Denial Management – Definition, Goals and Challenges

Denial Management – Definition, Goals and Challenges

Denial Management is the process of systematically investigating each denial, performing root cause analysis of why each claim was denied, analyzing denial trends to uncover a trend by one or more insurance carriers,and redesigning or re-engineering the process to prevent or reduce the risk of future claim denials.

Many physician practices forgo thousands of dollars annually in revenue through denied healthcare claims. These denials typically stem from a lack of strong denial management policies and procedures.

Essentially, you want to lessen the number of denials by seeking the root cause for it as well as the coded cause. Every instance where no payment or lower than expected payment occurs must be investigated.Doing this is an essential part of optimizing your revenue cycle.

These numbers paint a clear reason as to why denial management is an imperative process for physician practices:

  • The average claim denial rate across the healthcare industry is between 5% and 10%.
  • Commercial and public payers deny about one in every 10 submitted claims.
  • Gross charges denied by payers have increased to 15% to 20% of the nominal value of all claims submitted.
  • An estimated 90% of denials are preventable. 
  • Up to 65% of denied claims are never resubmitted.
  • An estimated two-thirds of all denied claims are recoverable.

Types of Claim Denials

Though all denials result in your physician practice losing out on money you’re owed, they primarily fall under five main categories:

1. Soft Denial: A temporary or interim denial that may be paid if the practice takes corrective action; no appeal is needed.

2. Hard Denial: A denial resulting in lost or written-off revenue; an appeal is required.

3. Preventable Denial: A type of hard denial due to a practice’s action or lack thereof, typically because of registration inaccuracies, invalid codes, and insurance ineligibility.

4. Clinical Denial: Another type of hard denial, though it is due to lack of payment for medical necessity,an appeal is necessary.

5. Administrative Denial: A type of soft denial in which the payer notifies the physician practice exactly why the claim was denied; an appeal is possible.

What are Claim Rejections?

Knowing the difference between denied and rejected claims in medical billing is an integral part of denial management. Claim denial occurs when a claim is processed and then repudiated by a payer. In contrast, rejection takes place when a claim is submitted to a payer with incorrect or missing data or coding.

There are a variety of billing and coding issues that commonly cause claim rejections. Some issues include an inaccurate Medicare or CLIA number, insurer name eligibility, non-payable service, a missing diagnosis code reference number, a duplicate claim submission, or a diagnosis not coded to the highest level of specificity.Two key ways to mitigate claim denials and rejections in your practice are to beware of data entry errors and verify referrals on the front end.

A clean claim is one that is submitted without any errors or other issues, including incomplete documentation that delays timely payment. It also meets all the following requirements:

  • Identifies the health professional, health facility, home health care provider, or durable medical equipment provider who provided service sufficiently to verify, if necessary, affiliation status and includes any identifying numbers
  • Identifies the patient and health plan subscriber sufficiently
  • Lists the date and place of service
  • Is a claim for covered services for an eligible individual
  • Substantiates the medical necessity and appropriateness of the service provided, if necessary
  • Contains information sufficient to establish that prior authorization was obtained for certain patient services where prior authorization is required
  • Identifies the service rendered using a generally accepted system of procedure or service coding
  • Includes additional documentation based upon services rendered as reasonably required by the health plan

Top Denial Reasons in Medical Billing

Physician practices might not realize how much money they’re losing by not paying enough attention to the denial management process. In addition to not recouping all the revenue they’re owed or receiving it days or months later than possible, these practices increase their risk of non-compliance with various regulations, decrease patient satisfaction, and waste time and resources that can be utilized elsewhere in the practice.

Probably the number one source for denied claims is patient eligibility. This means that the service submitted for payment isn’t included in the insurance plan under which it’s being billed. Other causes include:

  • Missing or incorrect data
  • Duplicate or late submissions
  • Improper or outdated CPT or ICD-10 codes
  • Lack of documentation or prior authorization
  • Out-of-network care
  • Lack of medical necessity
  • Procedure coding errors
  • Lack of prior authorization

According to RemitDATA, which provides comparative analytics data for the outpatient provider market, the five procedure codes that most frequently result in unexpected denials are:

  • 99213 (outpatient doctor visit, level 3)
  • 99214 (outpatient doctor visit, level 4)
  • 36415 (routine blood capture)
  • 99232 (subsequent hospital care)

97110 (therapeutic exercises)

Top Challenges in Denial Management

Multiple challenges present obstacles to physician practices lowering their denial rate. If you’re unsure of how to calculate your practice’s denial rate, the American Academy of Family Physicians (AAFP) suggests adding the total dollar amount of claims denied by payers within a given period and dividing by the total dollar amount of claims submitted within the given period. If possible, your rate should also be computed by payer, provider, and reason for denial.

Lack of Staff Appropriately Trained in Denial Management

Some of the first mistakes in denial management occur at the registration desk. In fact, 30% to 40% of denied claims result from registration and pre-service-related challenges. Staff members in physician practices, especially smaller ones, often are busy doing a multitude of administrative tasks, required to fill many different roles, and must deal with oft-changing industry and regulatory regulations.

Lack of Automation

A survey from the Healthcare Information and Management Systems Society (HIMSS) found that about one-third of providers continue to perform their denial management process manually. Such manual processes leave room for human error, offer less transparency, are usually extremely time-consuming, and increase the turnaround for claims.

