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HLT-MEDI67-06 · Lesson 7 · 10 clock hours · practice

Electronic Remittance Advice and Payment Posting

Objective. Students will read an electronic remittance advice (ERA/835 transaction), post payments and adjustments to patient accounts in the EHR, and identify underpayments and denial reason codes requiring follow-up.

⚠ Pending professional review

This lesson, its worked examples and its practice questions has not yet been verified by a licensed clinician in the field or by a certification or approval body. It is a study draft and may contain errors. Do not use it to make decisions about any patient or medication. Always follow your instructor, your supervising professional, and current official references and regulations.

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What Is an Electronic Remittance Advice?

When a payer processes a claim and issues payment, it sends a document back to the provider called a remittance advice (RA). When that document is transmitted electronically, it is called an electronic remittance advice (ERA). The ERA travels as an 835 transaction set, the HIPAA-standard electronic format for healthcare payment and remittance information. Understanding how to read an 835 is one of the most practical daily skills in medical billing.

The ERA tells the billing team:

Key Data Elements in an 835

Every ERA contains several important fields you will work with during payment posting.

Claim status indicates the overall result: paid, denied, or pended (pending additional review). A single ERA may include dozens of claims in different statuses.

Billed amount is what the provider charged. Allowed amount is the maximum the payer will recognize under the contracted fee schedule. Payment amount is what the payer actually sends. Patient responsibility is the portion owed by the patient—copay, coinsurance, or deductible.

The relationship among these numbers follows a predictable pattern:

> Allowed amount − Patient responsibility − Contractual adjustment = Payment amount

Adjustment reason codes (CARCs) explain every reduction from the billed amount. CARCs are standardized codes maintained by the Washington Publishing Company and recognized by all HIPAA-covered payers. Common examples include codes for contractual obligation (meaning the provider accepted the payer's lower allowed amount), deductible not met, and services not covered. You do not need to memorize every CARC, but you must be able to look one up and interpret it accurately.

Remark codes (RARCs) provide additional explanation when a CARC alone is not specific enough. RARCs may clarify that additional documentation is needed, that the service was a duplicate, or that the claim was submitted past the filing deadline. A CARC and a RARC often appear together on the same adjustment line.

Payment Posting: Why Accuracy Matters

Payment posting means recording the ERA data into the practice management system or the EHR's billing module so that each patient account reflects exactly what happened to each claim. Errors in payment posting create downstream problems:

For these reasons, accuracy in payment posting is not optional—it is a patient safety and compliance issue as well as a revenue issue. Incorrect patient balances can lead to improper collections activity against patients, which may violate consumer protection regulations.

Identifying Underpayments

An underpayment occurs when the payer's payment is less than what the contracted fee schedule requires. This is different from a contractual adjustment, which reflects the agreed-upon write-off. To identify an underpayment:

1. Look up the contracted rate for the procedure code with that specific payer.

2. Compare it to the allowed amount shown on the ERA.

3. If the allowed amount is lower than the contracted rate without a valid explanation code, the claim may be underpaid.

Underpayments should be flagged immediately and entered on the denial or discrepancy work list for follow-up.

Building a Denial Work List

A denial work list is a record of claims that were denied or underpaid and need action. Each entry should capture:

Recommended next actions depend on the denial reason. A contractual denial with no error requires writing off the balance. A medical necessity denial may require an appeal with clinical documentation. A coding error requires a corrected claim. A patient responsibility balance is billed to the patient. Choosing the wrong action wastes time and may result in a permanent write-off of collectable revenue.

Filing deadlines are strict. Most payers set a window—often measured in days from the date of the Explanation of Benefits or ERA—within which appeals or corrected claims must be submitted. Missing the deadline typically means the revenue cannot be recovered. Always note the deadline on the work list entry and prioritize accordingly.

