If you're running an IOP or PHP—or thinking about opening one—billing denials will be one of your biggest operational headaches. Nationally, payers deny roughly 15–20% of in-network claims on average, with some plans denying far more, and only a tiny fraction of those denials are ever appealed. KFF In behavioral health, denials can hit even harder because documentation, prior auth rules, and carve-outs are more complex than in many other specialties. SAMHSA
Understanding medical billing denial codes isn't glamorous work, but it's often the difference between a program that's financially sustainable and one that's constantly chasing cash. Here’s what you need to know.
What Are Medical Billing Denial Codes?
When an insurance payer rejects or reduces a claim, they attach standardized codes explaining why. These come from two main code sets:
CARC (Claim Adjustment Reason Codes): The primary denial or adjustment reason from the payer
RARC (Remittance Advice Remark Codes): Additional explanation, context, or instructions on how to appeal or correct
CMS requires that CARCs and RARCs be included on Medicare remittance advice so providers can see both the payment decision and the explanatory remarks. CMS Most billing systems display both; if yours doesn’t—or if your vendor isn’t reviewing these carefully—you’re essentially flying blind.
The Most Common Medical Billing Denial Codes in Behavioral Health
CO-4: Inconsistent Modifier or Procedure Code
This denial fires when the procedure code and the modifier attached to it don’t match what the payer expects. Common behavioral health codes like 90837 (individual psychotherapy), 90853 (group therapy), and H0015 (intensive outpatient services) all have payer-specific policies on which modifiers are acceptable. CMS When the code–modifier combination doesn’t fit those rules, you’ll see denials like CO-4.
Fix: Audit your charge master and make sure modifier logic is baked into your billing workflow instead of relying on manual entry. A basic scrub for “allowed code–modifier combinations” is a straightforward way to prevent a chunk of these denials. CMS
CO-11: Diagnosis Inconsistent with the Procedure
This one means you’ve billed a procedure that, in the payer’s view, doesn’t align with the submitted diagnosis code. For IOP/PHP billing, this can happen when clinical documentation supports a diagnosis (for example, F33.1 – Major depressive disorder, recurrent, moderate) but the billed service doesn’t map to the payer’s level-of-care or medical necessity criteria. ICD-10-CM Payers increasingly use internal guidelines and utilization management vendors to evaluate whether the diagnosis and service pairing meets their standards. HHS
Fix: Build and regularly update a crosswalk between your ICD-10 codes and billable CPT/H-codes that reflects each payer’s rules. Make sure your clinical team understands that what they document (symptoms, functional impairment, risk, and treatment response) directly affects what can legitimately be billed and defended on appeal. SAMHSA
CO-16: Claim Lacks Information or Has Submission Errors
CO-16 is a broad “something’s missing or wrong” denial. In behavioral health, frequent culprits include:
Missing or invalid NPI numbers
Missing attending or rendering provider information
Missing or invalid authorization numbers
National data consistently show that missing or inaccurate data is one of the top reasons claims are denied or delayed. Experian CMS also emphasizes correct use of identifiers like NPIs as a core part of claims processing. CMS
Fix: Run a pre-submission scrub on every claim for basic data completeness and formatting. Many practice management systems and clearinghouses include claim scrubbers; when configured well, they can catch missing NPIs, invalid member IDs, and authorization issues before the claim hits the payer. CMS
CO-29: Time Limit for Filing Has Expired
Every payer has a timely filing limit—often somewhere between 90 and 180 days from the date of service for commercial plans, with some payers allowing up to a year depending on plan type. CMS Many UnitedHealthcare commercial plans, for example, set timely filing at around 90 days, while some Medicare Advantage and employer plans allow longer windows. CHBMD
Once a claim is outside that window, denials are usually non-appealable except in narrow circumstances like disasters or documented system outages.
Fix: Set internal hard deadlines at roughly 60% of each payer’s limit—so if a plan allows 90 days, you aim to have clean claims out the door within about 50–55 days. Building these deadlines into your task lists and reports keeps “forgotten” or held claims from quietly aging out. CMS
CO-50: Non-Covered Service
Here, the payer is saying they simply don’t cover what you billed—because of the patient’s specific plan, the level of care, benefit exclusions, or missing prior authorization. Behavioral health benefits can vary widely by plan, and mental health and substance use services are often subject to separate limitations and management. CMS If you miss a prior auth requirement or a benefit limit, CO-50 can become a painful write-off.
