Glossary · Billing

Denial reason code (CARC/RARC)

Denial reason codes are two-part standardized identifiers—a Claim Adjustment Reason Code (CARC) and an optional Remittance Advice Remark Code (RARC)—that payers attach to the electronic remittance advice (ERA) to explain why a claim was paid differently than billed, denied outright, or adjusted.

Verified May 8, 2026 · 7 sources ↓

Drawn from X12CMSAAPC

Definition

Source · Editorial summary grounded in 7 cited references ↓

Every time a payer processes a claim and the payment differs from the billed amount, the resulting ERA must carry at least one CARC. The CARC is a numeric code (currently 358 active codes) that identifies the primary reason for the adjustment—for example, a bundling conflict, a missing authorization, or a coordination-of-benefits offset. A group code (CO, OA, PI, PR, or CR) precedes the CARC and signals who bears financial responsibility for the difference.

RARCs layer additional context on top of a CARC. There are two subtypes: supplemental RARCs, which clarify the specific rule or policy behind the adjustment, and informational RARCs (always prefixed with 'Alert:'), which convey process-level remittance information rather than explaining a specific dollar adjustment. As of 2025 there are approximately 1,185 active RARCs. Both code sets are maintained by ASC X12 and updated three times per year—around March 1, July 1, and November 1—with CMS instructing Medicare Administrative Contractors (MACs) to implement each cycle.

In orthopedic billing specifically, denial reason codes surface with high frequency around bundling disputes (NCCI edits on same-compartment knee or shoulder arthroscopy), missing or mismatched prior authorizations, and procedure-modifier mismatches. Reading the CARC first establishes the category of the problem; the RARC then points toward the corrective action—whether that means appending the right modifier, submitting a corrected claim, or initiating a formal appeal.

Why it matters

Misreading or ignoring denial reason codes has a direct reimbursement consequence: orthopedic practices that do not systematically track CARC/RARC combinations miss the specific corrective action required, send claims to appeal with the wrong supporting documentation, and watch timely-filing windows close. For high-volume orthopedic procedures—arthroscopic repairs, fracture fixation, joint replacement—even a single recurring CARC (for example, CARC 4 for procedure-modifier mismatch or CARC 39 for authorization denied at the time of the request) can represent tens of thousands of dollars in preventable write-offs per quarter. CMS auditors also use CARC patterns during Recovery Audit Contractor (RAC) reviews; a practice with clustered denials on a particular code pair signals a compliance risk that can trigger post-payment scrutiny.

Common mistakes

Where people most often go wrong with this concept.

Source · Editorial brief grounded in cited references ↓

Treating all CARC/RARC combinations as denials requiring appeal—some are contractual adjustments (CO group) that are correct and non-actionable.
Looking up only the CARC and ignoring the accompanying RARC, which often contains the specific resubmission instruction or missing-documentation detail.
Failing to update internal denial-code crosswalk tables after each of the three annual X12/CMS code-set releases, causing staff to misidentify or miss new codes.
Confusing the Remittance Advice (ERA, sent to the provider) with the Explanation of Benefits (EOB, sent to the patient)—these are distinct documents even when they reference the same CARC.
Appealing a CO-group CARC (contractual obligation) that reflects a negotiated fee schedule discount—this wastes administrative resources because the adjustment is correct by contract.
In orthopedic same-day surgery scenarios, misattributing a bundling denial (often CARC 97 or CARC 4) to a coding error when the real issue is an NCCI edit requiring modifier 59 or an X{EPSU} modifier with supporting documentation.
Not distinguishing between an informational RARC (Alert: prefix—process notice only) and a supplemental RARC that pairs with a specific CARC and drives the corrective action.

Related codes

Codes commonly involved when this concept appears in practice.

CPT

ICD-10

M17.11

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 7 cited references ↓

01What is the difference between a CARC and a RARC?

