A member hands over a card that names one insurer, and the authorization is decided by a company the card does not mention. That is a behavioral health carve out: the plan keeps the medical benefit and delegates mental health and substance use disorder coverage to a managed behavioral health organization or a regional Medicaid plan. Eligibility, prior authorization and claims routing all move to that entity. Every one of those handoffs is a place where a claim can sit, deny or get paid late.
What this covers
- A carve out moves three things: who confirms eligibility, who decides prior authorization, and which payer ID receives the claim.
- Run the 270/271 against the entity that administers behavioral health. The 271 response names the payer that will adjudicate.
- CARC 109 means the claim reached an entity with no financial responsibility for it. The descriptor tells you to send it to the correct payer.
- Under 42 CFR 438.210, Medicaid managed care standard authorization decisions drop from 14 calendar days to 7 for rating periods starting on or after January 1, 2026, and expedited decisions are due in 72 hours.
- Credentialing with the medical plan does not put a clinician in the behavioral health network. The carve out entity runs its own panel and its own contract.
The card names the company that sold the plan. It does not always name the company that reads the authorization or pays the claim.mismatched routing is where most carve out denials begin
Carve outs are not an exception. They are the default structure in much of commercial group coverage, in Medicaid managed care and in parts of Medicare Advantage.
What a carve out actually changes
A carve out separates mental health and substance use disorder benefits from the medical plan and hands them to a specialized administrator. In commercial coverage that administrator is usually a managed behavioral health organization. In Medicaid managed care it is often a prepaid inpatient or prepaid ambulatory health plan. The member keeps one card; the behavioral health benefit runs on different rules.
Delegation does not move accountability. Under 42 CFR 422.504(i), a Medicare Advantage organization keeps ultimate responsibility for its contract with CMS no matter how many first tier or downstream entities it uses. Under 42 CFR 438.230, a Medicaid managed care contract must name the delegated activities and reporting, keep a remedy for poor performance, and preserve state and federal audit rights through 10 years from the end of the contract period.
A clinician can be in network for the medical plan and out of network for the behavioral health carve out. The two networks hold separate contracts, separate fee schedules and separate credentialing files. Signing with the wrong one produces claims that deny for no network relationship even though the member is covered.
The split is often partial, which is harder to track than a clean separation. A plan may carve out only applied behavior analysis, billed in 15-minute units of 97153, or only inpatient psychiatric care. Two entities then share the same member and the same date of service, and the benefit being billed decides which one pays.
Read the card and the 271 before the first visit
Front desk staff who call the number printed on the card often reach the medical plan, which cannot see behavioral health benefits. Start with the back of the card. Carve out entities usually print a second company name, a dedicated behavioral health number or a portal address that is not the medical plan’s.
Look for a second company name, a behavioral health phone number or a portal that does not belong to the medical plan.
Send the eligibility inquiry under the payer ID you believe owns the behavioral health benefit. The 271 response names the payer that will adjudicate.
Note the date, the method, the reference number, the covered levels of care and whether prior authorization applies.
Members often hold correspondence from the carve out entity, including an authorization letter or a second member ID.
If the medical plan’s portal returns no behavioral health benefit, the benefit is probably administered elsewhere. Do not read that as ineligibility, and do not bill the patient as self pay until the carve out entity has been checked directly.
For Medicaid members the same check carries a second question: which program pays for this level of need. Michigan assigns mild to moderate behavioral health needs to the Medicaid health plan and serious mental illness, serious emotional disturbance and intellectual or developmental disability services to the regional prepaid inpatient health plan.
Where the claim goes, and why CO-109 shows up
Authorization and claims do not always travel together. At one plan the carve out entity decides prior authorization while claims still submit under the parent payer ID. At another the claim goes to the carve out entity’s own ID, with separate EDI enrollment and separate electronic remittance enrollment. The payer ID tied to the member’s product decides, not the name on the card.
| Step | Medical benefit | Behavioral health carve out |
|---|---|---|
| Eligibility | Medical plan payer ID | Carve out entity payer ID, confirmed by the 271 |
| Prior authorization | Medical plan utilization management | Carve out entity clinical reviewers and criteria |
| Claim submission | Medical plan payer ID | Often the carve out entity’s payer ID, per contract |
| Electronic remittance | Medical plan ERA enrollment | Separate ERA and EFT enrollment may be required |
| Credentialing | Medical plan panel | Carve out entity panel, own application and contract |
| Clinical appeals | Medical plan appeal unit | Carve out entity peer review and appeal process |
When a claim reaches an entity with no financial responsibility for the service, the remittance carries CARC 109: Claim/service not covered by this payer/contractor. You must send the claim/service to the correct payer/contractor. That is a routing instruction, not a coverage decision. The service may be fully covered and the claim still lands in the wrong system.
Rebill the correct entity inside its timely filing window and keep the 835 that shows the routing denial in the new claim’s file. Two other codes matter at the same moment: CARC 197 for a precertification, authorization or notification that is absent, and CARC 198 for one that was exceeded. Both point at a packet problem rather than a routing problem, and both are worth an appeal.
CARC 109 sits under the contractual obligation group code, so the balance cannot be shifted to the member. It is also one of the few denials a corrected claim fixes without a formal appeal.
Medicaid carve outs look different
States build their own structure, and several use limited benefit plans that exist only for behavioral health. A prepaid inpatient health plan covers inpatient services and the specialty services built around them. A prepaid ambulatory health plan covers ambulatory services. Both are managed care entities under 42 CFR Part 438.
