Top 7 Reasons Mental Health Claims Get Denied in 2025 And How to Prevent Every One

Why Do Mental Health Claims Get Denied?

Navigating the world of mental health insurance can be frustrating, especially when a claim you expected to be covered is suddenly denied. If you have ever received an Explanation of Benefits (EOB) with unfamiliar denial codes or vague reasons like “lack of medical necessity” or “timely filing,” you are not alone.

In 2025, as mental health services continue to gain recognition and demand, insurance claim denials remain a significant barrier to care, impacting both providers and patients. Unlike physical health claims, mental health billing faces unique scrutiny, from documentation standards to the nuances of CPT and ICD-10 coding.

This guide breaks down the top 7 reasons mental health claims are denied, not just listing them, but explaining the context, payer logic, and prevention tactics for each. Whether you are a therapist, medical biller, or someone seeking reimbursement for therapy sessions, this article provides actionable strategies to minimize rejections and recover lost revenue or access to care.

You will also learn:

• How insurance payers interpret mental health documentation differently
• What laws like mental health parity cover (and don’t)
• How to submit error-free claims that are accepted the first time
• What to do step-by-step when your claim is denied

Mental health claim denials are more than technical errors. They are gatekeepers to treatment. Understanding why they happen is the first step toward making sure they don’t.

If you are struggling with denied therapy claims, it’s often due to billing errors that expert mental health billing services can prevent.

Let’s explore the most common reasons for denials and how to prevent them before they occur.

How the Mental Health Claim Process Works

To understand why mental health claims are denied, it’s essential first to understand how the insurance reimbursement process works. Mental health billing follows a complex path, from verifying eligibility and assigning the correct codes to submitting claims and awaiting payer decisions. A single misstep in this process can trigger denials, delays, or underpayments.

Unlike many other medical specialties, mental health claims are often more stringently reviewed due to documentation expectations, frequent policy exclusions, and nuanced interpretation of medical necessity. By understanding what insurers expect and how mental health is treated differently in the reimbursement process, you can begin to identify denial triggers before they occur.

What Payers Require for Mental Health Reimbursement

Insurance companies don’t just look for a billed service. They assess whether that service meets their criteria for reimbursement. For mental health claims to be accepted:

• Diagnosis codes (ICD-10) must support a medically necessary condition, usually listed under the F codes (e.g., F32.1 for Major Depressive Disorder).
• Procedure codes (CPT) must be specific to the service (e.g., 90837 for a 60-minute psychotherapy session).
• Medical necessity must be justified in the clinical documentation (progress notes, treatment plans).
• Pre-authorization may be required for certain services, particularly those involving higher-level or inpatient care.
• Eligibility must be active and reflect mental health coverage at the time of service.

Even if the therapy session occurred and was delivered correctly, missing any of these elements may result in claim rejection.

Difference Between Mental and Physical Health Claim Reviews

Mental health claims face different and often stricter criteria compared to physical health claims. Here’s how:

This variance is why mental health providers often experience higher denial rates, even when services are entirely legitimate and medically necessary.

How Mental Health Parity Laws Impact Denials

The Mental Health Parity and Addiction Equity Act (MHPAEA) requires insurers to treat mental health services on equal footing with physical health services. But that doesn’t mean equal approval rates.

Here’s how parity laws affect denials:

• What they don’t do: Guarantee coverage for all therapy services or override medical necessity criteria.
  
• What they do: Prevent insurers from imposing more restrictive limits (like visit caps or higher copays) on mental health than on medical care.

Insurers can still deny a claim if:

• The service isn’t covered under the plan.
• The diagnosis isn’t on the approved list.
• Documentation doesn’t support ongoing treatment.

Understanding parity laws empowers you to challenge unfair denials. Still, it doesn’t remove the need to follow payer-specific billing protocols.

Top 7 Reasons Mental Health Claims Get Denied

Even when a therapy session is delivered effectively and ethically, the claim can still be denied due to issues in documentation, coding, or payer requirements. Understanding the top denial reasons gives you the leverage to fix billing workflows, reduce rejections, and optimize revenue.

Below are the seven most common reasons mental health claims are denied in 2025, based on payer audits, real-world billing data, and denial code patterns.

1. Missing or Incomplete Documentation

Insurance companies rely heavily on documentation to justify treatment. If a note is vague or missing key components (e.g., diagnosis, goals, progress, time spent), the claim is likely to be denied.

