Managing denied claims remains one of the most challenging challenges for healthcare providers and Revenue Cycle Management (RCM) professionals as healthcare reimbursement models continue to evolve. As well as delaying payments, claim denials contribute to administrative burdens, reduced cash flow, and significant revenue losses.
Medicare denial rates are approximately 10%, according to the American Medical Association, while nearly 7% of claims are initially denied by payers. Providers can, however, implement proactive strategies to reduce claim denials and maximize reimbursement by identifying and overcoming the most common causes of these rejections.
Understanding Claim Denials: Why Do They Happen?
While each payer has its own guidelines, the most common reasons for claim denials are fairly consistent across the healthcare industry. Identifying these reasons and prioritizing their corrective actions can help RCM teams better understand the bottlenecks in Managing Denied Claims?
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- Eligibility and Coverage Issues: Patient eligibility verification failures or a lack of coverage frequently result in denials. When a patient’s insurance information is outdated or inaccurate, the claim will be denied. When Medicare Advantage coverage, Medicaid eligibility, or insurance plans change, this is particularly common.
- Prior Authorization Requirements: The payer may require prior authorization before certain procedures and treatments can be performed. When prior authorization is not obtained or is delayed, the claim may be denied, regardless of whether the service was medically necessary.
- Incomplete or Inaccurate Documentation: Incomplete and inaccurate documentation is one of the leading causes of claim denials. There is a higher risk that payers will deny claims if there is crucial information missing. For example, incorrect ICD-10, CPT, or HCPCS codes, demographic errors, or omitted clinical documentation. In medical billing, coding accuracy and documentation compliance are of the utmost importance.
- Medical Necessity Denials: When the payer determines the provided services or procedures aren’t justified by the patient’s condition or diagnosis, it is called a medical necessity denial. As value-based care models continue to grow, this is becoming an increasingly serious concern for Medicare and Medicaid claims. Physicians and coders must provide detailed, accurate documentation in order to prove medical necessity.
- Timely Filing Issues: Payment companies often set strict deadlines for submitting claims, and if claims aren’t submitted within those deadlines, they’re denied. There are many reasons why late filings occur, including delayed documentation, inefficient workflows, and human error.
- Coordination of Benefits (COB) Errors: Patients with multiple insurance policies often face coordination of benefits errors where the payer must clarify which policy is primary. Failure to accurately coordinate benefits typically results in denials.
The Financial Impact of Claim Denials
It is estimated that 90% of claim denials can be prevented, and more than two-thirds of denied claims can be recovered if appealed correctly, according to Change Healthcare. It is, however, a substantial cost to rework and resubmit denied claims, with providers spending an average of $25 on follow-up actions for every denied claim. RCM teams must shift focus from more strategic tasks to damage control due to denied claims consuming valuable time and resources.
Denials can result in a significant revenue leakage and compromised financial health if left unchecked. Healthcare organizations can prevent this by taking a more proactive and systematic approach to claim denial management.
Proactive Strategies for Reducing Claim Denials
A proactive approach to preventing denials is the key to enhancing revenue cycle performance. The strategies are intended to improve workflows, increase efficiency, and facilitate collaboration across teams.
1. Implement Robust Eligibility Verification Processes:
It is important to implement a comprehensive eligibility verification process to prevent denials. The patient’s insurance coverage is verified both at the time of scheduling and before the service is provided. Practice management systems can speed up this process and reduce the risk of human error by integrating automated eligibility verification tools. If providers can verify coverage details before submitting claims, discrepancies or concerns can be addressed.
2. Obtain and Track Prior Authorizations:
A robust authorization tracking system can reduce prior authorization denials. To ensure that all documentation is properly submitted to the payer, and to track the approval process, authorizations should be obtained well in advance. The use of dedicated prior authorization teams and automated tools to flag services that need authorization can prevent missed authorizations and streamline approval processes.
3. Enhance Documentation and Coding Practices:
A clean claim depends on thorough clinical documentation and coding. Providers must ensure that all medical records meet payer guidelines for medical necessity by prioritizing thorough clinical documentation to support services rendered. To ensure that all claims are coded accurately, it is important to work with certified medical coders who are well acquainted with ICD-10, CPT, and HCPCS coding guidelines.
It is also possible for healthcare organizations to implement ongoing training programs to help physicians, coders, and billing staff stay abreast of regulatory changes and changing payer requirements. Before submitting claims, you should check them for accuracy and completeness to prevent errors that result in denials.
4. Implement Automated Claims Scrubbing Tools:
Claims scrubbing tools identify potential issues such as coding errors, missing documentation, or inaccurate patient information before submission to ensure that they comply with payer-specific guidelines. By incorporating claims scrubbing into the billing workflow, providers can drastically reduce their rejection rates, allowing only clean claims to be submitted.
5. Monitor and Manage Timely Filing:
A healthcare provider must have clear protocols in place to ensure timely filing requirements are met. Payers have different deadlines for submitting claims, and failure to meet these deadlines will result in automatic denials. Establish a claim submission schedule and use claim management software that sends alerts when submission deadlines approach to prevent late submissions. It is safer to file timely and avoid avoidable delays rather than forfeit reimbursements.
6. Develop a Denial Management Team:
If denied claims are handled promptly and efficiently, a dedicated denial management team should be created. When appropriate, this team should be trained to identify the cause of denials, address any patterns of denials, and submit timely appeals. To identify trends in denials and to implement corrective measures, the denial management team should work closely with billing staff, coders, and providers.
Developing a denial dashboard with real-time metrics and data can provide valuable insights into denial trends, enabling RCM teams to identify recurring issues and focus on high-impact ones. By analyzing denial patterns broken down by payers, service types, and denial reasons, claims processes can be improved strategically.
Strategies for Appealing Denied Claims
Despite proactive measures, many claims will nevertheless be denied. An appeals process that is well-organized and systematic can maximize the chances of successfully overturning denials and recouping claims.
Review and Clarify the Denial Reason: A claim that has been denied should be appealed by reviewing the Explanation of Benefits (EOB) or denial letter from the payer. This document provides insight into why the claim was denied. After identifying the reason for the denial, gathering the necessary information and documents will help to refute it.
Submit a Timely and Detailed Appeal: The payer’s specified deadlines should be followed when filing an appeal. All necessary documentation, such as clinical records, correct coding, and previous communications with the payer, should be included in the appeal letter. In addition to addressing the denial reason in the appeal, providers must present a compelling case for approving the claim.
Track and Follow Up on Appeals: In order to manage appeals effectively, persistence is essential. It is important to closely monitor appealed claims, as well as regularly follow up with payers for status updates. To ensure that nothing slips through the cracks, tracking systems can be utilized to keep track of appeals.
The Benefits of Outsourcing Denial Management
In healthcare organizations that struggle with high denial volumes, outsourcing denial management to specialized providers can be very beneficial. Denial management service providers bring a wealth of expertise and focus solely on identifying root causes of denials and improving claims processes. Furthermore, outsourcing ensures managing denied claims is handled by experts with the time and knowledge to handle them effectively, freeing up internal RCM teams to focus on higher-level tasks.
Healthcare organizations can address systemic revenue cycle issues by tracking and reporting denial trends using advanced analytics from denial management companies. By outsourcing, managing denied claims can be optimized, appeals can be processed faster, cash flow can be improved, and aged receivables can be reduced.
Managing denied claims effectively is crucial to maintaining financial health in today’s healthcare industry and ensuring providers receive the reimbursements they deserve. Healthcare providers can reduce the number of denials by proactively implementing robust verification, coding, and documentation processes.