Safety and Compliance Reminders

Never alter a posted payment without supervisory authorization and a proper audit trail. Falsifying payment records, writing off balances without authorization, or concealing denials can constitute fraud. Handle all ERA data in compliance with HIPAA minimum-necessary standards; ERA documents contain protected health information (PHI) and must be stored and transmitted securely. When in doubt about whether a balance should be written off or billed to the patient, consult your compliance policy rather than guessing.

Key terms10

Electronic Remittance Advice (ERA)An electronic document sent by a payer to a provider that explains how a claim was adjudicated, including payment amounts, adjustments, and denial reasons; transmitted as an 835 transaction set under HIPAA standards.
835 Transaction SetThe HIPAA-standard electronic format used to transmit healthcare payment and remittance information from payer to provider.
Claim Adjustment Reason Code (CARC)A standardized code on an ERA or paper remittance that explains why a payment differs from the billed amount, such as a contractual adjustment, deductible, or non-covered service.
Remittance Advice Remark Code (RARC)A supplemental code that provides additional explanation alongside a CARC, offering more specific detail about why an adjustment was made or what action is required.
Allowed AmountThe maximum amount a payer will recognize for a covered service under its fee schedule or contract with the provider; the starting point for calculating the payment and any patient responsibility.
Payment PostingThe process of recording ERA or paper remittance data into the practice management or EHR billing system so each patient account accurately reflects payer payments, adjustments, and remaining balances.
UnderpaymentA situation in which the payer's allowed or paid amount is less than the amount stipulated in the provider's contracted fee schedule, indicating a discrepancy that requires follow-up.
Denial Work ListA tracking document used by the billing team to record denied or underpaid claims, including the reason codes, recommended next action, and filing deadline for each item.
Contractual AdjustmentThe difference between the provider's billed charge and the payer's allowed amount that the provider has agreed to write off as part of its participation contract with the payer.
Filing DeadlineThe payer-specified time limit within which an appeal, corrected claim, or other follow-up action must be submitted; missing this deadline typically results in permanent loss of payment.

