What is Contractual Obligation in Medical Billing?

When insurer processes medical claims, there is an onus on them to determine the financial liability. A thorough process begins that checks every detail of the submitted claim and that sometimes results in claim denials. Now claim denials can sound very abstract unless there is a way to specify precise denial reasons. Medical claims have been since evolved to come up with codes that include a group code and reason code making it easier to refer to what category or group a denial falls in.

Contractual Obligation in Medical Billing

Contractual Obligation in Medical Billing

CO (Contractual Obligation) is one such code along with other codes like OA(Other Adjustments), PI(Payer Initiated Reduction), and PR(Patient Responsibility). Attached to the code is a number that relates to a specific claim problem. Let’s look a little more at Contractual Obligations and the category it represents.

Contractual Obligations stem from the fact that there is a valid contract between healthcare providers and insurers. A contract between healthcare providers and insurers can have binding between both the parties on what services and prices are covered (rate, maximum number of hours, days or units) for that particular procedure. Taking a hypothetical case to explain this contract, let’s say both the parties have agreed to $100.00 as the max allowable amount that can be billed for a surgery. But post-surgery the provider bills the insurer for $120.00. The additional $20.00 will be marked as Contractual Obligation. $20.00 is described as a contractual adjustment that the provider has to write off. Thus, the contractual obligation assigns financial responsibility to the provider and in case of adjustment, the provider is not expected to bill patients for that adjustment amount. The above is referred to as CO-45 Charges exceed your contracted/ legislated fee arrangement in general.

Some of the Common Contractual Obligations are:

  • CO-16 Claim/service lacks information or has submission/billing error(s).  This can appear if the claim process has missed adding some info and comes often with additional codes that can help.
  • CO -18 – refers to Duplicate claim/service. It means that claim has been submitted in the past.
  • CO – 11 – Diagnosis that is inconsistent with the procedure.
  • CO – 29 – filed when the time limit for filing has expired.
  • CO – 50 – raised when the procedure code is not compatible with the diagnosis code billed based on the LCD/NCD-Local Coverage determination/National Coverage determination guidelines.
  • CO – 96 – Non-covered charges. The specific information about this is present in an additional code attached to this.
  • CO – 97 – occurs when the procedure or service is not paid separately and is rather inclusive with another procedure code that was performed by the provider on the same day.

Contractual Obligations promote transparency and benefit all the involved parties. Medical providers should not bill patients more than the reasonable and customary amount for the rendered service(s) as per the contract with their insurance. As a medical practitioner, you might need to check with insurance on their specific codes. Professional medical billing services firms have the expertise in decoding the codes.


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