CO-135 Denial Code

CO-135 denial code means “Interim bills cannot be processed.” This denial occurs when you submit a claim for ongoing treatment or services before the episode of care is complete, and the payer requires a final bill with all services consolidated. The immediate action required is to hold the claim until the patient’s episode of care concludes, then resubmit as a final bill with all related services included. This denial affects 25-30% of inpatient hospital claims and long-term care facilities, potentially delaying cash flow by 60-90 days if not managed properly through proper interim billing strategies.

Root Causes of CO-135 Denial code

CO-135 denials primarily occur in healthcare settings where patient care extends over multiple days or billing periods, creating confusion about when to submit claims for payment. Hospitals frequently encounter this denial when submitting claims for ongoing inpatient stays before discharge, particularly in intensive care units where length of stay is unpredictable.

Long-term care facilities face CO-135 denials when submitting claims for residents with extended stays that cross monthly billing periods. The denial occurs because Medicare and many commercial payers prefer to process complete episodes of care rather than partial treatment claims that may result in fragmented payment patterns.

Skilled nursing facilities experience this denial when patients have complex rehabilitation stays that require ongoing assessment and treatment plan modifications. Payers issue CO-135 denials to prevent duplicate payments and ensure that all related services are bundled appropriately under prospective payment systems.

The underlying issue stems from payer payment methodologies that favor episode-based reimbursement over fee-for-service billing. Insurance companies use CO-135 denials to enforce their preferred billing cycles and prevent potential overpayments that could occur with multiple interim submissions.

What to Check: Specific Form Fields and Documentation

UB-04 Form Critical Areas:

• Form Locator 4 (Type of Bill): Should show “1” (hospital inpatient) in the first digit, not “2” (hospital interim)
• Form Locator 6 (Statement Covers Period From-Through): Ensure dates reflect complete episode, not partial stay
• Form Locator 12 (Admission Date): Must match the actual admission date for episode billing
• Form Locator 13 (Admission Hour): Required for inpatient episodes
• Form Locator 17 (Patient Discharge Status): Should reflect actual discharge, not interim status

CMS-1500 Form Essential Fields (for applicable services):

• Box 14 (Date of Current Illness/Injury): Should reflect episode start date
• Box 18 (Hospitalization Dates): Complete admission through discharge dates
• Box 19 (Additional Claim Information): Note any ongoing treatment requirements
• Box 24A (Dates of Service): Should span complete treatment episode

Billing Type Code Reference:

Bill Type	First Digit	Second Digit	Third Digit	When to Use
111	1 (Inpatient)	1 (Inpatient)	1 (Admit-Discharge)	Complete inpatient stay
112	1 (Inpatient)	1 (Inpatient)	2 (Interim-First)	First interim bill only
113	1 (Inpatient)	1 (Inpatient)	3 (Interim-Continuing)	Subsequent interim bills
114	1 (Inpatient)	1 (Inpatient)	4 (Interim-Last)	Final interim before discharge

Documentation Requirements Checklist:

• Patient admission orders and treatment plan
• Discharge planning documentation (for final bills)
• Medical necessity documentation for extended stays
• Insurance verification showing interim billing policies
• Prior authorization for extended care (if required)

Prevention Strategies

Step 1: Implement Episode-Based Billing Protocols Establish clear policies defining when interim billing is appropriate versus waiting for final discharge. Create decision trees that help billing staff determine the correct billing approach based on patient status and payer requirements.

Step 2: Payer-Specific Interim Billing Verification Research each major payer’s interim billing policies before submitting claims. Medicare allows interim bills for stays exceeding 60 days, while many commercial payers require final billing only. Document these policies in your billing manual.

Step 3: Automated Billing Hold Systems Configure your practice management system to automatically flag accounts that may generate CO-135 denials. Set up alerts for inpatient stays approaching discharge or long-term care residents nearing billing cycle ends.

Step 4: Cash Flow Management Planning Develop financial projections that account for delayed billing cycles in episode-based care. Establish credit lines or payment arrangements that accommodate the extended billing timelines required for complete episode submission.

Step 5: Patient Status Monitoring Implement daily patient status reviews to identify patients approaching discharge or treatment completion. Create workflows that trigger billing preparation activities 48-72 hours before anticipated episode conclusion.

Resolution Process: Step-by-Step Fix

Step 1: Verify Patient Status (Day 1) Immediately check the patient’s current status to determine if they are still receiving care or have been discharged. Access the medical record to confirm episode completion status and review discharge planning notes.

Step 2: Assess Billing Appropriateness (Day 2) Determine whether the claim should have been submitted as an interim bill or if the episode was truly complete. Review payer contracts to understand their specific interim billing policies and requirements.

Step 3: Hold or Resubmit Decision (Day 3-5) If the patient is still receiving care, place the claim on hold until episode completion. If the episode is complete but was incorrectly coded, prepare a corrected claim with appropriate bill type codes and complete service dates.

