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CO-237 Denial Code: Legislated or Regulatory Penalty

CO-237 means the payer applied a legislated or regulatory penalty to the payment. It often reflects a federal quality or reporting program adjustment. A remark code is required to identify the specific penalty.

Quick facts

Code
CO-237 (CARC 237)
Status
Active In use since June 5, 2011.
Code set
Claim Adjustment Reason Codes (CARC)
Group codes
  • CO (Contractual Obligation): The penalty is borne by the provider and cannot be billed to the patient.
Official description
Legislated/Regulatory Penalty. At least one Remark Code must be provided (may be comprised of either the NCPDP Reject Reason Code, or Remittance Advice Remark Code that is not an ALERT.)
X12 Claim Adjustment Reason Codes, retrieved September 25, 2026
Last verified
against the official X12 list.

What CO-237 means

CARC 237 is a legislated or regulatory penalty. A law or regulation requires the payer to reduce the payment, and the reduction is reported with this code. X12 requires at least one remark code so the provider can tell which penalty applies.

The best-known example is Medicare’s quality payment program. Under MIPS, a clinician’s final score for a performance year determines a payment adjustment in a later payment year, which can be positive, neutral, or negative. When it is negative, the reduction on each affected claim may be reported with CARC 237 and a remark code such as N807. Other federal and state programs can also impose penalties this way.

CO-237 is not about the claim itself. The service was coded correctly and paid; the payment was simply reduced because of a program-level determination about the provider.

Common causes

  • Negative MIPS payment adjustment based on a prior performance year’s score.
  • Missed reporting requirements under a federal or state program.
  • State-mandated penalties tied to provider reporting or compliance.
  • Payer applying a penalty to the wrong NPI/TIN combination or the wrong payment year.

How to fix it

  1. Read the remark code to identify the program behind the penalty.
  2. Confirm your status in that program. For MIPS, check the final score and payment adjustment on the program’s website for the TIN/NPI combination.
  3. Verify the math. Confirm the percentage and the claims it was applied to.
  4. If the penalty was applied in error, such as to an exempt clinician or the wrong TIN, contact the payer and use the program’s review or correction process within its deadline.
  5. If it is correct, post it as an adjustment. It cannot be billed to the patient.

How to prevent it

  • Track reporting deadlines for every quality and compliance program you participate in.
  • Review your eligibility and exemption status each year.
  • Check feedback reports and preliminary scores before the review window closes.
  • Watch ERAs for new penalty adjustments; an ERA Analyzer can flag when a penalty starts appearing across claims.
  • Keep penalty adjustments separate from denials in reporting, as they reflect program performance rather than claim errors.

Remark codes that may appear with CO-237

  • N807 (Payment adjustment based on the Merit-based Incentive Payment System (MIPS).): The adjustment is based on the Merit-based Incentive Payment System (MIPS).
  • N719 (Penalty applied based on plan requirements not being met.): A penalty was applied because plan requirements were not met.
  • CO-253 (Sequestration - reduction in federal payment): Medicare sequestration, a separate federal payment reduction with its own code.
  • CO-223 (Adjustment code for mandated federal, state or local law/regulation that is not already covered by another code and is mandated before a new code…): A mandated adjustment not otherwise covered by a specific code.
  • CO-144 (Incentive adjustment, e.g. preferred product/service.): An incentive adjustment, the positive counterpart that can increase payment.

CO-237 FAQ

What kind of penalty does CO-237 report?

It is used for penalties required by law or regulation. In Medicare, payment adjustments under quality and reporting programs, such as MIPS, are a common example when the adjustment is negative. The remark code identifies the program.

Can I appeal CO-237?

Not through a normal claim appeal in most cases. Program-level penalties are usually disputed through the program's own review process, such as a targeted review request, within the program's deadlines.

Should I bill the patient for the penalty?

No. A regulatory penalty is the provider's responsibility and cannot be passed on to the patient.

Does CO-237 appear on every claim during a penalty year?

It can appear on each claim paid under the affected program and payment year, which is why it often shows up across many remittances at once. The size of the adjustment depends on the program and your results.