7.4 Claim Adjudication, EOB/ERA, & Posting
Key Takeaways
- A clean claim is a complete, accurate claim that passes payer edits and adjudicates without needing additional information.
- Adjudication moves through front-end edits, coverage/eligibility checks, medical review, final adjudication, and payment.
- The ERA (835 transaction) is the electronic remittance advice; the paper Explanation of Benefits (EOB) conveys the same payment decision.
- CARC codes explain why a claim amount was adjusted; RARC codes add supplemental remark detail, and group codes assign financial responsibility.
- Group code CO is contractual write-off, PR is patient responsibility, OA is other adjustment, and PI is payer-initiated reduction.
The Clean Claim
A clean claim is a claim that is complete, accurate, and free of errors or omissions, so the payer can adjudicate it without requesting additional information. Clean claims pay faster and avoid the cost of rework. Many state prompt-pay laws and Medicare define a clean-claim payment deadline, which is why first-pass clean-claim rate is a core billing KPI.
Adjudication Phases
Adjudication is the payer's evaluation of a submitted claim. It generally moves through these phases:
- Front-end edits — automated checks for valid format, required fields, NPIs, and code validity. Failures here usually return as a rejection (the claim never enters the payer system).
- Coverage and eligibility — confirms the patient's policy was active and the service is a covered benefit.
- Medical review — checks medical necessity, authorization, bundling edits, and policy limits; may be automated or manual.
- Adjudication decision — the payer decides to pay in full, pay reduced, or deny, and calculates the allowed amount and patient responsibility.
- Payment — the payer issues payment and a remittance explaining the decision.
ERA vs EOB
The payer's decision is communicated two ways:
| Document | Format | Audience |
|---|---|---|
| ERA (835) | Electronic remittance advice (HIPAA 835 transaction) | Provider — auto-posts to the practice management system |
| EOB | Paper Explanation of Benefits | Often the patient, and providers who receive paper |
The ERA and the EOB convey the same payment decision; the ERA is the electronic, auto-postable version sent to the provider.
CARC, RARC, and Group Codes
Every adjustment on a remittance is explained with standardized codes:
- CARC — Claim Adjustment Reason Code — explains why the paid amount differs from the billed amount (e.g., CO-45 charge exceeds fee schedule).
- RARC — Remittance Advice Remark Code — adds supplemental detail to a CARC, often starting with "M" or "N."
- Group code — assigns financial responsibility for each adjusted amount.
| Group code | Meaning | Who absorbs it |
|---|---|---|
| CO | Contractual Obligation | Provider writes it off — cannot bill the patient |
| PR | Patient Responsibility | Patient owes it (deductible, copay, coinsurance) |
| OA | Other Adjustment | Neither CO nor PR — used when no other group applies |
| PI | Payer Initiated Reduction | Payer's own reduction not the patient's or contract's fault |
Posting Payments and Adjustments
Payment posting records the remittance to each claim line in accounts receivable (A/R):
- Post the payment amount to reduce the balance.
- Post CO adjustments as contractual write-offs.
- Move PR balances to patient responsibility for statementing.
- Reconcile the deposit total against the ERA total so posted dollars match received dollars.
Accurate posting is essential — a CO amount mistakenly billed to a patient is a contract violation, and a PR balance written off as CO is lost revenue.
An ERA shows a $40 adjustment with group code PR and CARC PR-2. How should the biller handle this $40?
Which document is the electronic remittance advice that auto-posts payment decisions into the provider's billing system?