Glossary · Reimbursement

Carve-out

A carve-out is a reimbursement arrangement in which a specific procedure, service, or implant is excluded from a bundled or global payment and instead reimbursed separately, either at a negotiated rate or under a distinct fee schedule.

Verified May 8, 2026 · 6 sources ↓

Drawn from AAHKSAAOSCMSAoassnAMA

Definition

Source · Editorial summary grounded in 6 cited references ↓

In orthopedic reimbursement, a carve-out occurs when a payer explicitly removes one or more services from an otherwise inclusive payment bundle and prices them independently. The most common context in orthopedics is the implant carve-out: rather than absorbing high-cost devices such as total knee or total hip implant components within the global surgical rate, the payer reimburses implant costs as a pass-through or at invoice price. This protects practices and hospitals from absorbing cost overruns when implant prices exceed what the bundled rate assumes.

Carve-outs also appear at the service level. Certain evaluation and management encounters, pre-operative optimization visits (billed under principal care management codes 99424–99427), or post-discharge care coordination services may be carved out of a bundled episode payment so that physicians can bill for them separately. CMS and commercial payers each define their own carve-out terms, and those terms are contract-specific, meaning the same procedure can be bundled under one plan and carved out under another.

Understanding whether a service is carved out requires reading the payer contract and the accompanying fee schedule exhibit carefully. A carve-out that is not identified before claim submission will result in either an underpayment—if the practice bills as though the service is included—or a denial—if the practice bills separately for a service the payer has not carved out. Either outcome affects net revenue and can trigger a post-payment audit if the pattern persists.

Why it matters

Missing a contractual carve-out is a direct revenue leak. If an orthopedic practice does not identify that implant costs or a specific CPT code has been carved out of a bundled episode, it will either absorb those costs silently or submit a claim that duplicates payment the payer considers already bundled, generating a denial or a repayment demand. Conversely, if a payer has carved out pre-optimization management services (e.g., PCM codes 99424–99427) from a global arthroplasty episode and the practice never bills them, that work goes entirely uncompensated. In both directions, the financial impact compounds across high-volume procedures like total joint arthroplasty.

Common mistakes

Where people most often go wrong with this concept.

Source · Editorial brief grounded in cited references ↓

Assuming a carve-out that applies under one payer contract applies to all payers—carve-out terms are contract-specific and must be verified separately for each plan.
Failing to bill carved-out implant costs with supporting invoice documentation, causing the claim to process at a default bundled rate instead of the actual device cost.
Billing principal care management codes (99424–99427) for pre-operative optimization without first confirming the payer has carved those visits out of the global arthroplasty episode payment.
Not appending the correct modifier when a carved-out service is billed alongside the primary procedure, leading the payer's claim-editing system to bundle and deny the secondary line.
Confusing a carve-out with an exclusion: a carve-out is separately reimbursable; an exclusion is a non-covered service. Billing a true exclusion as a carve-out will result in a denial and potential compliance exposure.

Related codes

Codes commonly involved when this concept appears in practice.

CPT

ICD-10

M17.11 M16.11

Modifiers

59 Distinct procedural service XS Separate structure 25 Significant separately identifiable E/M 51 Multiple procedures

Frequently asked questions

Source · Generated from the editorial pipeline, verified against 6 cited references ↓

01Is an implant carve-out the same as a pass-through payment?

They are closely related but not identical. A pass-through reimburses a device at or near actual invoice cost as a temporary measure, often pending adequate cost data. An implant carve-out is a negotiated contract term that permanently removes implant cost from the bundled rate and sets a separate reimbursement method, which may or may not equal invoice price.

02Do Medicare fee-for-service claims have carve-outs?

Medicare fee-for-service reimburses surgical procedures under the MPFS global surgery rules, which bundle most related services. Carve-outs in the strict sense are more common in Medicare Advantage and commercial contracts. However, CMS does recognize separately billable services outside the global package, and PCM codes were specifically approved for arthroplasty pre-optimization work outside the global surgical episode.

03How does a practice identify which services are carved out under a specific contract?

The payer contract and its attached fee schedule exhibit or bundling exhibit are the primary sources. Practices should also review payer policy bulletins annually, because carve-out terms can change at contract renewal. Revenue cycle staff should maintain a payer-by-payer carve-out matrix and update it whenever a contract is renegotiated.

04Can billing a carved-out service incorrectly trigger an audit?

Yes. Billing a service as carved out when the payer contract treats it as bundled constitutes a claim for separate reimbursement the payer does not owe. If the pattern recurs across many claims, it can prompt a post-payment audit and a repayment demand. Accurate contract interpretation before claim submission is the primary defense.

05Are carve-outs relevant for orthopedic bundled payment models like CJR?

Directly relevant. The Comprehensive Care for Joint Replacement (CJR) model defines a target episode price that includes most services. CMS specifies which services are excluded from the episode and priced separately—those exclusions function as carve-outs. Practices participating in CJR need to understand exactly which services fall outside the episode window to bill them correctly without triggering a repayment.

Sources & references

Editorial content was developed using the following public sources. Last verified May 8, 2026.

Mira AI Scribe

Mira flags carve-out status during claim preparation by cross-referencing the active payer contract terms against the procedure codes on the encounter. When an implant cost is present on a total joint arthroplasty encounter, Mira prompts the billing team to attach invoice documentation and routes the implant line to the correct payer-specific carve-out pathway rather than the bundled DRG or episode rate. For pre-operative optimization encounters, Mira checks whether the payer has carved PCM codes (99424–99427) out of the global arthroplasty episode before including those codes on the claim. If a carved-out service is billed alongside its primary procedure, Mira selects and validates the appropriate modifier (most commonly 59 or an X-modifier) to prevent an NCCI edit from collapsing the lines. Contract terms are stored at the payer-plan level so that carve-out logic is applied per-payer automatically rather than relying on coder recall.

See Mira's approach

Related terms

Bundled payment Reimbursement

A bundled payment is a single, predetermined reimbursement covering all provider services related to a defined clinical episode—such as a total joint replacement—rather than separate fee-for-service payments for each individual service delivered.

Unbundling Coding

Unbundling is the incorrect practice of billing multiple separate CPT or HCPCS codes for components of a procedure that a single, more comprehensive code already covers—resulting in inflated reimbursement claims and potential fraud exposure.