Reporting MSP Conditional Payments and Claim Adjustment Reason Codes (CARCs)

Published 01/04/2021

Conditional Payments
A conditional primary payment may be requested if conditional payment criteria are met. When a group health plan (GHP) does not make payment for the reasons listed below, a conditional Medicare payment can be requested (CMS IOM 100-05, Chapter 3, Section 40.3.1). Conditional payments may be requested where:

  • Provider has filed a proper claim under the plan and the plan denies the claim in whole or in part; or
  • Provider fails to file a proper claim because of the physical or mental incapacity of the beneficiary

Conditional benefits are not paid if a plan offers only secondary coverage for services covered by Medicare, and the GHP does not allege that the employer has fewer than 20 employees. Conditional primary benefits are not paid even if the GHP has only collected premiums for secondary rather than primary coverage. Where a GHP has denied the claim because the plan provides only secondary coverage, the contractor denies the claim for Medicare primary benefits unless the single employer GHP or multi-employer plan with an approved multiple employer plan exemption alleges that the employer has fewer than 20 employees.

Neither primary benefits nor conditional primary Medicare payments may be made where a GHP denies payment for services on the grounds they are not covered by the plan, and the contractor believes the plan does cover them.

Benefit determinations applied to the deductible/coinsurance are excluded from criteria listed above. Listed below is a claim example that illustrates the proper way to submit a MSP claim when the primary payer has applied payment to the patient’s deductible, coinsurance/copayment.

Patient receives outpatient services at ABC Hospital. The patient’s primary GHP allows $145.53, but applies this amount towards the patient’s deductible. ABC Hospital would report this claim to Medicare as follows:


Patient receives outpatient services at ABC Hospital. The patient’s primary GHP allows $145.53, but applies this amount towards the patient’s deductible. ABC Hospital would report this claim to Medicare as follows:


  • Value code 12: $0.00
  • Value code 44: $145.53
  • Page 7 Remarks: Primary Insurance Benefits Applied Towards Deductible
  • *Do not report occurrence code 24 with Payer Code “C”
  • *The claim adjustment segment should show the appropriated claim adjustment reason codes related to the deductible, coinsurance/copayment.

The Health Insurance Portability and Accountability Act (HIPAA) requires that Medicare and all other health insurance payers comply with the Electronic Data Interchange (EDI) standards for health care as established by the Secretary of Health and Human Services.

The instructions outlined in CR 8486 provides specific guidance to ensure Medicare’s compliance with HIPAA transaction and code set requirements to ensure that MSP claims are properly calculated, using payment information derived from the paper, direct data entry (DDE) or incoming 837I (Institutional Claim).

Medicare’s secondary payment for Part A MSP claim is based on taking the lesser of the three computations listed below:

  • Provider charges, or the amount the provider is obligated to accept as payment in full (OTAF), whichever is lower. In the case where there are multiple primary payers to Medicare the lowest OTAF is used, unless the Medicare covered charges are lower
  • What Medicare would have paid as the primary payer and
  • The primary payer(s) payment

Any adjustments made by the primary payer(s), must also be considered when processing MSP claims. Adjustments explain why the claim’s billed amount was not fully paid and are reported in the CAS segments on the 835 electronic remittance advice (ERA) or paper remittance. The provider must report the CAS segments adjustments, unchanged, when sending claims to Medicare for a secondary payment.
Listed below is an example to illustrate proper reporting of the CARCs:

Ace Insurance Company (GHP) sends over the 835 ERA reporting the following information for services received for their “working aged” beneficiary at ABC Hospital in the amount of $5,000.00 on December 10, 2019. ABC Hospital reports claim to Medicare via the 837I with the following CARCs, unchanged, as reported by the primary payer.


Ace Insurance Company 835 ERA showing:

Total Charges: $5,000.00 CO45: $1,200.00 PR1: $100.00  Payment: $3,700.00

Report to Medicare:

VC12: 3700.00  VC44: 3800.00 

The claim adjustment segment (CAS) should show:

Paid Date: 121019

Paid Amount: 3700.00

GRP CO CARC 45 AMT 1200.00

GRP PR CARC 1 AMT 100.00


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