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CO-74 Denial Code: Indirect Medical Education Adjustment

CARC 74 is an indirect medical education (IME) adjustment. Teaching hospitals receive IME add-on payments to reflect higher patient care costs associated with training residents. The code shows the IME portion of the payment, or its removal when a payer carves it out.

Quick facts

Code
CO-74 (CARC 74)
Status
Active In use since January 1, 1995.
Code set
Claim Adjustment Reason Codes (CARC)
Group codes
  • CO (Contractual Obligation): The usual group. The adjustment is part of the payer's payment calculation and isn't billed to the patient.
  • OA (Other Adjustment): Some payers use OA to report IME amounts that are informational only.
Official description
Indirect Medical Education Adjustment.
X12 Claim Adjustment Reason Codes, retrieved September 25, 2026
Last verified
against the official X12 list.

What CARC 74 means

CARC 74 is the indirect medical education (IME) adjustment. Teaching hospitals with approved residency programs tend to have higher patient care costs, partly because of training activities and partly because they treat more complex patients. Medicare recognizes this with an IME add-on to inpatient prospective payments, calculated from the hospital’s ratio of interns and residents to beds. Other payers may follow a similar approach or exclude it.

On a remittance, CARC 74 can show two different things:

  • An IME add-on included in the payment, often shown as a negative adjustment amount (which increases payment on an 835).
  • An IME carve-out, where a payer removes the IME component because it isn’t part of its payment responsibility.

This is an institutional code. Physician practices don’t normally see it.

Example: a teaching hospital treats a Medicare Advantage member. The plan’s contract pays the DRG rate without the IME add-on, so the remittance shows the IME portion removed with CARC 74. The hospital then looks to traditional Medicare for the IME amount, following Medicare’s instructions for IME-only claims, rather than disputing the plan’s payment.

Common causes

  • Teaching hospital inpatient claims under Medicare or a payer that follows Medicare’s methodology.
  • Medicare Advantage contracts that exclude IME because the hospital claims it from traditional Medicare.
  • Contract terms that specify rates with or without medical education components.
  • Changes in the hospital’s IME factor not yet reflected in payer pricing.

How to check it

  1. Read the contract for how IME is handled: included, excluded, or paid separately.
  2. Confirm the hospital’s current IME factor used by the payer.
  3. Compare the payment to the expected rate with or without IME.
  4. For Medicare Advantage patients, confirm that any IME-only claims to traditional Medicare were submitted as required.
  5. Dispute only when the IME treatment conflicts with your contract.

How to prevent problems

  • Document medical education terms in every inpatient contract.
  • Update payer pricing when the hospital’s IME factor changes.
  • Track IME adjustments separately from denials. An ERA Analyzer can separate CARC 74 lines so reviewers can compare them to contract terms.

Remark codes that may appear with CO-74

  • N381 (Alert: Consult our contractual agreement for restrictions/billing/payment information related to these charges.): Directs you to the contract, which may define whether IME is included or carved out.
  • CO-75 (Direct Medical Education Adjustment.): Direct medical education adjustment, covering direct costs of training programs.
  • CO-76 (Disproportionate Share Adjustment.): Disproportionate share adjustment, another hospital-level add-on.
  • CO-70 (Cost outlier - Adjustment to compensate for additional costs.): Cost outlier adjustment, another component of the inpatient payment.
  • CO-45 (Charge exceeds fee schedule/maximum allowable or contracted/legislated fee arrangement.): Standard contractual reduction to the allowed amount.

CO-74 FAQ

What is indirect medical education?

IME recognizes that teaching hospitals tend to have higher patient care costs than non-teaching hospitals, related to their training programs and patient mix. Medicare pays it as a percentage add-on to inpatient PPS payments, based on the hospital's ratio of residents to beds.

Why would a Medicare Advantage plan remove IME?

For Medicare Advantage enrollees, teaching hospitals can generally claim IME directly from traditional Medicare, so some MA contracts exclude IME from the plan's payment. Check your contract and Medicare's billing instructions.

Should I appeal a CO-74 reduction?

Only if your contract says IME is included in the payer's payment and the payer removed it. Otherwise, it may be a correct carve-out.

Is CO-74 a denial?

No. It reports one component of how the facility payment was calculated. Treat it as a contract variance question, not a denial to rework.