Skip to main content

CO-266 Denial Code: Compound Preparation Cost Adjustment

CO-266 is an adjustment for compound preparation cost on a pharmaceutical claim. The payer reduced or modified the amount billed for preparing a compounded medication, typically under its pharmacy pricing rules or your pharmacy network agreement. It applies to pharmaceuticals only.

Quick facts

Code
CO-266 (CARC 266)
Status
Active In use since November 1, 2014; last modified July 1, 2017.
Code set
Claim Adjustment Reason Codes (CARC)
Group codes
  • CO (Contractual Obligation): The usual group. The reduction is contractual and the pharmacy can't collect it from the patient.
  • PR (Patient Responsibility): Occasionally used when the plan passes the compounding cost to the member, for example under a benefit that excludes compounding fees. The patient may then be charged.
Official description
Adjustment for compound preparation cost. Usage: To be used for pharmaceuticals only.
X12 Claim Adjustment Reason Codes, retrieved September 25, 2026
Last verified
against the official X12 list.

What CO-266 means

CARC 266 is an adjustment for compound preparation cost. The X12 usage note limits it to pharmaceuticals. A compounded prescription combines ingredients into a customized medication, and many payers pay separately for the pharmacist’s preparation work in addition to ingredient cost and the dispensing fee. When the payer pays less than billed for that preparation component, or recalculates it, it reports the difference with CARC 266.

Pharmacy benefit managers often set compounding fees in network agreements and can vary them by the type or complexity of the compound. Some plans limit or exclude compounded drug coverage altogether, or require prior authorization for compounds above certain costs. Each of those rules can lead to a CO-266 adjustment.

Most CO-266 amounts reach you through pharmacy (NCPDP) claim responses and the related remittance. Medical practices that bill compounded medications on professional claims might see pharmacy-based pricing rules applied too, depending on the payer.

Common causes

  • Compounding fee above the contracted amount in the pharmacy network agreement.
  • Plan limits on compound coverage, such as caps on the compounding fee or on total compound cost.
  • Ingredients excluded from coverage, which can lower the compound’s payable components.
  • Compound complexity level submitted differently from what the payer recognizes.
  • Missing or incomplete compound ingredient detail on the claim, leading the payer to price at a default level.

How to handle it

  1. Review the claim response for any reject or remark codes explaining the adjustment.
  2. Check your network agreement and the plan’s compound pricing policy for fee levels and limits.
  3. Confirm ingredient detail was submitted completely, including each ingredient’s NDC and quantity.
  4. If the payer applied the wrong level or fee, contact the PBM’s pharmacy help desk or follow its audit and appeal process.
  5. If the claim data was wrong, reverse and resubmit the claim with corrected information, following the payer’s rules for pharmacy claim corrections.
  6. Don’t bill the patient for a CO adjustment.

How to prevent it

  • Keep PBM compound policies on file and check them when adding new formulas.
  • Submit complete ingredient-level detail on every compound claim.
  • Verify coverage and prior authorization needs for high-cost compounds before dispensing.
  • Track compound adjustments by payer. An ERA Analyzer can surface trends in CO-266 amounts so you can spot underpayments against your agreements.

Specialty notes

Compounding pharmacies, dermatology and pain practices that prescribe compounded topicals, and veterinary-adjacent human compounding services see this code most. Payers have tightened compound policies over time, so recheck coverage for formulas that used to pay.

Remark codes that may appear with CO-266

  • N130 (Consult plan benefit documents/guidelines for information about restrictions for this service.): Points to plan documents describing limits on compounded drug coverage.
  • CO-90 (Ingredient cost adjustment.): Ingredient cost adjustment, the drug ingredient portion of a pharmacy claim.
  • CO-91 (Dispensing fee adjustment.): Dispensing fee adjustment, the fee paid for dispensing the prescription.
  • CO-45 (Charge exceeds fee schedule/maximum allowable or contracted/legislated fee arrangement.): A general fee schedule reduction, used across claim types.
  • CO-205 (Pharmacy discount card processing fee): Pharmacy discount card processing fee, another pharmacy-specific adjustment.

CO-266 FAQ

Who sees CO-266?

Mainly pharmacies, especially compounding pharmacies, and sometimes providers billing compounded medications on medical claims where a payer applies pharmacy pricing rules.

Is CO-266 a denial?

Not necessarily. It shows the compounding portion of the payment was adjusted. The ingredient cost and dispensing fee may still be paid.

How do I check a CO-266 amount?

Compare it with the compounding fee terms in your pharmacy network agreement or the plan's pharmacy payment policy, including any levels based on the complexity or number of ingredients.

Can the patient be billed?

Only if the payer reports the amount as patient responsibility (PR) and the plan's rules allow it. Under CO, it's a contractual reduction.