Step 4: Gather Complete Episode Documentation (Day 6-10) Collect all services, procedures, and charges related to the complete episode of care. Ensure all departments have submitted their charges and that the patient’s account reflects the total scope of treatment provided.

Step 5: Prepare Final Bill Submission (Day 11-15) Code the claim with appropriate final bill type indicators and ensure all related services are included. Attach supporting documentation that demonstrates medical necessity for the complete episode of care.

Step 6: Submit with Clear Episode Documentation (Day 16) Resubmit the claim marked as “CORRECTED CLAIM” with complete episode information. Include a cover letter explaining the CO-135 denial resolution and referencing the complete episode documentation provided.

Appeal Process: Forms, Timelines, and Steps

First-Level Appeal Requirements:

Medicare Timeline: 120 days from initial denial

• Use Form CMS-20027 (Medicare Redetermination Request)
• Include complete medical records for entire episode
• Provide itemized statement showing all related services

Commercial Payer Timelines:

• Standard: 180 days (verify contract terms)
• Required: Payer-specific appeal forms
• Documentation: Complete episode medical necessity justification

Medicaid Timeline: 60-90 days (varies by state)

• State-specific appeal forms required
• Include discharge planning documentation
• Provide evidence of completed episode of care

Essential Appeal Documentation:

1. Original EOB showing CO-135 denial
2. Complete medical record for entire episode
3. Discharge summary or treatment completion notes
4. Itemized billing statement for all related services
5. Medical necessity documentation for extended care
6. Payer contract excerpts regarding interim billing policies

Appeal Letter Template Structure:

RE: First-Level Appeal - CO-135 Denial Resolution
Claim Number: [Number]
Patient: [Name and Member ID]
Admission Date: [Date]
Discharge Date: [Date]

This appeal addresses the CO-135 denial for interim billing. The submitted claim represents a complete episode of care as follows:
- Patient was admitted on [date] for [condition]
- Treatment concluded on [date] with [outcome]
- All related services are included in this final bill
- Episode meets medical necessity criteria throughout treatment period

Enclosed documentation supports complete episode billing rather than interim submission.

Independent Review Process: If first-level appeals are unsuccessful, request independent medical review focusing on the appropriateness of episode-based billing versus interim submission policies. Include clinical evidence supporting the treatment timeline and medical necessity.

Tools & Software Recommendations

Episode Management Platforms:

Software Solution	Key Features	Best For	Implementation Cost
Epic Resolute	Automated episode tracking and billing holds	Large hospital systems	$50K-100K setup
Cerner PowerChart	Integrated clinical and billing episode management	Multi-facility health systems	$75K-150K setup
MEDITECH Expanse	Real-time patient status and billing coordination	Community hospitals	$25K-75K setup
NextGen Inpatient	Specialized inpatient episode billing workflows	Specialty hospitals	$15K-50K setup

Interim Billing Management Tools:

• McKesson InterQual: Clinical decision support for appropriate billing timing
• Allscripts Sunrise: Patient flow management with billing integration
• athenahealth: Cloud-based episode tracking and revenue cycle management

Automated Alert Systems:

Alert Type	Trigger Criteria	Action Required
Extended Stay	Inpatient >30 days	Review interim billing need
Discharge Pending	Discharge order entered	Prepare final bill
Episode Complete	Treatment plan concluded	Submit final claim
Billing Hold	CO-135 denial received	Verify patient status

Cash Flow Management Tools: Implement accounts receivable aging reports that separate interim billing holds from standard denials. Use predictive analytics to forecast cash flow impacts from episode-based billing delays.

Staff Training Steps

Phase 1: Understanding Episode vs. Interim Billing (Week 1)

Training Component	Duration	Learning Objectives
Billing Type Codes	3 hours	Master UB-04 bill type coding for different scenarios
Payer Policy Review	2 hours	Understand major payer interim billing requirements
Episode Identification	2 hours	Recognize when episodes are complete vs. ongoing

Phase 2: System Workflow Training (Week 2) Train staff on practice management system features for episode tracking and billing holds. Practice identifying patients approaching episode completion and preparing final bills.

Phase 3: Resolution Procedures (Week 3) Hands-on training using real CO-135 denial scenarios. Role-play patient status verification and corrected claim preparation. Practice appeal writing for different payer types.

Competency Assessment Requirements:

• Correctly identifies appropriate bill types for different patient scenarios
• Can verify patient status and episode completion in medical records
• Understands payer-specific interim billing policies
• Can prepare corrected claims with proper episode documentation
• Knows appeal procedures and documentation requirements for major payers

Monthly Refresher Training Topics:

• Updates to payer interim billing policies
• New episode-based payment models
• Technology updates for episode tracking
• Case studies from recent CO-135 resolutions

Financial Impact & Key Performance Indicators

Cost Analysis of CO-135 Denials: Each CO-135 denial costs an average of $275 in administrative overhead, including extended billing cycles, additional staff time for episode verification, and delayed cash flow management. High-volume inpatient facilities processing 500 claims monthly with a 5% CO-135 denial rate face $6,875 in monthly administrative costs.