Lack of Financial Resources

Another obstacle is the lack of financial resources and applicable technology. By not investing in a denial management solution that enables them to correctly submitted claims initially, a practice might not be able to recoup enough revenue to address correcting and appealing denied claims. Similarly, without technology to effectively prioritize, manage, and channel claims, physicians’ practices are unlikely to be able to streamline their denial management and obtain the revenue patients and payers owe them.

Denial Management Best Practices

The good news for physician practices is that an estimated 90% of denials are preventable. Best practices can be utilized to reduce the number of denied claims and not miss out on revenue from payers.

Again, the goal of denial management solutions is to reduce the number of denials, and it starts at registration. A few recommendations for streamlined registration in your practice include:

  1. Offer patients pre-registration by sending them a packet with a return envelope before their appointment. This practice allows you to verify insurance before their office visit.
  2. Ensure the collection of correct demographics that are vital to payment (i.e., photo ID and address verification).
  3. Ask to reschedule the appointment if the patient does not send the information in before the appointment and hence reception cannot verify insurance
  4. Reschedule the appointment if the patient requires a referral, and either doesn’t have one or can’t obtain it.
  5. Ask the patient to sign an acknowledgment that he or she may be responsible for payment if insurance doesn’t cover it.

Also, it’s imperative that you track all your claims by monitoring and documenting each of them and identifying why they’re denied. Tracking claims gives you the opportunity to ensure that claims are submitted and appealed promptly, spot trends in denials, and maintain detailed oversight of the claims portion of your revenue cycle.

Similarly, by routinely running a detailed report of your practice’s denied claims, you can more easily pinpoint specific claims without having to sift through multiple ones. Any problematic trends identified through these processes should be addressed immediately to avoid additional claim denials.

If you’re still using paper-based processes to perform claims management, consider investing in an automated solution to reduce the possibility of inaccuracy and ineligibility. Automated claims management solutions are regularly updated with codes, offer decision support, and can be employed to route denied claims directly into worklists.

Denial Management KPIs

If you still don’t think denial management means much in the way of added revenue for your practice, consider this example:

ABC Physician Practice sees approximately 400 patients per month but has a denial rate of 12%. That equals 48 denied claims each month at a per claim rework cost of $25. That calculates to $1,200 monthly and $14,400 annually to rework those 48 claims. This revenuecould be used to invest in other resources for the practice, such as technology or staffing.

400 patients at 12% denial rate = 48 denied claims

48 claims x $25 rework cost = $1,200/month

$1,200 x 12 months = $14,400

By tracking important KPIs, providers realize improved reimbursement, faster payment, less time spent on denials and appeals, and an overall optimized revenue cycle. Three crucial KPIs physician practices should calculate aredenial rate, final denial write-off as a percentage of net patient service revenue, and clean claim percentage.

Denial Rate

A practice’s denial rate shows the percentage of claims denied and measures the efficacy of its claims processing. It can be categorized into denial appeal success, initial denial, and denial resolve rates and by payer, reason for denial, and time period.

Total Number of Denied Claims / Number of Claims Remitted = Claim Denial Rate

Final Denial Write-off as a Percentage of Net Patient Service Revenue

Implementing a KPI for denial write-off as a percentage of net patient service revenue gives providers the ability to examine what percentage of their claims resulted in lost reimbursement. This number is figured afterall appeals are completed, and claims are written off, usually for tax purposes. This statistic indicates a practice’s capability to comply with payer requirements but can also point to a breakdown in its revenue cycle.

Net Dollars Written Off as Claims Denials / Average Monthly Net Patient Services Revenue = Final Denial Write-Off as a Percentage of Net Revenue

Clean Claim Percentage

This KPI measures the percentage of clean claims against the percentage of those rejected by payers. A higher percentage of clean claims indicates optimal financial performance for a physician’s practice, while a lower one denotes ineffective claim processing.

Number of Claims Reimbursed on First Submission / Number of Claims Accepted into Claims Processing Tool for Billing = Clean Claims Percentage

Utilizing AI and Machine Learning to Improve Denial Management

Many industries, including healthcare, are adopting artificial intelligence (AI) and machine learning. This algorithm-based technology increases accuracy and automates many time-consuming tasks, thereby enabling employees to focus on other operational tasks.

In claims management, AI and machine learning accurately predict denials, ensure correct data entry, streamline manual processes, and identify denial trends. They also integrate into billing workflows to prioritize the work queue to resubmit claims. These benefits not only cut costs but also increase patient satisfaction, resulting in increased retention of those patients.

Tips to Reduce Claim Denials

Reducing claim denials can be accomplished by performing these five easy steps:

  1. Code diagnosis to the highest level of specificity
  2. Ensure insurance coverage and eligibility
  3. File claims on time
  4. Stay current with payer requirements
  5. Track the claim throughout the entire process

In addition, you can prevent and better manage claim denialsby tracking all your claims, identifying the reasons they’re denied, knowing each of your carrier’s deadlines and rules for claim submission, and involving patients in the denial process. By following these tips, you can optimize your revenue cycle one step at a time and not lose out on money your practice is owed.