CO 266 denial code

Claim adjustment reason code 266. Often reported as CO 266.

Drug compounding cost adjustment

Unofficial reference. This is our own plain-English explanation, not the official code text. Payer rules differ. Verify with the payer and the official X12 code list. AlphaPrefix is not affiliated with X12, CMS or any payer. Data last updated Nov 11, 2026.

What 266 means

A compounded drug claim was adjusted for the cost of preparing the compound, and the code applies only to pharmacy claims.

Compounded prescriptions carry preparation costs on top of the ingredients. This code says the payer adjusted that preparation cost, for example by limiting it or pricing it under its own rules.

It is used only for pharmaceuticals. Compound pricing rules differ widely between plans, so the contract and the plan's compound policy matter most.

Group codes seen with 266

On a remittance, 266 comes after a group code. These are the ones it is most often reported with:

• CO 266 (Contractual Obligation): The provider's side of the ledger. The reduction comes from the payer contract or a rule the provider has to follow, and the patient normally cannot be billed for it.

The payer chooses the group code for each adjustment, so the same reason code can appear with another group code on your remittance. Read the two together. More about group codes.

Common causes

• The compounding fee billed was higher than the plan pays.
• The plan restricts or does not pay preparation costs for that compound.
• Ingredient or preparation details on the claim did not meet the plan's compound billing rules.

What to do next

1. Review the plan's compound policy and the pharmacy contract.
2. Check that every ingredient and the preparation fee were submitted correctly.
3. Resubmit with corrections or ask the pharmacy benefit manager to review if the claim was billed correctly.

Related codes

• 262 (reason code) Drug delivery cost adjustment
• 265 (reason code) Drug administrative cost adjustment