CO-237: Legislated/Regulatory Penalty
A regulatory penalty was applied. Verify the calculation and focus on improving performance to reduce future penalties.
What Does CO-237 Mean?
With CO, the regulatory penalty is contractual. The provider cannot pass this cost to the patient. Verify the penalty calculation and focus on reducing future penalties.
CARC 237 indicates that the payer reduced payment on the claim as a penalty mandated by legislation or regulation. Common examples include Medicare payment reductions under the Hospital Readmissions Reduction Program (HRRP), Medicare's Value-Based Purchasing (VBP) penalties, sequestration reductions, or state-mandated penalty programs.
Unlike CARC 223 (legislated adjustment), which is a general regulatory adjustment, CARC 237 specifically indicates a penalty — a punitive reduction based on the provider's performance, compliance, or other regulatory criteria. These penalties are typically not appealable through normal claim appeal channels.
Common Causes
| Cause | Frequency |
|---|---|
| Medicare sequestration reduction The automatic across-the-board reduction applied to Medicare payments under the Budget Control Act sequestration requirements | Most Common |
| Quality reporting penalty A payment reduction applied for failure to meet quality reporting requirements under programs like PQRS, MIPS, or hospital quality reporting | Common |
| Electronic health record (EHR) penalty A payment reduction for failure to demonstrate meaningful use of electronic health records under the EHR Incentive Program/Promoting Interoperability | Common |
| Hospital Value-Based Purchasing (VBP) adjustment A payment adjustment (positive or negative) based on the hospital's performance on quality measures under the VBP program | Common |
| Other legislative or regulatory payment reduction A payment reduction mandated by specific legislation or regulation not covered by another CARC code | Occasional |
How to Resolve
- Identify the penalty program Determine which regulatory penalty applies.
- Verify the calculation Confirm the penalty amount is correct.
- Address root causes Implement quality improvement programs to reduce future penalties.
Appeal if you believe the penalty was applied in error. Provide documentation demonstrating compliance with the applicable program (quality reporting submissions, EHR attestation, etc.). Note that Medicare sequestration reductions are automatic and cannot be appealed. For quality program penalties, contact the specific program administrator.
Common RARC Pairings
The RARC code tells you exactly what triggered the CO-237:
| RARC | Description |
|---|---|
| N830 | Alert: Payment adjusted based on the sequestration legislation. This is a mandatory sequestration reduction and cannot be appealed → |
| N386 | This decision was based on a National Coverage Determination (NCD) or Local Coverage Determination (LCD). Review the specific regulatory program cited and verify compliance status → |
How to Prevent CO-237
- Monitor readmission rates, quality scores, and other metrics tied to penalty programs
- Implement quality improvement initiatives targeting penalty-triggering metrics
- Stay current on regulatory penalty program changes and thresholds
General Prevention
- Stay compliant with all CMS quality reporting programs (MIPS, VBP, hospital quality reporting)
- Meet meaningful use/Promoting Interoperability requirements for EHR incentive programs
- Monitor legislative changes that may introduce new payment penalties
- Ensure timely and accurate quality measure reporting to avoid penalties
- Participate in CMS programs that offer positive payment adjustments
Also Filed As
The same CARC 237 may appear with different Group Codes:
Related Denial Codes
Sources
- https://x12.org/codes/claim-adjustment-reason-codes
- https://portal.ct.gov/-/media/ohs/health-it-advisory-council/apcd-advisory-group/data-submission-guide-workgroup/meeting-materials/6-30-22/carc-codes_final.pdf
- https://www.aapc.com/resources/claim-adjustment-reason-codes
- Codes maintained by X12. Visit x12.org for official definitions.