A CARC (Claim Adjustment Reason Code) is the primary code on an ERA that states the category of reason a claim was adjusted or denied—it appears on every adjusted claim. A RARC (Remittance Advice Remark Code) is optional and adds either specific explanatory detail about that adjustment (supplemental RARC) or a process-level administrative notice (informational RARC, always prefixed 'Alert:'). Read the CARC first to understand the problem, then the RARC to understand the fix.

02Are CARC/RARC codes the same as EOB codes?

No. The ERA containing CARC and RARC codes is sent by the payer to the provider. The Explanation of Benefits (EOB) is a separate document sent to the patient. Both may reference similar payment information, but they are distinct documents with different audiences and formats.

03How often do CARC and RARC code sets change?

ASC X12 and CMS update both code sets three times per year—approximately March 1, July 1, and November 1. Codes can be added, modified, or deactivated at each cycle. Practices must update their internal crosswalk tables after every release or risk misidentifying denial reasons.

04Do all denied or adjusted orthopedic claims need to be appealed?

No. Claims adjusted under the CO (Contractual Obligation) group code reflect a negotiated reduction between the payer and the provider and are generally not appealable. Only denials where the provider believes the payer has made a clinical, coding, or administrative error warrant appeal. Appealing CO-group adjustments wastes time and can obscure genuinely actionable denials.

05Which CARCs appear most often in orthopedic billing?

The most common orthopedic-specific CARCs involve bundling conflicts (CARC 97—payment included in another service), authorization issues (CARC 39—services denied at time of authorization), procedure-modifier mismatches (CARC 4), and charges exceeding the allowed amount (CARC 45). Tracking these by CPT code family helps identify systemic documentation or coding gaps.

06Where can I find the official, up-to-date list of CARC and RARC codes?

The authoritative source is the ASC X12 website (x12.org), which CMS designates as the official list. CMS also issues MLN Matters articles with each update cycle, and MACs implement changes based on those instructions. Internal billing systems should be reconciled against the X12 list after each of the three annual updates.

Sources & references

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

Mira AI Scribe

Mira's documentation and code-selection layer can reduce the upstream causes of CARC/RARC denials before a claim is ever submitted. When Mira captures the operative note, it cross-checks the procedure codes selected against active NCCI edits and flags same-compartment combinations (e.g., concurrent medial and lateral knee arthroscopy codes) that predictably generate bundling CARCs. If a prior authorization number is present in the patient encounter record, Mira links it to the specific CPT codes on the claim, reducing the CARC 39/CARC 15 authorization-mismatch pattern. When a modifier is required to override an NCCI edit—such as modifier 59 or an X{EPSU} modifier for a genuinely distinct procedural service—Mira prompts the surgeon to confirm clinical distinctness and documents the rationale in the note, supplying the phrasing that supports that modifier if the claim is later reviewed. On the back end, Mira's denial-pattern dashboard groups returned CARCs by procedure family so that orthopedic billing staff can identify recurring code-level issues (e.g., CARC 4 clustering around a specific shoulder CPT) and correct documentation or coding habits prospectively rather than claim-by-claim.

See Mira's approach

An Electronic Remittance Advice (ERA) is a standardized electronic document — formatted as an HIPAA X12 835 transaction — that a health plan sends to a provider explaining exactly how a claim was paid, partially paid, or denied, including all adjustment amounts and the reason codes behind them.

Explanation of Benefits (EOB) Billing

An Explanation of Benefits (EOB) is a post-claim summary sent by an insurer to both the patient and provider that details what was billed, what the plan allowed, what the insurer paid, and what the patient owes—it is not a bill.

Prior authorization Billing

Prior authorization (PA) is a payer requirement that a provider obtain approval before delivering a specific service, procedure, or item—otherwise the claim will be denied regardless of medical necessity. Approval is granted when submitted clinical documentation meets the payer's coverage criteria.

Appeal Billing

An appeal is a formal request to a payer to reconsider a claim that was denied, underpaid, or otherwise decided unfavorably. In orthopedic billing, appeals are commonly triggered by bundling edits, medical-necessity denials, and site-of-service disputes.