Denied and Rejected Claims: Follow-Up and Appeals for Mental Health Practices
Denied and rejected claims are not the same problem. A rejected claim was returned before the payer processed it, so you correct and resubmit it. A denied claim was processed and refused, so you correct it or appeal it under the payer's rules.
MCM South Medical Billing Service follows up on denied and rejected claims for psychotherapists and psychiatrists, and files appeals. Getting the category right is the first step, because the wrong response wastes time and can miss a deadline.
Who this is for
- Therapists with denials they do not know how to read
- Psychiatrists whose E/M and add-on claims get denied
- Office managers tracking appeal deadlines
- Practices that write off denials because appeals take too long
What is the difference between a rejected claim and a denied claim?
A rejected claim never entered the payer's adjudication system because of missing or invalid information, while a denied claim was adjudicated and the payer refused to pay all or part of it.
X12's claim status category code A3 describes a rejection: the claim was returned as unprocessable, was 'rejected and has not been entered into the adjudication system' (X12, checked 10/1/26). Medicare contractor guidance gives the same logic. An unprocessable claim was filed with incomplete or invalid information and cannot be appealed. You read the remittance message and reason code, correct the claim and resubmit it. Appealing it only delays payment and risks a timely-filing denial (First Coast Service Options, a Medicare contractor, checked 10/1/26).
| Rejected claim | Denied claim | |
|---|---|---|
| Stage | Stopped at the clearinghouse or the payer's front end | Processed by the payer |
| What you see | A rejection report or an unprocessable-claim message | A remittance (835 or paper) with claim adjustment reason codes (CARCs) |
| Your response | Fix the data and resubmit as a new claim | Correct and resubmit if the payer allows it, or appeal |
| Appeal rights | No. It was never adjudicated. | Yes, within the payer's deadline |
Our glossary defines the terms: claim denial terms and claims processing terms.
Sorting your denied and rejected claims into these two groups decides the next step. Fix and resubmit a rejection. Appeal a denial. Clean electronic claims submission is the first defense against rejections.
How to read a denial: reason codes
Claim adjustment reason codes (CARCs) explain why a claim or service line was paid differently than it was billed, and a group code such as CO, PR, CR, OA or PI says who is responsible for the difference.
X12 maintains the CARC list (checked 10/1/26). These four come up often in behavioral health.
| Code | What it says | Where to start |
|---|---|---|
| CO-16 | The claim or service lacks information or has submission or billing errors | Find the missing or wrong field, correct it and resubmit. |
| CO-29 | The time limit for filing has expired | Check your proof of timely filing and the payer's filing rule. |
| CO-50 | Not deemed a medical necessity by the payer | Review the payer's policy, gather clinical documentation and consider an appeal. |
| CO-197 | Precertification, authorization or notification absent | Check whether an authorization was needed or on file, and ask the payer about its review process. |
Read the remark codes (RARCs) on the same remittance too. They add detail. Use the payer's own provider manual for what each code means for that payer. See also our documentation requirements.
Every line on the remittance for your denied and rejected claims carries a reason code. Write down the code, the date and the payer's stated reason before you touch the claim. Our Claim Denials & Appeals guide walks through the full process.
Denial follow-up and appeals in five steps
- 1. Sort it: rejection or denialCheck the clearinghouse report and the remittance. A rejection goes back for correction. A denial goes to review.
- 2. Read the codes and the noticeNote the reason codes, the payer's stated reason and the appeal deadline. Write the deadline down the day the denial arrives.
- 3. Correct or appealIf the cause is a data error, correct and resubmit where the payer permits. If the payer disagrees on coverage, necessity or authorization, prepare an appeal.
- 4. Build the fileGather the session note, treatment plan, authorization, coding rationale and the payer's own policy. See our CPT and E/M code guide for coding support.
- 5. File, track and escalateSend the appeal the way the payer requires, keep proof of delivery, track the decision date, and move to the next level or to external review if it is upheld.
