Wage inflation and rising costs are putting enormous pressure on the bottom line of healthcare organizations. Unresolved claim denials can cost hospitals up to $5 million per year, or 5 percent of their net patient revenue.
Denial rates for hospitals are increasing by up to 20 percent. For practices, the average is 17 percent.
Good news! Denials do not mean that claims are automatically written off. Two-thirds or more of all rejected claims can be recovered. 8 To achieve success and lower recovery costs, a strategic approach is required to align the process with payer requirements.
Know Claim Denials and Identify The Problem
The best way to mitigate financial damages caused by denied claims is to avoid them in the first instance. According to MGMA 9, understanding the reasons for claims being rejected is the key.
Prior Authorization
If prior authorization has not been obtained before the service is performed, the claim could be denied.
Missing or Incorrect Data
This could be anything, from a blank space (e.g., Social Security number, demographic information), to a plan code that is incorrect, or even a technical error like a missing modifier.
Medical Necessity Requirements Are Not Met
A medically unnecessary service is not covered under the policy, and the payer disagrees on what services your condition requires.
It is easy to avoid this by reviewing the patient’s insurance plan or by calling them before submitting a claim.
Provider Outside of the Network
The payer can deny the entire claim or part of it if services were performed by a provider who is not in the network.
Duplicate Claims
Claims for a service item that was provided to the patient by the provider on the same date.
Coordination of Benefits
Patients covered by multiple health plans may experience delays or even denials of claims until their coordination of benefits is updated.
Bundling
Instead of paying two separate fees, the payer bundles them together to pay one fee.
The payment for a service may be adjusted if the benefit is already included in another service, procedure, or payment.
Excessive Time Limit for Filing
When claims are submitted outside of the required number of days that the payer is willing to pay, this should be taken into account when calculating the amount of time needed to rework the rejected claim.
Understanding why claims are denied and how to resolve these issues is also key to preventing or at least minimizing the damage that denials of claims can cause to your bottom line.
The Four Types of Denial Codes Are:
- Contractual obligations (CO)
- Other Adjustments (OA)
- Payer-Initiated Reductions (PI)
- Patient Responsibility (PR)
CO-4, for example, is used if the procedure code does not match the modifier or if the adjudication requires a modifier that is missing. Using the correct modifier can prevent this. PI-204 indicates that the service, drug, or equipment is not covered by the patient’s benefit plan and therefore must be billed directly to the patient. PR-1 signifies that the patient has not met their deductible and should send the bill to the secondary insurance provider or to the patient.
Denial Management and Prevention
Payment is the desired result for all claims. Sending out clean claims is the most obvious way to achieve this. It is important to pay attention to the details, and this requires the right people at the right places with the correct training and operating procedures.
Claim denials can still happen even when everything is in order. If they do, then the goal is to fix the mistake, get paid, and decide what steps are needed to prevent mistakes from repeating. The people and processes put in place allow this goal to be achieved.
Denials must result in appropriate corrective action designed to reduce the frequency and recurrence of the failure mode while improving detection. The process involves assigning responsibility for each action to be completed by a deadline determined in accordance with payer requirements. This process also includes a reassessment and rescoring of severity, probability of occurrence, and likelihood of detection of the top failure modes.
The First Step Is to Have a No-Tolerance Attitude Towards Preventable Denials
Most of these can be prevented by the organization, and they can be caused either by action or inaction during the revenue cycle. Many claim denials are easily avoidable by having a proper audit system in place that verifies the claim before it leaves the office. Denials can be avoided by avoiding mistakes such as missing authorization numbers, invalid plan codes, or truncated codes.
No matter how carefully the claim is reviewed prior to submission, some denials will occur. Denials that state “not medically needed” are the most common. The goal in this case is to keep track of all medical necessity denials so that they can be appealed immediately.
It may take some time for coding professionals to do the necessary research and to contact the providers. However, the extra effort is well worth it to make sure that the medical decision is made correctly, the documentation is sufficient, and the coding is accurate. You can, for example, provide the medical records, and if needed, articles, images, or a letter by the provider, to prove the need for the service.
Finalize and evaluate your internal workflows continuously to identify improvements and ensure that everyone is on the same page. Learn to run reports that will catch denial patterns and take preventive action within the timeframe required by payers, which can be as little as 90 days. Analyze denial data in order to identify trends, patterns, and opportunities to avoid future denials.
