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CO-122 Denial Code: Psychiatric Reduction

CO-122 is a psychiatric reduction. The payer reduced payment because the service was a psychiatric or mental health service subject to a reduced payment rule. Medicare's historic outpatient mental health limitation used this concept; today, any such reduction deserves a close look under parity rules.

Quick facts

Code
CO-122 (CARC 122)
Status
Active In use since January 1, 1995.
Code set
Claim Adjustment Reason Codes (CARC)
Group codes
  • CO (Contractual Obligation): The reduction is treated as a contractual or plan adjustment the provider absorbs. It generally is not billed to the patient.
  • PR (Patient Responsibility): The plan shifted the reduced portion to the patient, for example through higher cost-sharing for mental health. Check whether that is permitted for the plan.
Official description
Psychiatric reduction.
X12 Claim Adjustment Reason Codes, retrieved September 25, 2026
Last verified
against the official X12 list.

What CO-122 means

CARC 122 simply reads psychiatric reduction. It reports a reduction in payment because the service was classified as psychiatric or mental health care and the payer applied a rule that pays those services at a lower rate.

The code has roots in Medicare’s old outpatient mental health treatment limitation, which paid certain outpatient mental health services at a reduced rate. That limitation was phased out by 2014. Today, CARC 122 is uncommon. When it appears, it usually reflects a specific plan design, a contract term, or a payer system still applying an older rule.

Example: a practice bills an outpatient psychotherapy session. The ERA shows a routine fee schedule reduction and an additional CO-122 amount. The practice asks the payer which rule produced the extra reduction.

Common causes

  • A plan or contract that pays behavioral health services at a different rate than medical services.
  • A payer system applying a legacy psychiatric reduction rule.
  • Services coded with mental health diagnoses triggering a different pricing path.
  • A carve-out arrangement where the behavioral health administrator applies its own pricing.

How to fix it

  1. Ask the payer to identify the rule behind the reduction and where it appears in your contract or the plan documents.
  2. Compare it with your contract rate. If your contract has no such reduction, request reprocessing at the contracted rate.
  3. Raise parity concerns if a plan applies a reduction or cost-sharing to mental health services that it does not apply to comparable medical services. Appeal in writing and cite the plan terms.
  4. Post correctly. Under CO, write off the reduction if it is valid. Under PR, bill the patient only if the plan allows the cost-sharing.
  5. No corrected claim is needed unless the diagnosis or procedure coding caused the reduction by mistake.

How to prevent problems with CO-122

  • Review behavioral health rates in every payer contract and confirm there is no hidden psychiatric reduction.
  • Watch remittances for CARC 122 with an ERA Analyzer so unexpected reductions are caught early.
  • Keep track of carve-out administrators and their fee schedules.
  • For how to separate pricing adjustments from true denials, see how to read CARC and RARC codes.

Specialty notes

This code matters mainly to psychiatrists, psychologists, therapists, and behavioral health facilities. Because parity rules can apply, keep records of any reduction you believe treats mental health services differently from medical services.

Remark codes that may appear with CO-122

  • N130 (Consult plan benefit documents/guidelines for information about restrictions for this service.): Refers to plan benefit documents for the rule the payer applied.
  • CO-45 (Charge exceeds fee schedule/maximum allowable or contracted/legislated fee arrangement.): Standard fee schedule reduction, which applies to all services.
  • PR-2 (Coinsurance Amount): Coinsurance, where differences in mental health cost-sharing would normally appear.
  • PR-119 (Benefit maximum for this time period or occurrence has been reached.): Benefit maximum reached, another limit sometimes applied to behavioral health.
  • CO-170 (Payment is denied when performed/billed by this type of provider.): Payment denied when performed or billed by this type of provider.

CO-122 FAQ

Does Medicare still apply a psychiatric reduction?

Medicare's outpatient mental health treatment limitation, which paid mental health services at a lower rate, was phased out by 2014. Medicare now generally pays those services the same way as other outpatient services.

Is a psychiatric reduction allowed under parity law?

Federal parity law limits plans from imposing financial requirements on mental health benefits that are more restrictive than those on comparable medical benefits. Whether a specific reduction complies depends on the plan type and design.

What should I do if I see CO-122?

Ask the payer which rule it applied and compare it to your contract and the plan documents. If the reduction looks inconsistent with either, request reprocessing or appeal.