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  • Writer's pictureSpencer Dunlap

Capital Deep Dive: Understanding Remittance

Updated: Mar 15, 2022

After a provider sends a claim to the payer, whether it's in the form of an electronic 837 or a paper claim, the payer will decide how to adjudicate the claim and then send back a remittance. This remittance can either be in the form of a paper Explanation of Benefits (EOB) or an electronic file (ANSI X12 5010 835), but over ~85% is done electronically. Depending on how the payer adjudicates the claim, the remittance will contain information about how the payer is responding to each dollar billed – including what was paid, denied, or falls under different parties’ liabilities.

Hospital Billing remittance 835 ANSI X12 5010 CARC CAGC RARC

CAGCs, CARCs, and RARCs


In the event that the payer is not fully paying the claim, they are required to provide reasons why. These reasons are conveyed with standardized codes: Claim Adjustment Group Codes (CAGCs), Claim Adjustment Reason Codes (CARCs), and sometimes Remittance Advice Remark Codes (RARCs).


CAGC - Claim Adjustment Group Code

The CAGC is a 2 character alphabetic code used to indicate general responsibility for the adjustment. There are four options: Contractual Obligation [CO], Patient Responsibility [PR], Payer-Initiated [PI], or Other Adjustment [OA]. Corrections/Reversals [CR], was used previously but is no longer a valid code in the current version (5010) of the 835.


CO: Contractual Obligation.

CO indicates that the adjustment is due to contractual obligation. For example, if a charge goes out on a claim for $100, but per the payer contract only $60 is allowed to be paid, then the difference ($40) would be explained with a CO-code. Some CO-codes typically result in writing off the CO-balance (like the above example), while others are worked as claim denials. For example, a CO252 denial indicates that the provider must submit an attachment with the claim, per contractual agreement.


PR: Patient Responsibility.

PR indicates that the adjustment is the responsibly of the patient. For example, if the patient owes a deductible, copayment, or coinsurance, the payer will denote that with a PR-code with the relevant [deductible/copayment/coinsurance] amount.


PI: Payer Initiated Reduction.

PI indicates that the adjustment is not the responsibility of the patient, but there is no supporting contract between the provider and the payer. In other words, "PI" can be thought of as "not CO, but also not PR."


OA: Other Adjustments.

OA indicates that no other group code applies to the adjustment. "Other" category.

Hospital Billing remittance 835 ANSI X12 5010 CARC CAGC RARC

CARC - Claim Adjustment Reason Code

The CARC is a 1 to 3-character alphanumeric code used to indicate the reason for the adjustment. There are currently around ~400 CARCs which, when paired with the CAGC, provide a general reasoning for a payer's adjustment. However, payers sometimes use these codes differently and their descriptions are not always intuitive to discerning exactly why a payer responded the way they did.

Here are a few of the most common CARCs:

  • CARC 45 (example: CO45) - The most common code combination used to explain the not allowed amount per the payer contract.

  • CARC 23 (example: OA23) - A special code used by all payers to report coordination of benefits (COB). When COB applies, this code combination is used to detail the prior payer's impact on adjudication (the sum of all payments and adjustments). CARC 23 usually only used with CAGC OA.

  • CARC 1 (example: PR1): The patient's deductible.


RARC - Remittance Advice Reason Code

The RARC is a 2 to 4-character alphanumeric code to provide additional information to the CARC/CAGC combo for the reasoning of a claim adjustment. There are over a thousand RARCs and they appear in a different segment than the CARC/CAGCs.

Here are a few of the most common RARCs:

  • N381: Consult contractual agreement for restrictions/billing/payment information related to these charges.

  • M127: Missing patient medical record for this service.

  • N782: Patient is a Medicaid/ Qualified Medicare Beneficiary. Review your records for any wrongfully collected coinsurance. This amount may be billed to a subsequent payer.


Each Claim Adjustment Reason Codes (e.g., "45") on a remittance is associated with a Claim Adjustment Group Code (e.g., "CO") and tied to a monetary amount. For example, CO45 for $100. Remittance Advice Remark Codes are supplementary to CARCs/CAGCs and are not always used.


Adjustment Code Example

Using the definitions above, let's look at an example:

CAS*CO*45*100*1~

From what we learned previously about reading flat files, we can identify the segment delimiters and terminator, and with our new knowledge of adjustment codes we can pinpoint the CAGC [CO] and CARC [45].

In industry language, we would call this a CO45 adjustment, which is the payer's way of saying "we're not paying the full billed amount".

The other two elements of the CAS segment above are the dollar amount the payer is saying they won't pay [$100] and the adjustment quantity [1], found in CAS-03 and CAS-04, respectively. Note: the adjustment quantity is not required and is only used if units of service are being adjusted.


Remittance Variability and Nuance


Despite these codes being X12 industry standard, there are, of course, differences to consider (otherwise, it would be too easy). Primarily, different payers can choose to use the same code in different ways or to handle different payment scenarios.

Hospital Billing remittance 835 ANSI X12 5010 CARC CAGC RARC

For example, if Cigna sent back a CO252 (by definition, indicating that additional documentation is required) that could have a slightly different meaning than if Aetna sent a CO252, based purely on how each payer uses the code. The same denial code (such as CO16) can also be used to describe a plethora of different issues, making it extremely difficult to pinpoint what caused the denial. In certain cases the RARC can help with this determination, but different payers will similarly use the same RARC in different ways.


Additionally, the RARCs described above are not mandatory to send back in remittance. So, although they can be helpful in figuring out more discrete detail on why something was denied, they aren't always around when you need them.


These two examples of variability are some of the reasons why analyzing denials is so cumbersome and expensive, and why we at Claim Capital developed the software to handle it efficiently. Our team has poured our years of collective knowledge of denial analysis from working with over 60 clients into the development of CARMA, our Claims and ReMittance Analysis system. CARMA removes the guess work and tedious Excel data analysis to reduce your claim denials through root cause determination using machine learning. Check out our Process page to learn more about how we work to help make sure you get paid what you deserve.


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