CO-75 is a direct medical education adjustment. It tells a teaching hospital that the payer took out, or added, money tied to the cost of training residents. That covers things such as their pay and the doctors who teach them. It’s not a denial, and it’s never a patient bill. The tricky part is that Medicare doesn’t pay this money claim by claim. It pays most of it through the hospital’s yearly cost report. So a CO-75 on a claim almost always comes from a contract that put training costs into the rate and then took them back out. (Primary sources: X12 Claim Adjustment Reason Codes · CMS Direct Graduate Medical Education).
In brief: CO-75 means “Direct Medical Education Adjustment.” It’s a contract change for the cost of training residents. Medicare pays these costs mostly through the cost report, not per claim. Some plans take training costs out of their rates, and the hospital gets that money from somewhere else. Read the contract and check that the cut is allowed. Then make sure the stay was reported, so the hospital still gets its training money.
Part of our denial codes library. Written by Manikandan J, CPC, CRCR, who has reconciled hospital inpatient payments for payers and billing companies. Published 20 October 2026. Last updated: 20 October 2026. Code wording is quoted word for word from X12.
Official X12 entry for CARC 75
| Field | Official X12 text |
|---|---|
| Description | “Direct Medical Education Adjustment.” |
| Start | 01/01/1995 |
Source: X12 Claim Adjustment Reason Codes, checked 20 October 2026.
Denial code 75, CARC 75 and reason code 75
When a report says denial code 75, a remit says CARC 75, or a teammate says reason code 75, they mean this adjustment. The CO group shows it comes from the contract.
DGME vs IME: two kinds of education money
Direct graduate medical education is the payment for the direct costs of training residents, such as resident pay, teaching doctors’ time and program overhead. People call it DGME. Indirect medical education is a separate add-on, called IME, for the higher patient care costs of a teaching hospital. A cost report is the yearly financial filing a hospital sends to Medicare, where many costs are settled.
| DGME (CARC 75) | IME (CARC 74) | |
|---|---|---|
| What it pays for | Resident salaries, teaching staff, program costs | Higher patient care costs in a teaching setting |
| How Medicare pays it | Mostly through the cost report | Added to each inpatient claim |
| Based on | Resident count, per-resident amount and Medicare share of days | Resident-to-bed ratio |
| Typical claim-level code | 75 | 74 |
CMS explains how DGME payments are calculated.
Where CO-75 comes from in practice
Medicare Advantage. Original Medicare pays teaching hospitals education amounts for MA patients outside the MA plan. The hospital sends an information-only claim to its Medicare contractor with condition codes 04 and 69, as described by Noridian. An MA plan that pays at Medicare rates may then remove education pieces and report CARC 75.
Medicaid. Many states pay graduate medical education through separate programs. A Medicaid managed care plan may carve the GME piece out of its claim rate because the state pays it directly.
Commercial contracts. Some contracts start from a Medicare-based rate and exclude education costs. Others include them. The contract decides.
Questions to answer for every CO-75
| Question | Where to look |
|---|---|
| Is the hospital an approved teaching hospital this year? | GME office and cost report |
| Does the contract carve out education costs? | Payer contract rate exhibit |
| Was the carve-out amount calculated correctly? | Contract formula, current factors |
| Was the MA stay sent to the Medicare contractor? | Condition codes 04 and 69 on the shadow claim |
| Does the state pay GME separately for Medicaid? | State Medicaid GME program rules |
How to work a CO-75 line
- Identify the payer type, such as MA, Medicaid managed care or commercial.
- Read the contract’s education terms. Note if DGME, IME, or both are carved out.
- Check the claim. For example, confirm that the shadow claim for an MA stay went to the Medicare contractor.
- Recalculate the carve-out with the hospital’s current figures if the plan computes it itself.
- Post it when the carve-out matches the contract.
- Dispute it when the contract doesn’t allow a carve-out or the math is off.
Worked example (illustrative)
A teaching hospital’s contract with a commercial plan pays a set percent of Medicare’s inpatient rate, but its rate exhibit says education payments are excluded. A remit shows CAS*CO*75*640.00 and CAS*CO*74*1100.00. The analyst checks the contract. Only IME is excluded, not direct education. She files a payment dispute that cites the rate exhibit, and the plan returns the CARC 75 amount. Consider the same claim from an MA plan whose contract excludes both. There, the right move is to make sure the shadow claim reached the Medicare contractor.
Prevention checklist
- [ ] Record each contract’s education carve-out terms by payer.
- [ ] Make sure every MA inpatient stay creates a shadow claim with codes 04 and 69.
- [ ] Share resident counts and factors between the GME office and the billing team.
- [ ] Review CO-74 and CO-75 together in one payment report.
- [ ] Flag CARC 75 from payers whose contracts don’t allow it.
Related codes
- CO-74: indirect medical education adjustment.
- CO-69: day outlier amount.
- CO-45: charge exceeds fee schedule or contracted amount.
- CO-23: impact of prior payer adjudication.
- Full CARC and RARC list for code lookups.
- Denial codes hub for every code we cover.
Key takeaways
CO-75 is a contract change for the cost of training residents. Medicare pays DGME mostly through the cost report. So a CO-75 on a claim usually means a payer took training costs out of its rate. Read the contract and check the math. Keep MA shadow claims going out, and fight cuts the contract doesn’t allow.
FAQ
What does CO-75 mean?
It means the payer made a direct medical education adjustment, removing or adding education costs on the claim.
Is CO-75 a denial?
No. It’s a payment adjustment. It’s never billed to the patient.
How is DGME different from IME?
DGME pays the direct costs of training residents. IME pays the higher patient care costs of a teaching hospital.
Does Medicare pay DGME on each claim?
Mostly no. Medicare pays DGME through the hospital’s cost report, based on resident counts and Medicare’s share of days.
Why does an MA plan send CO-75?
Its contract may remove education costs because Original Medicare pays teaching hospitals for MA patients separately.
What should I do if the contract doesn’t allow a carve-out?
File a payment dispute and cite the rate exhibit.
Sources
How we checked: every code quote on this page was compared word for word with the X12 CARC list on 20 October 2026.
- X12, Claim Adjustment Reason Codes (CARC 74, 75). Accessed 20 Oct 2026.
- CMS, Direct Graduate Medical Education (DGME). Accessed 20 Oct 2026.
- Noridian JE Part A, Medicare Advantage inpatient claim shadow billing. Accessed 20 Oct 2026.
Last updated: 20 October 2026 · This page is educational and doesn’t replace payer contracts or coding rules.