A repeatable routine keeps denied and rejected claims from piling up. Work them on a set schedule, start with the earliest payer deadline, and record each outcome so patterns show up. Our billing terms glossary defines every term used here.
Appeal rules differ by payer type and by state
These are the federal frameworks. Always use the deadline printed on the denial notice, because plans and states can differ. None of this is legal advice.
Private employer group health plans (ERISA)
The federal claims rule for employer group health plans requires at least 180 days after receipt of a denial notice to appeal. Initial decisions are due within 72 hours for urgent claims, 15 days for pre-service claims and 30 days for post-service claims, and urgent appeals within 72 hours. Denial notices must give the specific reasons, cite the plan provisions, describe any additional information needed and explain the review rights (29 CFR 2560.503-1, Cornell LII copy, checked 10/1/26; recheck the current eCFR text).
Individual and other non-grandfathered plans (ACA)
An internal appeal must be filed within 180 days of the denial notice. Decisions are due in 15 days for pre-service claims and 30 days for post-service claims. Urgent cases get notice within 72 hours and a final decision within 4 business days (HealthCare.gov, checked 10/1/26). After a final denial, a written request for external review is due within 4 months. Standard external decisions come within 45 days and expedited ones within 72 hours. States with a compliant process run it, and HHS runs it otherwise (HealthCare.gov, checked 10/1/26).
Original Medicare
Original Medicare has five appeal levels: redetermination by the Medicare Administrative Contractor, reconsideration by a qualified independent contractor, an Office of Medicare Hearings and Appeals decision, Medicare Appeals Council review and federal district court (CMS.gov). A redetermination request is due within 120 days of receiving the determination, with receipt presumed five calendar days after the determination date, and the contractor typically decides within 60 days (CMS.gov). The provider-facing deadlines are 120 days for level 1, 180 days for level 2, and 60 days each for levels 3, 4 and 5 (CMS MLN006562, checked 10/1/26). Medicare also requires claims to be filed within one calendar year of the date of service, with exceptions (42 CFR 424.44).
Medicare Advantage
Medicare Advantage uses a separate ladder: plan reconsideration, review by an independent review entity, then administrative law judge hearing, Appeals Council and federal court (CMS.gov, checked 10/1/26). The deadline for your first appeal is in the plan's denial notice and your contract, so read both.
Medicaid and state rules
State Medicaid programs and Medicaid managed care plans set their own appeal and fair hearing rules, and state insurance departments run external review for many private plans. These vary by state. Do not apply one state's deadlines to another, and check the state's current rule before you file.
Parity and benefit limits
The U.S. Department of Labor says most plans cannot apply visit limits to mental health benefits that are more restrictive than those for medical and surgical benefits (DOL parity page). On May 15, 2025, the federal agencies said they will not enforce the new provisions of the 2024 final parity rule while it is under review, and the parity statute and the 2013 rule remain in effect (DOL enforcement statement, checked 10/1/26). Raise parity concerns with the plan, and ask counsel or a compliance officer where real money or legal exposure is involved.
Check the deadline for each of your denied and rejected claims against the payer type before you decide what to do. Medicare, Medicaid and private plans set different appeal windows, and Medicaid rules vary by state. For state Medicaid codes, see our Medicaid HCPCS code guide.
Common causes of mental health claim denials
- Authorization. A required authorization was missing, expired or did not match the service.
- Medical necessity. The payer questions whether the service meets its criteria, so the note and treatment plan must support it.
- Provider enrollment. The rendering or billing provider is not enrolled or is out-of-network for that plan. See credentialing and in-network vs out-of-network.
- Coding and time. The code does not match the documented time or the diagnosis. See individual psychotherapy codes and modifiers.
- Timely filing. The claim reached the payer after the filing limit.
- Coverage. The coverage was inactive or another plan should have paid first. Verify before the visit. See eligibility terms.