Example: A session note for a 60-minute psychotherapy visit (CPT 90837) lacks a time duration and is denied for insufficient documentation (Denial Code: CO-16).

Prevention Tips:

• Use standardized SOAP or DAP note formats.
• Include time spent, client presentation, intervention, and response.
• Always attach updated treatment plans for ongoing care.

2. Incorrect CPT or ICD-10 Codes

A mismatch between diagnosis and procedure codes often triggers denials. For Example, using 90837 (60-minute therapy) with Z63.0 (problems in relationship with spouse) may not meet criteria for medical necessity.

Common Coding Errors:

• Using outdated or deleted codes
• Billing 90834 when the session lasted 60 minutes
• Pairing therapy codes with non-billable diagnoses (e.g., adjustment issues without F-code)

Real Example: “Claim denied due to unsupported CPT/ICD combination” (Denial Code: PR-49).

Fix: Use an updated CPT/ICD crosswalk and verify codes before claim submission.

3. Lack of Medical Necessity Justification

Even if services are clinically helpful, insurers want proof that they are medically necessary. That means:

• Diagnoses must align with DSM-5 and ICD-10 standards
• Treatment goals must be tied to functional impairments
• Progress notes must reflect changes over time

Example: Claim for F41.1 (Generalized Anxiety) denied for “lack of progress documentation.”

Tip: Include measurable outcomes, not just subjective updates.

4. Eligibility or Coverage Expired

Claims are often denied because the patient’s insurance was inactive or had changed during the time of service.

Common Denial Message: “Coverage not in effect on date of service” (Denial Code: CO-27)

Checklist:

• Verify coverage before every appointment
• Re-check after calendar year transitions or known plan changes
• Save verification screenshots or logs

5. Prior Authorization Not Obtained

Many insurance plans, especially those covering intensive or longer-term therapy, require pre-approval. Missing this step is a fast track to denial, even if all other details are correct.

Scenario: An initial intake session was covered, but weekly sessions were denied due to missing pre-auth code.

Solution: Maintain a pre-authentication tracker or automate it through your EHR system.

6. Incorrect Provider Credentials or NPI Usage

Claims are denied when the provider rendering services:

• Isn’t credentialed with the payer
• Is using the wrong NPI (e.g., billing under group when it should be individual)
• Has outdated license info in the system

Denial Code Example: CO-16 with modifier error notes or missing provider taxonomy.

Action Steps:

• Keep provider directories updated with payers
• Ensure that the correct NPI and taxonomy are tied to services rendered

7. Timely Filing Window Missed

Every payer has a deadline to submit claims, often 90 or 180 days from the date of service. Missing this window results in automatic denial, regardless of service quality.

Key Facts:

• Medicare: 1 year
• Commercial Payers: 90–180 days (varies)
• Medicaid: 90 days in most states

Real Message: “Claim denied – filing deadline exceeded” (Denial Code: CO-29)

Tip: Build EHR reminders or dashboards to track timely filing windows by payer.

How to Prevent Mental Health Claim Denials

Now that you know the common reasons mental health claims get denied, let’s look at how to stop them before they happen. Denials cost time, revenue, and trust. But with the right processes in place, most can be avoided, often before a claim is even submitted.

Utilize the following strategies to safeguard your revenue cycle, facilitate smoother reimbursement, and maintain uninterrupted client care.

1. Verify Eligibility and Benefits in Real-Time

Before every session, especially at the start of a new year or treatment episode, confirm:

• Active coverage dates
• Mental health benefits
• Copays, coinsurance, and session limits
• Pre-authorization requirements

Tool Tip: Use EHR-integrated real-time eligibility checks or payer portals.

2. Use Accurate CPT & ICD-10 Codes for Therapy and Evaluations

Payers require:

• CPT codes that match the service duration and type (e.g., 90834 for 45 mins, 90791 for intake)
• ICD-10 codes that align with diagnosable mental health conditions (F-codes)

Avoid pairing: CPT 90837 (60-minute therapy) with non-medical diagnoses, such as Z63.1.

Pro Tip: Maintain a cheat sheet of your most frequently used CPT/ICD combinations, including payer notes on denial trends.

3. Properly Document Medical Necessity

Your documentation should reflect:

• Clinical need (diagnosis, symptoms, functional impact)
• Treatment goals with clear benchmarks
• Progress over time (or explanation of lack thereof)
• Therapist observations and client response

Rule of Thumb: If audited, your notes should justify each session without requiring extra explanation.