Michigan routes specialty behavioral health through regional prepaid inpatient health plans and community mental health services programs. Office based substance use treatment follows the provider’s contract rather than the diagnosis: a practice with a specialty substance use disorder contract with the plan bills that plan, and a practice without one bills the Medicaid health plan.
North Carolina split the population instead. Behavioral health and I/DD Tailored Plans launched on July 1, 2024, run by four local management entity and managed care organizations, including Alliance Health, Partners Health Management, Trillium Health Resources and Vaya Total Care. Members with milder needs stay in a Standard Plan run by a commercial Medicaid managed care organization.
New York carved certified community behavioral health clinic services out of Medicaid managed care entirely, and those claims go to Medicaid fee for service on an institutional 837I claim.
Administrators change on contract cycles. TRICARE moved its West Region to TriWest Healthcare Alliance on January 1, 2025, kept Humana Military in the East and moved six states between the two regions. Referrals and pre-authorizations issued by the previous West contractor before that date were honored only through their expiration or June 30, 2025, whichever came first.
TRICARE, Medicare Advantage and the same problem
TRICARE administers applied behavior analysis through the Autism Care Demonstration rather than the standard medical benefit. The demonstration began on July 25, 2014 and is authorized through December 31, 2028. Authorization and payment go to the regional managed care support contractor: TriWest in the West Region, Humana Military in the East.
Medicare Advantage plans may delegate behavioral health utilization management to a vendor, and the plan remains answerable to CMS for the vendor’s decisions under 42 CFR 422.504(i). The authorization letter can carry the vendor’s name while the appeal rights and decision clocks come from the plan’s Medicare contract.
A carve out does not suspend parity. MHPAEA’s statutory obligations, including the nonquantitative treatment limitation comparative analysis added by the Consolidated Appropriations Act, 2021, remain in effect. The three departments announced on May 15, 2025 that they would not enforce the portions of the 2024 final rule that were new relative to the 2013 rule, and EBSA’s Field Assistance Bulletin 2026-03 kept behavioral health access as an enforcement priority focused on blanket exclusions, medical necessity review and network adequacy.
Keep the payer directory current
A carve out directory is a working document. It holds one row per plan and product, with the fields that decide routing: the administering entity, the claims payer ID, the eligibility payer ID, the portal, the authorization criteria, the credentialing contact and the timely filing limit.
- Entity name, plus any legacy name still loaded in the billing system
- Claims payer ID, with EDI and ERA enrollment status
- Eligibility payer ID used for the 270/271
- Authorization portal, review criteria and concurrent review cadence
- Credentialing contact, panel status and contract effective date
- Timely filing limit, and the date each field was last verified
Refresh the rows on a schedule and on events. The calendar triggers are January 1 for the plan year and any state fiscal year that starts mid year. The event triggers are a contract award, a rebranding, a merger or a state Medicaid bulletin that moves a service between entities.
Two controls catch what the directory misses. Read the remittance for routing codes every week and trace each CARC 109 back to the row that caused it; denial management covers the reporting side of that loop. Confirm panel status in writing before a clinician sees the member, because credentialing tracks the application and the countersigned contract as two separate milestones.
The directory only pays off once it is wired into the workflow. Behavioral health revenue cycle management keeps the administering entity, the authorization end date and the eligibility reference number on one record per patient.
Behavioral health carve out questions
It is an arrangement where the medical plan delegates mental health and substance use disorder benefits to a separate administrator. The member keeps one plan and one card, but behavioral health eligibility, prior authorization, network status and claims run through the delegated entity. Commercial plans usually use a managed behavioral health organization, and Medicaid programs may use a prepaid inpatient or prepaid ambulatory health plan.
Start with the back of the member’s card and look for a second company name or a dedicated behavioral health number. Then run a 270/271 eligibility inquiry under the payer ID you believe owns the benefit, because the 271 response names the payer that will adjudicate.
CARC 109 reads: Claim/service not covered by this payer/contractor. You must send the claim/service to the correct payer/contractor. It means the claim reached an entity with no financial responsibility for the service, which is what happens when behavioral health is carved out to another administrator. The service can still be covered. Rebill the correct entity instead of appealing a routing denial.
Usually not. The carve out entity runs its own network, its own application and its own participation agreement, so a clinician credentialed with the medical plan can still be out of network for behavioral health. Confirm panel status in writing, and confirm the contract is countersigned before the first appointment. An approval letter is not participation.
Under 42 CFR 438.210, expedited decisions are due within 72 hours. For standard decisions, rating periods that started before January 1, 2026 allowed up to 14 calendar days, and rating periods starting on or after that date allow no more than 7 calendar days. A plan may extend the standard window by up to 14 additional calendar days.
No. MHPAEA applies to the plan that provides the benefit, and delegating administration does not remove the obligation. The statutory requirements, including the nonquantitative treatment limitation comparative analysis added by the Consolidated Appropriations Act, 2021, remain in effect. The departments announced a nonenforcement policy on May 15, 2025 for the portions of the 2024 final rule that were new relative to the 2013 rule.
The bottom line
A carve out is a routing problem before it is a clinical one. Find the entity that owns eligibility, authorization and payment, put those facts in one directory row, and check the row before the first appointment. The claims that deny for the wrong payer ID never needed an appeal; they needed the right address.
Do your claims reach the right payer the first time?
We map the administering entity, the payer IDs, the authorization rules and the credentialing status for every plan in a behavioral health practice’s mix, then work routing denials back to the row that caused them. Send one month of remittances and your payer list, and we will show you where claims land in the wrong system.
Request a free carve out routing auditThis article describes general billing practice rather than legal or clinical advice; carve out structures and payer requirements vary by plan, state and contract, so confirm them against the current provider manual and your participation agreement.