Most denied and rejected claims trace back to a short list of causes: eligibility, credentialing status, coding and modifiers, and documentation. Fixing the cause matters as much as fixing the claim.
Psychotherapists and psychiatrists see different denials
Psychotherapists
Denials center on time-based psychotherapy codes, session limits, authorization and medical necessity. Strong notes and a treatment plan carry most appeals. See non-E/M CPT codes.
Psychiatrists
Denials often involve the E/M level, the psychotherapy add-on paired with it, and medication management documentation. See E/M codes and add-on codes.
Psychotherapists and psychiatrists both work denied and rejected claims, but the codes behind them differ. Therapy practices bill time-based psychotherapy codes. Prescribers bill evaluation and management (E/M) codes, often with add-on codes.
How MCM South handles denied and rejected claims
What we do
We review every denial and rejection, sort it into the right category, and act on it. Rejections are corrected and resubmitted. Denials are reviewed against the payer's rules, and we prepare and file appeals with the supporting documentation. We track the deadlines on each one. We bill in-network and out-of-network claims for our clients.
- Rejections and denials handled differently, as they should be
- Reason codes read against the payer's own policy
- Appeal files built from your notes, authorizations and the payer's policy
- Deadlines tracked per payer type
We serve clients in Georgia, Massachusetts, Connecticut, Texas, Florida, New York, Colorado, Tennessee, North Carolina and Illinois. See who we serve and all of our services.
Denied and rejected claims FAQ
What is the difference between a rejected claim and a denied claim?
A rejected claim was returned before the payer processed it, because of missing or invalid information, so you correct it and resubmit. A denied claim was processed and refused, so you correct it or appeal. Rejections generally cannot be appealed because they were never adjudicated.
How long do I have to appeal a denied claim to a commercial insurer?
For private employer group health plans, the federal claims rule requires at least 180 days after you receive the denial notice. Individual and non-grandfathered plans use a 180-day internal appeal window. Always use the deadline in your denial notice and contract, because they can differ.
What does CARC CO-197 mean, and how do I appeal an authorization denial for therapy?
CO-197 means precertification, authorization or notification was absent. Check whether an authorization was required and on file, then follow the payer's appeal process with the session notes and any authorization records. Medicare, Medicare Advantage, Medicaid and commercial plans each have their own steps.
Do I appeal or resubmit when the claim was rejected by the clearinghouse?
Resubmit. A claim rejected at the front end was never adjudicated, so there is nothing to appeal. Medicare contractor guidance warns that appealing an unprocessable claim only delays payment and can lead to a timely-filing denial.
Can an insurer deny psychotherapy sessions as not medically necessary, and what can I do about it?
Yes, payers can deny for medical necessity under their own criteria. File an internal appeal within the deadline with clinical documentation. If it is upheld, external review may be available. The Department of Labor says most plans cannot apply stricter visit limits to mental health benefits than to medical benefits.
Sources and date checked
- X12: claim status category codes (A3)
- X12: claim adjustment reason codes (CARC)
- First Coast Service Options: claims returned as unprocessable
- CMS.gov: Original Medicare (fee-for-service) appeals
- CMS.gov: first level appeal, redetermination by a Medicare contractor
- CMS MLN006562: Medicare Parts A and B appeals process
- CMS.gov: Medicare managed care appeals
- eCFR: 42 CFR 424.44, time limits for filing claims
- Cornell LII: 29 CFR 2560.503-1, claims procedure
- HealthCare.gov: internal appeals
- HealthCare.gov: external review
- U.S. Department of Labor: mental health and substance use disorder parity
- U.S. Department of Labor: statement on enforcement of the 2024 parity final rule
Sources checked 10/1/26. Payer rules, deadlines and form versions change. Confirm against the current source before you rely on one. This page is operational guidance for a billing service. It is not legal advice.
Stop writing off denials
Tell us about your practice. We follow up on denied and rejected claims and file appeals, for psychotherapists and psychiatrists.