Wage inflation, rising costs, lagging patient and service volume, and pandemic-driven uncertainty continue to put enormous pressure on healthcare organizations’ bottom lines—a situation exacerbated by unresolved claims denials representing an average annual loss of $5 million for hospitals representing up to 5 percent of net patient revenue.1,2
For hospitals, denial rates are on the rise, increasing more than 20 percent over the past five years, with average claims denial rates reaching 10 percent or more.3 According to a Medical Group Management Association (MGMA) Stat poll, on the practice side, survey respondents reported an average increase in denials of 17 percent in 2021 alone.4 Industry averages report that nearly 20 percent of all claims are denied, and as many as 60 percent of returned claims are never resubmitted.5 Adding to the hit on the bottom line is the cost to rework or appeal denials, which averages $25 per claim for practices and a whopping $181 per claim for hospitals.6,7
The good news is that denial does not automatically relegate claims to the write-off bin. In fact, as many as two-thirds of rejected claims are recoverable.8 Success—and lower recovery costs—requires a strategic approach designed to ensure the process aligns with payer requirements.
Identifying the Problem
To mitigate the financial damage of denied claims, the best defense is to prevent them from happening in the first place. The key is understanding the most common reasons claims get kicked back, according to the MGMA9:
- Prior authorization – In the event that prior authorization is not obtained prior to the service being performed, a claim may be denied.
- Missing or incorrect information – This can be anything from a blank field (e.g., Social Security number or demographic information) or incorrect plan code, to technical errors like a missing modifier.
- Medical necessity requirements not met – A medically unnecessary healthcare service is not covered by the policy, and the payer disagrees with the physician about what services you need for your condition.
- Procedure not covered by payer – This is generally easy to avoid by simply reviewing a patient’s plan or calling their insurer before the claim is submitted.
- Provider out of network – The payer may deny all or part of the claim if the services are performed by an out-of-network provider.
- Duplicate claims – Claims submitted for a single encounter on the same day by the same provider for the same patient for the same service item.
- Coordination of benefits – Claims for patients covered by more than one health plan can result in delays and even denials until the patient’s coordination of benefits are updated.
- Bundling – Rather than paying fees for two separate services, the payer groups them together and pays one, smaller fee.
- Services already included in payment of another service or procedure – This happens when payment is adjusted because the benefit for the service is included in the payment or allowance for another service or procedure that has already been adjudicated.
- Exceeded timely filing limit – This happens when claims are filed outside the payer’s required days of service; this should be factored into the time it takes to rework rejected claims.
Also key to prevention—or at least mitigating the damage claims denials can do to the bottom line—is understanding why claims are denied and how to resolve them. Denial codes fall into four categories: contractual obligations (CO), other adjustments (OA), payer-initiated reductions (PI), and patient responsibility (PR).
For example, CO-4 is used when the procedure code is inconsistent with the modifier used or the required modifier is missing for adjudication. This can be prevented by using the appropriate modifier for the procedure in question. PI-204 is used when the service, equipment, or drug is not covered under the patient’s current benefit plan and must therefore be billed to the patient, while PR-1 means the patient’s deductible has not been met and the bill should instead be sent to the secondary insurance or the patient.10,11
Denial Management and Prevention
The desired outcome for any submitted claim is receipt of payment. The most obvious way to make that happen is to send out clean claims the first time. This requires attention to detail, which is all about people and processes—the right people in the right positions empowered with the right training and the right operating procedures to make sure coding and billing departments run smoothly and efficiently.
The reality is that even when all the right pieces are in place, denials still occur. When they do, the goal is to correct the error, get paid, and determine what actions are required to keep mistakes from being repeated. Once again, the people and processes in place make that goal achievable.
Denials should result in the generation of appropriate corrective actions designed to reduce the occurrence and reoccurrence while improving the detection of failure modes. This process includes the assignment of responsibility for completing each of the required actions by a predetermined deadline that complies with payer requirements. It also involves a reassessment of and rescoring the severity, probability of occurrence, and the likelihood of detection for the top failure modes, and post-resolution evaluation to determine the effectiveness of the corrective actions taken.
It all starts with a zero-tolerance mindset for preventable denials, most of which are well within the organization’s control, caused by either action or inaction within the revenue cycle process. For example, many denials can be easily avoided by ensuring an adequate audit system is in place to verify the claim is clean before it leaves the building. Examples of the mistakes that lead to avoidable denials are missing or invalid authorizations numbers or plan codes and truncated codes.