Fix: Verify benefits before the patient starts treatment, not after. For each admission, confirm:
Whether IOP or PHP is covered under the plan
Any day, visit, or dollar limits
Whether prior authorization is required and for how long
What clinical criteria must be met for continued stay
This upfront work aligns with best practices CMS and SAMHSA recommend for ensuring parity-compliant and appropriate coverage of behavioral health services. SAMHSA
CO-97: Payment Already Adjusted Under a Previous Claim
CO-97 essentially means “we’ve already processed or paid this.” It often appears when a claim (or part of a claim) is resubmitted without being clearly marked as a corrected claim, or when staff re-bill without checking the original remittance advice. Medicare and most commercial payers expect specific coding or frequency indicators on adjusted or corrected claims; missing those can trigger duplicate or CO-97 denials. CMS
Fix: Before resubmitting anything, pull the original remittance advice and confirm what actually happened—paid, denied, or partially paid. Follow each payer’s rules for corrected claims (including the right frequency codes and references to original claim numbers) to avoid creating a new denial on top of the old one. CMS
PR-204: Service Not Covered by This Payer
PR-204 is similar to CO-50, but it’s telling you that the patient’s plan simply does not cover this service at all. This isn’t about medical necessity documentation; it’s a benefit design issue. For example, some plans may exclude certain levels of residential or intensive outpatient behavioral health care, or limit coverage to in-network facilities only. CMS
Fix: Catch this at eligibility and benefits verification. If a patient’s plan doesn’t cover your level of care, you want to know that before admission—not after several weeks of treatment—so you can discuss self-pay options, alternative benefits, or a different level of care. SAMHSA
Why Behavioral Health Has a Higher Denial Rate Than Other Specialties
Behavioral health tends to see more denials because of three things: complex medical necessity documentation, heavy reliance on prior authorization, and payer-specific clinical criteria that aren’t always transparent. Studies and national surveys show that mental health and substance use claims are more likely to be subject to prior authorization and utilization management than many medical–surgical services, which increases denial risk. KFF HHS
Unlike a dermatologist billing a single procedure, an IOP billing nine or more hours of weekly group therapy has to show on an ongoing basis that the patient continues to meet criteria for that level of care—often using detailed, function-based documentation. SAMHSA On top of that, many health plans “carve out” behavioral health to separate managed care organizations, so providers have to be credentialed and authorized with both the medical plan and the behavioral health carve-out, sometimes with different rules, networks, and portals. HHS
Prevention Strategies That Actually Work
Build a Denial Tracking System
Every denial should be logged by code, payer, service date, and dollar amount. When you review that log monthly, patterns jump out—like one payer accounting for most of your CO-50s, or a particular workflow causing CO-16 spikes. Organizations that systematically track and analyze denial data are better able to reduce future denials and shorten accounts receivable cycles. Experian
You don’t need anything fancy to start; even a simple spreadsheet that’s consistently maintained will quickly show you where to focus training and process changes.
Credential Correctly—and Completely
Credentialing problems are a quiet but common driver of denials, especially when different NPIs, taxonomies, and locations are in play. If rendering providers are not correctly enrolled and linked to the group NPI and tax ID, or if their taxonomy doesn’t match what the payer expects, claims can deny even when everything else is correct. CMS
This is particularly important in behavioral health, where you might have psychiatrists, psychologists, social workers, and counselors all billing under one organizational umbrella. Keeping your PECOS (for Medicare) and payer rosters up to date is essential. CMS
Train Your Clinical Staff on Documentation That Supports Billing
Your therapists don’t need to become billers—but they do need to know what payers look for when they evaluate medical necessity for IOP/PHP. Utilization management criteria commonly focus on functional impairment, safety/risk factors, treatment goals, response to treatment, and why a lower level of care isn’t yet appropriate. SAMHSA
Progress notes that only say “patient continues to struggle” rarely support ongoing IOP/PHP authorization on their own. Coaching clinicians to tie symptoms to functioning, link interventions to goals, and document specific changes can directly reduce denials and strengthen appeals.
Appeal Aggressively
Many organizations recover only a small share of denied claims simply because they don’t appeal consistently, even though federal rules give patients and providers the right to internal appeals and, in many cases, external review. HHS KFF has also shown that consumers appeal less than 0.2% of denied marketplace claims, which suggests a lot of denials go unchallenged. KFF
A structured process—with templates for medical necessity appeals, a schedule for follow-up, and a clear division of roles—can turn certain denials (especially documentation-related ones) into paid claims. Budgeting time for appeals, or dedicating staff to it, is often worth the investment for high-dollar levels of care like IOP and PHP.
FAQ
What is the difference between a soft denial and a hard denial in medical billing?
A soft denial is one that can be corrected or appealed—often due to missing information, coding errors, or documentation issues—and may be payable once fixed. A hard denial is usually final, often tied to benefit exclusions or timely filing, and typically offers little or no path to reimbursement under plan rules. CMS
How long do I have to appeal a medical billing denial?
Most payers set appeal windows between about 60 and 180 days from the date on the denial or remittance, but the exact timeframe depends on the plan and contract. Health plans regulated under the ACA and ERISA must also offer specific internal and external appeal rights with defined timelines, so always check the denial notice and plan documents. HHS
What's the difference between CARC and RARC codes?
CARC codes explain what adjustment or denial occurred on a claim (for example, non-covered service or duplicate claim). RARC codes provide additional context or instructions—such as what information is missing or what documentation is needed—so you can decide whether and how to correct or appeal. CMS X12
Can I bill for IOP services under a single billing code?
In most cases, no. IOP services are generally billed using specific H-codes (such as H0015 for intensive outpatient services) along with applicable psychotherapy and evaluation codes, and exact billing structures vary by payer and state Medicaid program. CMS Always review payer billing guidelines so you don’t accidentally bundle services into a single, non-compliant code.
What's the most common reason IOPs lose money to billing denials?
A frequent and costly issue is failing to fully verify benefits and prior authorization requirements before admission, especially in benefit designs where behavioral health is tightly managed. When services are rendered without required authorization or outside the scope of covered benefits, denials like CO-50 or PR-204 often leave little room for successful appeals. KFF HHS
Do behavioral health billing codes differ by state?
Yes—particularly for Medicaid. Each state Medicaid program sets its own covered codes, fee schedules, and prior authorization rules for mental health and substance use services, which can differ significantly from commercial plans and from other states. CMS If you bill Medicaid in multiple states, treat each one as a separate billing environment with its own rulebook.
Work With ForwardCare
ForwardCare is a behavioral health MSO (Management Services Organization) that partners with clinicians, sober living operators, healthcare entrepreneurs, and investors to launch and scale behavioral health treatment centers. We handle the business side — licensing support, insurance credentialing, billing, compliance, and operational infrastructure — so our partners can focus on growth and clinical quality.
If you’re serious about opening or expanding a behavioral health treatment center but don’t want to navigate the business side alone, ForwardCare may be worth a conversation.