> ## Documentation Index
> Fetch the complete documentation index at: https://mso.getlemma.com/llms.txt
> Use this file to discover all available pages before exploring further.
# Step 11: Read your first 835 and get paid
> The remittance advice arrives: allowed amount versus billed, contractual adjustments, patient responsibility, the EFT hitting the PC account, and posting it all.
An **835**, the electronic remittance advice, or ERA, is the payer's line-by-line explanation of what it did with your claim and why. Reading one correctly is the single most useful skill in healthcare revenue operations, because every dollar of the difference between what you billed and what you got is explained in it.
## What Meridian did
Eighteen days after submission, Mrs. Chen's claim adjudicated. An 835 arrived through the clearinghouse and an EFT for \$214.60 landed in the PC operating account two days later. Meridian's biller auto-posted it, reviewed the exception queue, and reconciled the deposit to the remittance. That was the moment Meridian became a revenue-generating business.
## What came back
Meridian billed two lines. Here is what the 835 said, translated out of X12:
| | Line 1: Office visit | Line 2: Biopsy |
| -------------------------- | -------------------- | --------------- |
| **Billed** | \$285.00 | \$195.00 |
| **Allowed** | \$148.32 | \$121.45 |
| **Contractual adjustment** | \$136.68 (CO-45) | \$73.55 (CO-45) |
| **Deductible** | \$0.00 | \$0.00 |
| **Coinsurance** | \$29.66 (PR-2) | \$24.29 (PR-2) |
| **Paid by payer** | \$118.66 | \$97.16 |
| **Patient owes** | \$29.66 | \$24.29 |
\*\*Payer paid: $215.82.** Wait, the EFT was $214.60. That difference is real, and we come back to it below.
## The four numbers that matter
**Billed charge.** What you asked for. Largely fictional: it is your chargemaster rate, and no contracted payer pays it. It matters mainly because you generally cannot be paid more than you billed.
**Allowed amount.** What your contract says the service is worth. This is the real number. It is set by your fee schedule, typically as a percentage of the Medicare Physician Fee Schedule. See [Underpayments, fee schedules, and payer contracts](/concepts/payments/underpayments-and-contracts).
**Contractual adjustment.** Billed minus allowed. You **write this off**. You may not bill the patient for it — that is balance billing, and your participation agreement prohibits it. It arrives as group code **CO** (contractual obligation), usually with **CARC 45**: "Charge exceeds fee arrangement."
**CO-45 is not a denial.** It is the single most common adjustment in healthcare and it means the system worked. New operators panic at the write-off column; the number to watch is the allowed amount, not the adjustment.
**Patient responsibility.** Deductible, copay, or coinsurance. Arrives as group code **PR**, and you **do** bill the patient for it. Miscoding a PR amount as a write-off is how practices quietly lose 10–20% of collectible revenue.
## The adjustment grammar
Every dollar of difference between billed and paid is explained by a triple:
**Group code + CARC (+ optional RARC) = a complete explanation.**
| Group code | Meaning | What you do |
| ---------- | ------------------------- | --------------------------------------------------------------- |
| **CO** | Contractual obligation | Write it off. Cannot bill the patient. |
| **PR** | Patient responsibility | Bill the patient. |
| **OA** | Other adjustment | Usually informational or a transfer, e.g. to a secondary payer. |
| **PI** | Payer-initiated reduction | Payer's decision, not contractual. Often appealable. |
**CARC** (Claim Adjustment Reason Code) says *why*: CARC 45 for fee-schedule reduction, CARC 1 for deductible, CARC 2 for coinsurance, CARC 197 for missing precertification. **RARC** (Remittance Advice Remark Code) adds detail where the CARC alone is ambiguous.
The full working set is in [CARC codes](/reference/edi/carc-codes), [RARC codes](/reference/edi/rarc-codes), and [Group codes](/reference/edi/group-codes).
**Getting the group code wrong corrupts your patient ledger.** Posting a PR amount as CO means you never bill a patient who owes you money. Posting a CO amount as PR means you bill a patient for something your contract says they don't owe, which is a balance-billing problem, not just an error.
## Why the deposit didn't match the remittance
Meridian's 835 totalled $215.82 in claim payments, but the EFT was $214.60. The \$1.22 difference was in the **PLB segment**, provider-level adjustments, which sit outside the claim detail.
PLB carries things that are not about any single claim: takebacks of prior overpayments, interest the payer owes you for late payment, withholds, and capitation-related amounts. In Meridian's case it was a \$1.22 recoupment against an earlier duplicate submission.
This is the concept that breaks naive reconciliation:
**One 835 does not equal one bank deposit.** A single deposit can cover multiple remittances; a single remittance can be split. The **TRN segment** carries a reassociation trace number that links the 835 to the payment — that is how you match them. Reconcile using TRN, not by hunting for matching dollar amounts.
See [The 835: how payers answer](/concepts/payments/understanding-835s) and [835 file anatomy](/reference/edi/835-anatomy).
## Posting it
Your EHR matches the 835 to open claims and posts payments, adjustments, and patient responsibility automatically. A well-configured system auto-posts most lines.
Everything that didn't match: unmatched claim numbers, takebacks, interest, secondary-payer transfers, and anything with an unfamiliar CARC. These need a human.
Sum of claim payments, plus or minus PLB, equals the EFT. If it doesn't, stop and find out why before posting. See [Reconcile payments daily](/guides/payments/reconcile-daily-payments).
Coinsurance and deductible amounts move to the patient ledger and into the statement cycle. See [Run patient statements and balances](/guides/billing/manage-patient-statements).
Any line with a \$0 payment and a denial CARC goes to the denial queue, not to a write-off. See [Work the denial queue](/guides/billing/work-the-denial-queue).
## Where the money landed
The EFT arrived in the **PC operating account**, which is exactly right. From there, in the monthly cycle:
1. The PC pays clinical payroll and its direct expenses.
2. The MSO invoices the PC for the management fee.
3. The PC pays the invoice.
4. The MSO pays everything else.
Not a standing sweep, not a transfer with no invoice. See [Move money between PC and MSO](/guides/banking/move-money-mso-pc).
## You are now a revenue-generating MSO-PC
That is the tutorial. You have two entities, an agreement stack, a credentialed clinician, a payer contract, a billing stack, an accepted claim, an adjudicated remittance, and money in the right bank account.
What you do not yet have is an operating rhythm, the daily and weekly habits that keep clean claim rates high and days in AR low, and the monthly close that keeps two entities' books honest.
## Checklist
* [ ] 835 received for your first claim
* [ ] Allowed, adjustment, and patient responsibility understood line by line
* [ ] EFT confirmed in the **PC** operating account
* [ ] Remittance balanced to the deposit, including PLB
* [ ] Payment posted; exception queue worked
* [ ] Patient balance moved into the statement cycle
* [ ] Any denials routed to the denial queue
## Next
From one paid claim to an operation that runs itself.
## Related topics
- [Post payments from 835s](/guides/billing/post-payments-from-835s.md)
- [Reconcile payments daily](/guides/payments/reconcile-daily-payments.md)
- [The 835: how payers answer](/concepts/payments/understanding-835s.md)
- [Claim denials, explained](/concepts/payments/claim-denials.md)
- [Deductibles, copays, coinsurance, and patient balances](/concepts/payments/patient-responsibility.md)
- [835 file anatomy](/reference/edi/835-anatomy.md)
- [CARC codes (Claim Adjustment Reason Codes)](/reference/edi/carc-codes.md)
- [Group codes (CO, PR, OA, PI)](/reference/edi/group-codes.md)