What is CARC and RARC in Healthcare

PCG Software will explain the differences of CARC and RARC in claims adjudication and medical billing, plus examples and tips to consider as well as how AI can help navigate these waters with and for you.

History of CARC and RARCs

Claim Adjustment Reason Codes (CARCs) and Remittance Advice Remark Codes (RARCs) were developed to standardize how healthcare claim decisions are communicated across the U.S. healthcare system. Prior to their adoption, payers used proprietary denial messages and free-text explanations, creating confusion, delays, and inconsistent interpretation for providers and billing teams.

CARCs were introduced as part of the HIPAA Administrative Simplification provisions under the Health Insurance Portability and Accountability Act of 1996. Their purpose was to create a uniform, machine-readable way to explain why a claim payment was adjusted, denied, or reduced within electronic remittance advice transactions (primarily the ANSI X12 835). Oversight and maintenance of CARCs ultimately fell under the Centers for Medicare & Medicaid Services (CMS), with industry collaboration through standards organizations such as X12 and WEDI.

RARCs were later introduced to supplement CARCs, addressing a key limitation: CARCs alone often explained the financial adjustment but not the operational or documentation-specific reason behind it. RARCs were designed to provide additional narrative guidance—clarifying missing documentation, modifier conflicts, medical necessity issues, or payer-specific policy nuances—without changing the actual payment determination.

The theory behind CARCs and RARCs is separation of function: CARCs communicate the payment action, while RARCs communicate the context and next steps. Together, they allow automated adjudication systems to issue clear, standardized explanations while still supporting human review, correction, and appeal processes.

Today, CARCs and RARCs are embedded across Medicare, Medicaid, commercial payers, and delegated risk arrangements, forming the backbone of electronic payment communication. Their usage has expanded alongside automation, analytics, and AI-driven claims review, making accurate interpretation and trend analysis increasingly important for payment integrity, compliance, and operational efficiency.

CARC vs RAR with Example

CARC Definition

The acronym CARC stands for Claim Adjustment Reason Code, and it's used in medical billing and claims adjudication. This code is key to understanding the process of adjusting healthcare claims based on an analysis of all the available data. The Claims Adjustment Reason Code helps healthcare providers, insurance companies, and patients understand why a claim was not approved or denied, and helps resolve any discrepancies that may arise.

RARC Definition:

The acronym RARC stands for Remittance Advice Remark Code, and it's used in medical billing and claims adjudication. In straightforward terms, RARC is additional information that helps clarify the reason for CARC codes and usually has a red-lettered alert attached. 

CARC Explained

In the medical billing and claims adjudication process, insurers or health care providers assign CARC codes to a claim adjustment request when it is submitted. The code will identify the type of adjustment being requested, such as an extra payment, a decrease in charges, or coverage deductions. The code also identifies the reason for the adjustment, such as an incorrect diagnosis or procedure code, duplicate billing, or a non-covered service. CARC codes are essential to understanding why a claim is denied or adjusted and what can be done to resolve it.

CARC codes are not as simple as a “denial”, and many times, it just helps you, as a payer or provider, understand why it’s initially denied, such as in the case of an incorrect diagnosis code or place of service. By resubmitting the claim correctly, the claim will likely be approved. 

CARC codes are an essential tool in medical billing and claim adjudication. They help providers, insurers, and patients understand why a claim was adjusted or denied and guide on resolving any discrepancies that may arise. By familiarizing yourself with the various CARC codes, you can better understand how to resolve issues and ensure that your claims are correctly submitted and adjudicated.

Patient Examples of CARC

One example of CARC (Claim Adjustment Reason Code) use in healthcare billing is reimbursing out-of-pocket expenses. The CARC allows insurance companies to accurately reimburse patients for their out-of-pocket costs associated with medical bills, such as co-pays or deductibles. For instance, a patient may receive a CARC indicating that their co-payment was paid in full or that their deductible was applied.

RARC Examples

• M31 is a supplemental code that describes a missing radiology report.
• M20 is supplemental and describes missing, incomplete, or invalid HCPCS. 
• M17 is informational and explains that you could not have known, or were not likely to have known.
• M27 is informational and explains that waived charges apply, and the patient has no financial liability due to the unreasonableness of services. The provider will likely have to eat the cost unless a specific payer contract exception applies.

How AI can help you manage CARC and RARC

Missing Information Example: CARC 226

Imagine receiving a CARC 226 due to insufficient information. AI platforms such as Virtual Examiner and VEWS from PCG Software can provide not only the reason behind the code but also its effective date. By investigating the status and effective date of the CARC code, you can assess whether it was applied correctly. When you finish your day and head home, VE, VEWS, or one of its competitors will conduct a comprehensive claims review audit, delivering a report on the claims that require your attention. If this review fails to consider the patient’s episode of care and their potential ongoing treatment over one, two, three, or more years, you, as a payer might inadvertently be covering duplicate charges for services already rendered, funding claims missing necessary documentation, or succumbing to simple data entry mistakes, such as incorrect gender or diagnosis entries. It is essential for AI claims software companies to regularly update their systems.

Mission Information: CARC 227

Same as CARC 226, but this applies when the patient was not provided or incomplete patient information was submitted and requires reworking by the provider for a likely approval. The CARC will be followed with an RARC to give further explanations and guidance.

AI-Assisted RARC Interpretation and Root-Cause

Remittance Advice Remark Codes (RARCs) often explain why a claim or service line was denied, but they rarely specify what specifically needs to change to prevent recurrence. AI-assisted systems can analyze RARC patterns across large claim volumes and correlate them with CPT/HCPCS codes, modifiers, diagnosis combinations, and place-of-service data.

For example, if a payer sees repeated RARC messages tied to missing or invalid modifiers, the AI can surface the most common modifier conflicts associated with those RARC messages and identify whether the issue stems from provider education gaps, policy ambiguity, or inconsistent adjudication logic. This allows payment integrity teams to prioritize fixes—such as policy clarification, provider outreach, or rule adjustments—rather than reviewing each denial in isolation.

AI-Driven RARC Trend Monitoring and Preventive Controls

RARCs are often reviewed after denials occur, creating a reactive workflow. AI can shift this to a preventive model by continuously monitoring incoming claims and flagging services that historically trigger specific RARCs. For instance, if certain evaluation and management services frequently result in RARCs related to documentation insufficiency or medical necessity, AI models can alert claims or medical review teams before payment—or before the claim enters appeals. Over time, this enables payers to refine coverage rules, update provider guidance, and reduce avoidable denials, appeals, and administrative cost tied to recurring RARC-driven issues.

Summary of CARC and RARCs

CARC and RARC codes are foundational to understanding why healthcare claims are denied, adjusted, or delayed—but they are often misunderstood or treated as simple rejection messages. In reality, CARCs explain what adjustment occurred, while RARCs provide the supplemental context that explains why it happened and what action may be required next. For payers, providers, and billing teams, properly interpreting these codes is essential to reducing rework, preventing duplicate payments, minimizing appeals, and maintaining defensible adjudication practices. This article explains the differences between CARC and RARC, provides practical examples, and outlines how AI-driven claims review tools can help identify root causes, monitor trends, and reduce recurring errors across the claims lifecycle.