Some denials are destined to occur no matter how diligently the claims are reviewed before submission. The most dreaded of these are the “not medically necessary” denials. In this case, the goal is to stay on top of medical necessity denials to ensure they are appealed as they occur.
Properly appealing a denial may require some research by coding professionals and sometimes queries to the providers, but the extra work is worth it to ensure the coding is correct, documentation is adequate, and medical decision-making is appropriate before proceeding. For example, supply the appropriate medical records and, if necessary, include articles, images, or even a letter from the provider to support the reason for the service.
Finally, continuously evaluate internal workflows to identify areas for improvement and conduct ongoing staff training to ensure everyone is up to speed. Learn how to run reports to catch denial patterns so preventive actions can be taken within the payer’s required time frame—which can be as short as 90 days—and analyze denial data to identify trends, patterns, and opportunities to prevent future denials.
Best Practices to Combat Denials
When it comes to effective denials management, knowledge is power. To gain and act on that knowledge, several best practices can be implemented to stay organized and informed on the root causes and impacts.
- Know the stats: Knowing initial denial, dollar, and the claims rates leads to an understanding of the reasons for high denial rates and opens new opportunities to improve processes and reduce or eliminate problems.
- Keep the process organized: Losing track of denied claims will diminish the organization’s revenue, and climbing denial rates will lead to some serious administrative problems. Thus, implement an organized denial management process that leverages HIPAA-accredited tools and technologies to track submitted claims.
- Identify trends: Quantify and categorize denials by tracking, evaluating, and recording the trends. Emphasize data and analytics to help identify and rectify the issues causing denials in the first place, reaching out to physicians and payers for assistance as appropriate and tapping the expertise of outsourcing partners to help reduce denials and improve compliance.
- Act quickly: Follow a validated process to get denials corrected, preferably within a week, a goal that is possible when an established workflow is in place to track claims as they enter and leave the system.
- Establish a team: Identify the available resources from all departments and leverage their expertise to put in place solutions and to track and report developments, which will, in turn, set up benchmarks, reduce backlogs, and help identify root causes. This robust team of experts would include key members from admitting/registration, case management, patient financial services, nursing, health information management (HIM), information technology (IT), finance, compliance, and, of course, the physicians.
- Collaborate with payers: Payers also benefit from resolving denial issues, so a payer-provider collaboration can help in addressing them more efficiently, which will also help achieve system efficiency more rapidly.
- Quality over quantity: The best way to maximize limited resources and time is to follow up with the claims that are already addressed, which will help facilitate more quality claims rather than a higher number of lower-quality claims that do not yield anything.
- Track progress: Monitoring progress will help differentiate between areas that are doing well and those that aren’t while allowing for analysis and improving system efficiency. This helps your organization know which areas are doing well and which need improvement. Consider automating denial management processes, which also frees more time to rework the rejections.
- Conduct performance audits: These should include audits of remittance advice reviews, write-off adjustments, zero payment claims, registration, and insurance verification quality.
- Verify patient information: Leverage patient portals that update patient information and take time to verify that information and the patient’s insurance coverage—while keeping the billing team updated about the policies and educating staff to improve data quality.
- Learn from previous rejections: Improperly established data can be cause for claim rejection, so leverage information including insurance company and payer ID lists available in electronic health records (EHRs). Tracking and analyzing rejection and denial trends helps differentiate between them, making it easier to learn where problems occurred and fix them quickly.
- Meet deadlines: Failing to follow deadlines established by insurance company policies can affect claim filing.
- Know the clearinghouse: From assisting with insurance companies to providing detailed explanations for rejection, maintaining a solid relationship with the clearinghouse will improve processes and benefit both groups.
- Understand claim formats: Many healthcare billing companies use EHR solutions to submit claims using a standardized format, which can make it easier to identify and resolve problems with denied claims. Claims are often submitted in ANSI837, and knowledge of this allows one to apply ANSI loops and segment references, which is more efficient than sifting through HCFA1500.12
- Conduct regular follow-ups: Track every claim so denials and rejections can be corrected and resubmitted on a scheduled appeal, preventing revenue loss.
- Follow a decision tree approach: A decision tree forces consideration of all possible outcomes and traces each path to a conclusion. This approach helps in training staff to address denials more effectively.