Worked examples4

1. A claim is billed at $300.00. The ERA shows an allowed amount of $180.00, a patient deductible of $40.00, and a payment amount of $140.00. Calculate the contractual adjustment and confirm the posting balances correctly.
  1. Step 1 – Identify the contractual adjustment: Billed amount − Allowed amount = $300.00 − $180.00 = $120.00 contractual adjustment (write-off).
  2. Step 2 – Identify the patient responsibility: The ERA shows a $40.00 deductible applied, so the patient owes $40.00.
  3. Step 3 – Confirm the payer payment: Allowed amount − Patient responsibility = $180.00 − $40.00 = $140.00. This matches the ERA payment amount.
  4. Step 4 – Post to the account: Credit $140.00 as payer payment, write off $120.00 as contractual adjustment, leave $40.00 as patient balance. Total = $140.00 + $120.00 + $40.00 = $300.00 (equals the billed amount, confirming the posting is balanced).
Answer: Contractual adjustment = $120.00; payer payment = $140.00; patient balance = $40.00. All three components sum to the original billed charge of $300.00.
2. The contracted rate for a procedure with Payer X is $210.00. The ERA shows an allowed amount of $185.00 and a payment of $185.00 (patient has met deductible and has no coinsurance). Is this an underpayment, and by how much?
  1. Step 1 – Compare the contracted rate to the allowed amount: Contracted rate = $210.00; allowed amount shown on ERA = $185.00.
  2. Step 2 – Calculate the difference: $210.00 − $185.00 = $25.00.
  3. Step 3 – Determine whether this is an underpayment: Because no CARC explains a legitimate reason for the $25.00 reduction (such as a bundling edit or medical necessity denial), and the payer's contract requires $210.00, this is an underpayment of $25.00.
  4. Step 4 – Action: Flag the claim on the denial/discrepancy work list, note the underpayment amount of $25.00, and initiate a payer inquiry or appeal before the filing deadline.
Answer: Yes, this is an underpayment of $25.00. The payer paid $185.00 but the contracted rate requires $210.00. The claim should be flagged and a payer inquiry submitted.
3. A claim is billed at $500.00. The ERA shows a CARC indicating the service was denied as not medically necessary, with a RARC noting that an appeal may be filed with additional documentation. The allowed amount and payment are both $0.00. Calculate what the billed balance remains and identify the next step.
  1. Step 1 – Confirm the payment posted: $0.00 payer payment, $0.00 allowed amount, $0.00 contractual adjustment (no contractual write-off applies to a denial—you do not write off a denied claim before it is resolved).
  2. Step 2 – Determine the outstanding balance: The full billed charge of $500.00 remains as an unresolved balance.
  3. Step 3 – Read the CARC/RARC: The CARC signals a medical necessity denial; the RARC signals that an appeal with supporting clinical documentation is permitted.
  4. Step 4 – Record the denial work-list entry: Note the $500.00 at-risk amount, the CARC/RARC codes and their meanings, the recommended action (appeal with clinical documentation), and the payer's appeal filing deadline.
Answer: Outstanding balance = $500.00. Do not write off. Prepare an appeal with clinical documentation supporting medical necessity and submit before the payer's appeal deadline.
4. An ERA covers three line items for the same patient visit. Line 1: billed $150, allowed $120, patient copay $20, payer pays $100. Line 2: billed $80, allowed $80, no patient responsibility, payer pays $80. Line 3: billed $60, denied ($0 allowed, $0 paid). What is the total amount posted as payer payment across all three lines?
  1. Step 1 – Post Line 1 payment: Payer pays $100.00.
  2. Step 2 – Post Line 2 payment: Payer pays $80.00.
  3. Step 3 – Post Line 3 payment: Payer pays $0.00 (denied).
  4. Step 4 – Sum the payer payments: $100.00 + $80.00 + $0.00 = $180.00 total payer payment posted for this visit.
Answer: Total payer payment posted = $180.00.
In class: Instructor distributes printed mock ERA reports and walks through the standard 835 data elements: claim status, allowed amount, payment amount, adjustment reason codes (CARCs), and remark codes (RARCs), explaining what each communicates to the billing team. · Students use the training EHR's payment-posting module to apply payments and adjustments from five mock ERAs to the corresponding patient accounts, flagging any line where the allowed amount differs from the expected contracted rate. · Students write a denial work-list entry for each denied or underpaid claim, including the CARC/RARC code, the recommended next action (appeal, corrected claim, patient billing), and the filing deadline.
Materials: Mock ERA (835) printouts with varied CARC/RARC codes, CMS CARC/RARC code look-up reference, training EHR payment-posting module, denial work-list template
Check: Students post all payments and adjustments with zero calculation errors and correctly interpret the CARC/RARC code and recommended action for at least 80% of denial scenarios.

Practice check8

Answer each question, then check it. Nothing is recorded; this is your own practice.

Revenue Cycle and Reimbursement
1. What is the primary purpose of an 835 transaction set?
Payment Posting and Reconciliation
2. A billed charge is $400.00. The ERA shows an allowed amount of $260.00 and a patient coinsurance of $52.00. What is the expected payer payment?
Revenue Cycle and Reimbursement
3. Which code type on an ERA provides the primary explanation for why a payment amount differs from the billed amount?
Denial Management and Appeals
4. A medical necessity denial is posted on an ERA with a RARC indicating an appeal may be submitted with additional documentation. What is the correct next action?
Payment Posting and Reconciliation
5. When the payer's allowed amount on an ERA is lower than the rate specified in the provider's signed contract with that payer, this situation is best described as:
Denial Management and Appeals
6. Which of the following best describes why missing a payer's appeal filing deadline is a serious problem?
Denial Management and Appeals
7. A biller posts a $0.00 payment for a denied line item but also writes off the full billed amount of $600.00 as a contractual adjustment. Why is this action incorrect?
Health Information Management and Compliance
8. ERA documents contain protected health information (PHI) and must be handled in compliance with which federal regulation?
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