Best Practices for Combating Claim Denials
Knowledge is power when it comes to managing denials effectively. In order to gain that knowledge and take action, you can implement several best practices in order to stay organized and informed about the root causes and impact.
Know Your Stats:
Knowing the initial denial rate, dollar amount, and claim rates will help you understand the reasons behind high denial rates. It also opens up new opportunities for improving processes or reducing problems.
Stay Organized:
Losing track will reduce the revenue of the organization, and increasing denial rates can lead to serious administrative issues. Implement a denial management system that uses HIPAA-accredited technologies and tools to track claims.
Identify Trends:
Track, evaluate, and record trends to quantify and categorize denied claims. Focus on data and analytics in order to identify and correct the issues that are causing denials. Reach out to payers and physicians for assistance if necessary, and tap the expertise of outsourcing partners to reduce denials.
Act Fast:
Use a validated procedure to correct denials, preferably in a week. This goal is achievable when a workflow has been established to track claims entering and leaving the system.
Create a Team:
Identify resources available from all departments, leverage their expertise, and put solutions in place. Track and report on developments. This will help set benchmarks, reduce delays, and 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, physicians.
Work With Payers:
Payers benefit as well from the resolution of denial issues. A payer-provider collaborative approach can be used to address them more effectively and will help improve system efficiency faster.
Quality Over Quantity:
To maximize the limited time and resources, it is best to continue to address claims already made. This will allow for more quality claims to be submitted rather than an increased number of claims with lower quality that don’t yield any results.
Track Progress:
Tracking progress allows you to identify areas that perform well and those that don’t. It also helps with analysis and improves system efficiency. This will help your organization identify which areas need improvement and which are performing well. Consider automating the denial management process, which will also give you more time to rework rejected applications.
Conduct Performance Audits:
These audits should include audits on remittance advice reviews, write-off adjustments, zero payment claims, and registration quality.
Verify Patient Information:
Use patient portals to update patient data and verify the information, as well as the patient’s coverage by insurance. Keep the billing team informed about policies and educate staff on improving data quality.
Use Previous Rejections:
Improperly entered data can lead to claim rejection. Take advantage of information such as insurance companies and payer lists that are available in electronic medical records (EHRs). It is easier to differentiate between rejections and denials by tracking and analyzing trends.
Follow Deadlines:
Failure to adhere to deadlines set by insurance companies can impact claim filing.
Understand the Clearinghouse:
From providing assistance to insurance companies to explaining in detail why a rejection was made, maintaining a strong relationship with the clearinghouse can improve processes for both parties.
Understanding Claim Formats:
Many healthcare billing companies submit claims in a standard format. This can make it easier for them to identify and solve problems with denied claims. ANSI837 is the most common format for claims. Knowing this will allow you to use ANSI loops, segment references, and HCFA1500, which can be more efficient.
Follow up Regularly:
Track each claim to ensure that rejections and denials are corrected and then resubmitted at a later date. This will prevent revenue loss.
Use a Decision-Tree Approach:
A decision tree requires that you consider all outcomes possible and track each path towards a conclusion. This helps train staff to deal with denials in a more effective manner.
Outsourced services could be a good option for some organizations to supplement their internal billing and coding processes. It allows organizations to quickly access a team of highly skilled professionals who are dedicated to working with insurance companies to understand the reasons for rejections and denials. Outsourced services allow teams to focus on other aspects such as maintenance and the patient experience.
Right Technology Solutions
In order to combat denials, you need the right technological resources. Software such as “claim scrubber” or claim editor, processes claims for professional and institutional payers. The medical necessity database is used to capture the full set of codes and important complications that are often missed in large, complex records. These solutions include diagnosis code editing, medical necessity editing, procedure code editing, claim-level edits, and edits to the file format.
The medical claim scrubber is another key tool. It automatically matches ICD-10 codes to the CPT/HCPCS code and ensures the claim meets the nationally accepted standards and guidelines. Code check software, encoders, and other tools can save you time and money. They improve accuracy and efficiency by validating code in one click.
Mitigating Losses
Denials may not be completely eliminated, but by using a strategy based on best practices, data analysis, and automation, as well as other technologies, they can have a less negative impact on your bottom line.
It takes time to create an effective denial process, and it requires constant monitoring in order to be successful. To protect revenues and stabilize the bottom line of a healthcare organization, it is important to reduce write-offs as much as possible.
Hope this information about claim denials helps you.
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