4. Submit Within Filing Deadlines (By Payer)

Create an internal filing deadline dashboard organized by Payer:

• Medicare: 365 days
• Most commercial: 90–180 days
• Medicaid: Often 90 days

Best Practice: Submit claims within 48 hours of service, or automate submission via your clearinghouse or EHR.

Timely Filing Limit for Claims in Medical Billing

5. Automate with EHR/Clearinghouse Checks

Use your EHR and billing platform to:

• Flag missing codes or documentation
• Track pending authorizations
• Warn when NPIs or credentials don’t match
• Detect claims approaching deadlines

Look For: Built-in denial management modules that allow easy tracking and reprocessing.

10 Best Mental Health Billing Companies in the USA

6. Use Pre-Authorization Checklists

Create a custom pre-auth checklist per payer and service type:

• Does this service require pre-auth?
• Is a diagnosis required first?
• Is there a frequency or duration limit?

Template Suggestion: Include this in intake packets or new treatment plans.

Is Outsourcing Mental Health Billing Worth It?

What to Do When a Mental Health Claim Is Denied

Despite your best efforts, denials can still happen. When they do, knowing how to respond quickly and accurately can make the difference between lost revenue and successful reimbursement.

This section provides a step-by-step plan for handling denials, appealing claims, and deciding whether to resubmit or escalate.

Step-by-Step Appeal Process (2025 Standards)

1. Review the Denial Code:

Look for the adjustment reason code (e.g., CO-16: Missing Information, CO-197: Not Medically Necessary).

2. Request the EOB and Payer Notes:

Sometimes denials are vague; request clarification or a rationale for the denial.

3. Correct the Issue:

• Fix missing documentation
• Amend CPT/ICD errors
• Add missing modifiers or pre-auth numbers

4. Write an Appeal Letter:

Use payer-specific forms if available. Include:

• Member ID and claim number
• Explanation of the error
• Supporting documents (notes, codes, verification logs)

5. Submit Within Appeal Deadlines:

Ranges from 30 to 180 days, depending on the payer.

What Is the Real Cost of Mental Health Billing Services?

6. Track and Follow Up:

• Use a denial management log
• Call payers if no response within 30 days

Note: Most commercial insurers require appeals to be submitted in writing, not just electronically.

When to Resubmit vs When to Appeal

Pro Tip: Never resubmit a denied claim without correcting the issue. It can trigger duplicate claim denials.

Sample Appeal Letter Template

Mental Health Claim Appeal Template Includes:

• Patient details
• Claim & denial reference
• Statement of medical necessity
• Documentation checklist
• Therapist/clinician signature

How to Identify and Fix Common Errors

Before appealing, always check:

• Was the client’s coverage verified on the date of service?
• Were the CPT/ICD codes aligned and valid?
• Was documentation uploaded or appropriately attached?
• Was the correct NPI used?
• Was the claim submitted on time?

Helpful Tools:

• Denial reason lookup chart
• EHR error alerts
• Clearinghouse rejection reports

Special Situations That Cause Denials

Beyond the standard billing issues, some denials arise from situational complexities that are unique to mental health services. These involve regulatory exceptions, service delivery methods like telehealth, or provider network restrictions. If you aren’t aware of these nuances, even a well-coded and properly documented claim can get denied.

This section outlines the most commonly overlooked special-case denial triggers and guides how to address them proactively.

1. Denials for Telehealth Therapy Services

While telehealth is now widely accepted, payers still apply different rules compared to in-person visits.

Common Issues:

• Missing telehealth-specific modifiers (e.g., 95, GT)
• Incorrect place of service (POS) codes (should often be 02 or 10)
• Payer doesn’t cover telehealth for the specific CPT code billed
• Therapist not licensed to practice across state lines (especially in multi-state platforms)

Real Case Example: A 90834 session billed with POS 11 (in-office) is denied because it was provided virtually without Modifier 95.

Solution:

• Maintain a list of telehealth-approved codes and modifiers by payer
• Ensure documentation mentions that the service was conducted remotely
• Review state licensing and reciprocity agreements

2. Denials for Substance Use Disorder Treatment (42 CFR Part 2)

Claims for substance use disorder (SUD) services are often held to stricter confidentiality and consent standards under federal regulation 42 CFR Part 2.