Revenue Cycle Impact:

• Average claim value affected: $3,500-8,500 (inpatient episodes)
• Extended billing cycle: 45-60 additional days
• Cash flow delay: $175,000-420,000 monthly for large facilities
• Resolution success rate: 92% when proper episode documentation is provided

Key Performance Indicators:

KPI Metric	Target Goal	Measurement Method	Reporting Frequency
CO-135 denial rate	<2% of inpatient claims	Monthly denial analysis	Weekly dashboard
Episode completion accuracy	>95% correct bill types	Bill type audit	Monthly
Average days in A/R for episodes	<45 days	Aging report analysis	Bi-weekly
Interim billing appropriateness	100% policy compliance	Payer contract review	Quarterly
Appeal success rate	>90%	Appeal outcome tracking	Monthly

Benchmark Performance Standards:

• Top-performing hospitals maintain CO-135 denial rates below 1.5%
• Average resolution time for CO-135 denials: 18-25 days
• Best-practice facilities achieve 95%+ appeal success rates through proper documentation

Financial Forecasting Considerations: Budget for extended accounts receivable cycles when treating high numbers of extended-stay patients. Factor interim billing delays into cash flow projections and establish appropriate credit facilities to manage revenue timing gaps.

Real-World Case Study

Patient: Robert Chen, Insurance: Medicare Part A, Denial Code: CO-135, Amount: $23,847

Scenario: Robert was admitted to Metro General Hospital for pneumonia treatment that developed into respiratory failure requiring 28 days in the ICU. The hospital’s billing department submitted an interim claim on day 15 of the stay to improve cash flow, but Medicare denied it with CO-135, stating that interim bills cannot be processed for this type of stay.

Resolution Steps:

1. Day 1: Billing department received Medicare EOB with CO-135 denial
2. Day 2: Verified that Robert was still an inpatient receiving active treatment
3. Day 3: Reviewed Medicare policies confirming interim bills are only allowed for stays >60 days
4. Day 4: Placed claim on billing hold pending discharge
5. Day 18: Robert was discharged to skilled nursing facility
6. Day 19: Collected all departmental charges including ICU, respiratory therapy, pharmacy, and laboratory
7. Day 21: Prepared final bill with complete episode documentation
8. Day 22: Submitted corrected claim with bill type 111 (admit through discharge)
9. Day 44: Received full payment of $23,847 from Medicare

Outcome: Total resolution required 44 days from initial denial, with payment received in full. The hospital invested 12 hours of billing staff time and learned to modify their interim billing triggers for Medicare patients.

Lesson Learned: The hospital implemented new billing protocols that prevent interim bill submission for Medicare patients with stays under 60 days. They also established automated alerts to flag potential CO-135 scenarios before claim submission, reducing similar denials by 85% over the following quarter.

Process Improvement Result: The case led to comprehensive staff retraining on payer-specific interim billing policies and implementation of decision-support tools that guide appropriate billing timing based on patient status and payer requirements.

Frequently Asked Questions

Q: When is it appropriate to submit interim bills versus waiting for final discharge? A: Submit interim bills only when payer contracts specifically allow them and the patient stay exceeds the payer’s minimum threshold (typically 60+ days for Medicare). Always verify payer-specific policies before interim billing.

Q: Can I bill the patient while waiting for episode completion? A: No, you cannot bill patients for covered services while waiting to resolve CO-135 denials. Focus on proper episode billing procedures and maintain normal collection processes only after final claim resolution.

Q: How do I handle CO-135 denials for patients who are transferred between facilities? A: Coordinate with the receiving facility to ensure proper episode billing. The transferring facility should bill for their portion of care, while the receiving facility bills for continuing care. Document transfer arrangements clearly.

Q: What if a patient dies before episode completion? A: Submit a final bill immediately upon patient death with appropriate discharge status codes. Death constitutes episode completion for billing purposes, and claims should be processed normally.

Q: Should I appeal CO-135 denials or just resubmit corrected claims? A: If the episode is truly complete and was coded incorrectly, submit a corrected claim. Only appeal if you believe the interim bill was appropriate according to payer policies and have documentation supporting your position.

Q: How do I prevent CO-135 denials in skilled nursing facilities? A: Implement patient assessment schedules that align with Medicare assessment periods (days 5, 14, 30, 60, 90). Submit claims only after completing required assessments that establish the next payment period.

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Key Action Items for Immediate Implementation:

1. Audit current interim billing practices against payer contracts
2. Implement automated alerts for potential CO-135 scenarios
3. Train staff on episode identification and appropriate billing timing
4. Establish patient status monitoring workflows
5. Create cash flow management strategies for extended billing cycles
6. Develop payer-specific interim billing policy documentation