Finally, some organizations might consider supplementing internal medical billing and coding operations with outsourced services. Through outsourced services, organizations can quickly gain access to a team of highly trained and skilled professionals who dedicate their time to interacting with insurance companies and understanding the reasons behind rejections and denials. Investing in the support of outsourced services can also allow internal teams more time to concentrate on other aspects of maintenance and patient experience.
The Right Technology Solutions
The ability to fight denials requires the right technology resources. For example, claim editor or “claim scrubber” software processes professional and institutional claims from the payer perspective. This includes the medical necessity database to identify the complete set of codes and capture important complications that are frequently missed in a large, complex record. These solutions perform diagnosis code edits, medical necessity edits, procedure code edits, claim-level technical edits, outpatient prospective payment system (OPPS) edits, and file format edits.
Another key tool is the medical claim scrubber solution, which automatically matches the ICD-10 diagnosis codes with the appropriate CPT/HCPCS codes and ensures that the claim meets all nationally accepted coding guidelines and standards. Code check software and encoders save time and money by upping the accuracy and efficiency of codes with one-click validation.
It may not be feasible to eliminate denials altogether, but a strategic approach to managing them, based on proven best practices and data analysis, and supplemented with automation and other technology tools, can lessen their impact on the bottom line.
Creating an effective denial management process takes time and requires continuous monitoring to ensure success. However, reducing write-offs to as close to zero as possible is worth the effort to protect a healthcare organization’s revenues and stabilize its bottom line.
1. “A Proactive Outpatient Remittance Model Improves the Hospital's Bottom Line and Positively Impacts the Patient Experience.” Becker's Hospital Review, August 12, 2021. https://www.beckershospitalreview.com/finance/a-proactive-outpatient-remittance-model-improves-the-hospital-s-bottom-line-and-positively-impacts-the-patient-experience.html.
2. Gooch, Kelly. “4 Ways Healthcare Organizations Can Reduce Claim Denials.” Becker's Hospital Review, July 18, 2017. https://www.beckershospitalreview.com/finance/4-ways-healthcare-organizations-can-reduce-claim-denials.html.
3. McKeon, Jill. “Over Third of Hospital Execs Report Claim Denial Rates Nearing 10%.” RevCycle Intelligence. Xtelligent Healthcare Media, June 7, 2021. https://revcycleintelligence.com/news/over-third-of-hospital-execs-report-claim-denial-rates-nearing-10.
4. “6 Keys to Addressing Denials in Your Medical Practice's Revenue Cycle.” Medical Group Management Association, March 18, 2021. https://www.mgma.com/data/data-stories/6-keys-to-addressing-denials-in-your-medical-pract.
5. Mills, Timothy. “Why Getting Claims Right the First Time Is Cheaper than Reworking Them.” Physicians Practice. MJH Life Sciences, September 9, 2019. https://www.physicianspractice.com/view/why-getting-claims-right-first-time-cheaper-reworking-them.
7. Gooch, Kelly. “Denial Rework Costs Providers Roughly $118 per Claim: 4 Takeaways.” Becker's Hospital Review, June 26, 2017. https://www.beckershospitalreview.com/finance/denial-rework-costs-providers-roughly-118-per-claim-4-takeaways.
8. Mills, Timothy. 2019.
9. Nunn, Katie. “Strategies for Avoiding Common Insurance Denials.” Medical Group Management Association, September 26, 2019. https://www.mgma.com/data/data-stories/strategies-for-avoiding-common-insurance-denials.
10. Lehmann, Donna. “Common Coding Denials You Need to Know for Faster Payments.” Fast Pay Health, June 3, 2020. https://www.fastpayhealth.com/blog/common-coding-denials-faster-payments.
11. “Reason Code 204: Remark Code N130.” Noridian Healthcare Solutions, January 11, 2021. https://med.noridianmedicare.com/web/jddme/topics/ra/denial-resolution/n130-204.
12. “9 Easy Tips to Reduce Claim Denials and Rejections.” QWay Healthcare, January 24, 2022. https://qwayhealthcare.com/blog/9-easy-tips-to-reduce-claim-denials-and-rejections/.
Leigh Poland (firstname.lastname@example.org) is vice president of coding education with AGS Health’s Coding Service Line.
Srivalli Harihara (email@example.com) is senior manager of coding education with AGS Health’s Coding Service Line.
Learn more about denials-prevention strategies in the online AHIMA course Revenue Cycle: Introduction to Claim Denials.
By Leigh Poland, RHIA, CCS, and Srivalli Harihara, CPC, PGPAIML
Take the CE Quiz