Risk Factors for Denial:

• Missing patient consent documentation for info sharing
• Inadequate medical necessity notes specific to SUD
• Using general mental health codes instead of SUD-specific CPTs/ICDs

Tip: Always use dual diagnosis coding if applicable and confirm the payer allows for SUD telehealth under their plan.

Best Practice: Attach signed 42 CFR Part 2-compliant release forms when applicable.

3. Denials Due to In-Network vs Out-of-Network Conflicts

Network issues are a leading cause of surprise denials, particularly for therapists operating within group practices or telehealth platforms.

Scenarios to Watch:

• Provider is credentialed but bills under a group NPI that isn’t
• The client assumes out-of-network benefits apply, but they don’t
• EAP sessions billed as standard therapy

Payer Logic: If the NPI doesn’t match the approved network entity, claims get rejected, even if services were rendered correctly.

Message Example: “Provider out-of-network” – Denial Code: CO-96

What to Do:

• Check network status per payer and location
• Inform clients in advance of any out-of-network risks
• For telehealth: clarify if sessions are processed under virtual-specific NPIs or business entities

Florida Behavioral Health Medical Billing Outsourcing Services to Maximize Revenue and Reduce Denials

Mental Health Coding Essentials (For Therapists & Billers)

Proper coding is the foundation of clean claims and fast reimbursements. Mistakes in CPT codes, modifiers, or ICD-10 diagnosis entries can result in denials, even if the therapy session itself was delivered correctly and thoroughly documented.

This section gives you a quick-reference guide to the most commonly used and misused codes in mental health billing.

Most Used CPT Codes for Therapy and Evaluations

Here are the standard CPT codes frequently used for outpatient mental health services:

Claim Tip: Make sure your documentation supports the duration billed. Overbilling (e.g., using code 90837 for a 30-minute session) is a frequent trigger for audits.

Modifier Codes for Telehealth and Add-On Services

Modifiers provide additional context for how a service was delivered. For mental health claims, these are crucial, especially when sessions happen via telehealth or include specialized services.

Note: Always pair telehealth services with the correct Place of Service (POS), typically POS 02 (Telehealth) or 10 (Patient’s home, post-2022).

ICD-10 F-Codes and Z-Codes Often Denied

ICD-10 codes for mental and behavioral health start with F and must represent a clinical disorder, not just stress or life events.

Billing Tip: Avoid using Z-codes as primary diagnoses unless the payer explicitly accepts them. Never use Z-codes for therapy sessions that aim to treat diagnosable conditions.

Always refer to official resources, such as the Centers for Medicare & Medicaid Services (CMS) CPT and ICD-10 guidelines, and verify payer-specific policies to ensure proper billing and reimbursement.

Want to stop denials before they happen? Check out our expert-driven mental health billing services and request a free consultation today.

Frequently Asked Questions (FAQ’s) Mental Health Billing Claims

Why did my therapy claim get denied?

Therapy claims are commonly denied due to:

• Incorrect or incomplete documentation
• Invalid CPT/ICD-10 code combinations
• Lack of prior authorization
• Coverage that expired or doesn’t include mental health
• Services not deemed medically necessary by the insurer

Check your Explanation of Benefits (EOB) for a denial code, such as CO-16 or CO-197, to pinpoint the reason.

How can I appeal a denied mental health claim?

To appeal a denial:

1. Review the denial reason in the EOB
2. Correct any documentation or coding issues
3. Write a formal appeal letter with supporting materials
4. Submit within the insurer’s appeal window (usually 30–180 days)

Do all health plans cover mental health?

Most plans do cover mental health services, especially under the Mental Health Parity and Addiction Equity Act (MHPAEA). However, coverage may vary based on:

• Type of plan (e.g., employer-based vs. Medicaid)
• In-network vs. out-of-network provider
• Session limits or diagnosis restrictions

What documents are needed to prove medical necessity?

To demonstrate medical necessity, provide:

• A valid DSM-5 diagnosis with corresponding ICD-10 F-code
• A treatment plan with measurable goals
• Progress notes showing clinical need and intervention

Include symptom severity, functional impairment, and evidence of treatment response in session notes.

What’s the deadline for resubmitting a denied claim?

Deadlines vary by payer:

• Medicare: 365 days
• Most commercial plans: 90–180 days
• Medicaid (varies by state): ~90 days

Always check each payer’s policy and submit corrections promptly. Utilize your billing software to monitor aging claims and track submission windows.