CO-90: Ingredient Cost Adjustment
The drug ingredient cost was reduced to the contracted rate. Verify coding is correct, then post the write-off. Dispute only if the contracted rate was applied incorrectly.
What Does CO-90 Mean?
CO-90 indicates the ingredient cost adjustment is a contractual write-off. The provider billed the drug at a price exceeding the payer's contracted ingredient cost rate, and the payer reduced reimbursement to the contracted amount. The provider absorbs the difference and cannot bill the patient for it.
CARC 90 appears on remittances when the payer adjusts the ingredient cost of a pharmaceutical claim. This means the payer recalculated what it will pay for the drug itself — separate from dispensing fees or administration charges — and the adjusted amount differs from what the provider billed.
Drug ingredient cost adjustments are driven by the payer's contracted pricing methodology. Medicare and many commercial payers reimburse drugs based on Average Sales Price (ASP) plus a margin, Average Wholesale Price (AWP) minus a discount, or Maximum Allowable Cost (MAC) for generics. When the provider bills at acquisition cost or usual and customary pricing and that amount exceeds the payer's contracted rate, CARC 90 captures the difference.
The code most commonly appears with Group Code CO, making the ingredient cost gap a contractual write-off for the provider. However, PR-90 is also significant — it appears when a patient is responsible for the cost differential between a dispensed drug and a lower-cost formulary alternative. A patient who receives a brand-name drug when a generic is available may see PR-90 for the cost difference.
OA-90 surfaces in coordination of benefits situations. Regardless of group code, the first step in resolving CARC 90 is verifying that the correct HCPCS code and NDC were submitted, since a wrong drug code can trigger an incorrect ingredient cost calculation. After confirming coding accuracy, compare the billed amount against the payer's known pricing methodology to determine if the adjustment is correct.
Common Causes
| Cause | Frequency |
|---|---|
| Billed drug cost exceeds payer's contracted ingredient rate The provider billed the drug at acquisition cost or usual and customary price, but the payer's contracted rate or fee schedule sets a lower ingredient cost reimbursement (e.g., AWP minus a percentage, ASP plus margin, or MAC pricing) | Most Common |
| Incorrect HCPCS or NDC code for the drug The wrong Healthcare Common Procedure Coding System code or National Drug Code was submitted, causing the payer to reimburse based on a different drug's ingredient cost | Common |
| Quantity or dosage discrepancy The billed quantity or dosage units do not match the payer's expected amount, causing the ingredient cost calculation to produce a different reimbursement than anticipated | Common |
| Missing or incomplete drug documentation Required documentation such as the prescription, medication administration record, or medical necessity justification for the specific drug was not submitted | Common |
| Non-formulary drug dispensed without exception approval The provider administered a non-formulary or brand-name drug when a generic equivalent was available, and the payer adjusts the ingredient cost to the formulary alternative's price | Occasional |
How to Resolve
Verify drug coding (HCPCS/NDC) and pricing against the payer's contracted ingredient cost methodology, then correct errors and resubmit or post the adjustment.
- Confirm drug coding accuracy Verify the HCPCS code and NDC match the administered drug. Confirm billing units align with the drug's unit convention.
- Validate against contracted pricing Check the payer's drug reimbursement schedule (ASP, AWP, MAC) and confirm the adjustment amount matches the expected contractual reduction.
- Post the contractual write-off If the adjustment is correct, post the CO-90 amount as a contractual allowance.
- Dispute if the rate is wrong If the payer applied a lower rate than your contract specifies, submit the contract terms with the relevant drug pricing provisions and request reprocessing.
Common RARC Pairings
The RARC code tells you exactly what triggered the CO-90:
| RARC | Description |
|---|---|
| N362 | Alert: The amount billed exceeds the payer's maximum allowable ingredient cost for this drug. |
| N519 | Alert: Invalid or incorrect drug code. Verify the HCPCS or NDC submitted. |
How to Prevent CO-90
- Keep drug coding references current to ensure correct HCPCS and NDC codes are submitted for all pharmaceuticals
- Verify payer-specific drug pricing methodologies and update billing systems to align with contracted ingredient cost rates
- Implement claim scrubbing rules that flag drug claims where the billed amount exceeds the known payer rate
- Capture complete drug documentation at the point of administration — prescription, dose, route, and NDC — to support accurate billing
- Monitor payer formulary and pricing updates and adjust billing practices when reimbursement rates change
General Prevention
- Maintain accurate and current drug coding references to ensure correct HCPCS and NDC codes are submitted for all pharmaceuticals
- Verify payer-specific drug pricing methodologies (AWP, ASP, MAC) and update billing systems to reflect contracted ingredient cost rates
- Implement automated claim scrubbing rules that flag drug claims where the billed amount exceeds the payer's contracted ingredient rate
- Ensure complete drug documentation is captured at the point of administration including prescription, dosage, route, and medical necessity
- Monitor payer formulary updates and adjust prescribing and billing practices accordingly
Also Filed As
The same CARC 90 may appear with different Group Codes: