appropriate payer process when required.
• Formal Appeal: Challenge the payer's denial decision through the applicable appeal process when the provider or other eligible party disagrees with the determination.

Before taking action, review the payer's current claim correction, reconsideration and appeal requirements, including applicable deadlines, supporting documentation and submission methods. These processes may differ among Medicare, Medicaid and commercial insurance plans.

Step 6: Document and Monitor the Resolution

Record the denial reason, supporting information, payer communications and action taken. Keep the relevant claim numbers, acknowledgment information, submission confirmations and reconsideration or appeal reference numbers.

Monitor the claim until the payer provides a resolution, and verify that any subsequent payment or adjustment is reflected correctly in the billing system. Track applicable follow-up and appeal deadlines while the issue remains unresolved.

Documenting denial outcomes can also help identify recurring problems involving particular payers, services, providers or billing processes, allowing medical billing teams to address preventable issues earlier in the claim lifecycle.

Medicare, Medicaid and Commercial Payer Considerations

Although standardized transactions and adjustment codes improve consistency, the processes for resolving denials are not identical across all health insurance payers.

Medicare

Original Medicare claim adjudication and remittance advice follow CMS requirements administered through Medicare Administrative Contractors (MACs).

Medicare remittance advice provides information about payments and adjustments, and CMS publishes instructions concerning adjustment codes, remark codes, claim corrections and appeals.

Providers should review the applicable MAC guidance to determine whether a claim reopening, correction, redetermination or another process is appropriate.

Medicare Advantage plans have their own applicable claim processes, which should not automatically be assumed to match Original Medicare procedures.

Medicaid

Medicaid claims may be processed through state fee-for-service systems or Medicaid managed care organizations.

State-specific billing rules, provider enrollment requirements, prior authorization policies and claim submission deadlines can affect how denials are handled.

Providers should use the appropriate state Medicaid provider guidance or the applicable managed care plan's instructions rather than assuming a universal Medicaid denial process.

Blue Cross Blue Shield and Other Commercial Payers

Commercial payer claim processing is influenced by the member's benefit plan, provider agreement, medical policies, claim editing rules and applicable regulatory requirements.

For example, Blue Cross and Blue Shield of Illinois distinguishes among claim review, clinical appeals and other dispute processes. The available process may depend on the type of determination and the member's coverage.

Commercial payers may offer online claim reconsideration, dispute and appeal functions through their provider portals or associated administrative platforms.

Clearinghouses

Clearinghouses such as Availity and Office Ally help transmit claims and communicate submission or processing information between providers and payers.

A clearinghouse may identify claim errors before a claim reaches the payer. For example, Office Ally provides file summary and EDI status reports that help distinguish claims rejected during clearinghouse validation from claims accepted or rejected during subsequent payer processing.

Availity also provides claim submission reports and claim status services that help providers identify whether claims have been accepted, rejected, are pending, have been denied or have been paid.

How Can Medical Billing Teams Reduce Claim Denials?

Not every denial can be prevented, but consistent processes can help reduce avoidable submission errors and improve the handling of unresolved claims.

• Verify eligibility and benefits: Review patient coverage and relevant plan requirements before providing services when practical.
• Confirm provider information: Keep billing and rendering provider identifiers, enrollment records and payer participation information current.
• Review coding accuracy: Use applicable diagnosis, procedure and modifier coding rules.
• Check authorization requirements: Confirm whether a referral or authorization is required and retain the relevant approval information.
• Monitor claim processing: Review submission acknowledgments, claim status responses and remittance advice to identify processing problems and recurring denial patterns promptly.
• Track filing deadlines: Maintain a reliable process for monitoring payer-specific submission and follow-up limits.
• Analyze recurring adjustments: Look for repeated denial patterns involving specific payers, services, providers or billing workflows.

For EDI development teams, preserving the original claim information and associating acknowledgments, payer claim identifiers, status responses and remittance adjustments can make troubleshooting significantly easier.

Frequently Asked Questions About Medical Claim Denials

Key Takeaway

Medical claim denials can arise from coverage requirements, billing information, coding rules, authorization, timely filing, provider enrollment and other payer-specific conditions. Identifying the underlying denial reason is essential to determining the appropriate resolution.

For medical billers and EDI professionals, the best starting point is to review the payer's remittance advice, identify the applicable Claim Adjustment Group Codes, CARCs and RARCs, and compare the reported adjustments with the original claim information. Depending on the denial reason, the appropriate follow-up may involve a claim correction, inquiry, reconsideration or appeal.

Throughout this Medical Claim Denials & Remittance Advice article series, we'll explore individual CARCs, RARCs, common denial scenarios and practical X12 835 examples to help explain how claim adjustments are reported and investigated.

Related Eclaims Articles and Resources

• Duplicate Medical Claim Denials
• 277CA Claim Status Lookup
• NPI Lookup
• ICD-10-CM Code Lookup

Disclaimer: This article provides general educational information about medical claim denials, billing practices and electronic healthcare transactions. It does not replace official payer instructions, provider contracts, X12 implementation guides or applicable laws and regulations. Claim processing rules and code requirements may change. Always verify current requirements with the appropriate payer, government program or official standards organization.