Denials rates across the healthcare industry are ranging between 6% and 13%, costing approximately 20% of total revenue cycle expenses. Most health systems lose considerable revenue as a result of payment denials even though an estimated 85% are preventable.
There are a myriad of reasons that claims are denied such as:
- missing or incorrect data
- lack of prior authorization or medical necessity
- patient eligibility
- duplicate or late submissions
- incomplete documentation
- procedure coding errors and invalid or outdated CPT or ICD-10 codes
This doesn’t take into account the administrative burden of such tasks. For example, prior authorization takes an average of 14.4 hours each week to complete.
Some individuals confuse claim denials and rejections. Claim denials occurs when a claim is processed and then repudiated by a payer. Rejection takes place when a claim is submitted to a payer with incorrect or missing data or coding.
Let’s take a deeper look at trends in denials and how to improve management of the challenges healthcare organizations often face.
The denials rates has increased by 20% over the past 5 years. The leading cause has remained consistent during this time period: 30% of them have been due to registration/eligibility issues. Other top reasons have included missing or invalid claim data, authorization/precertification, service not covered, and medical documentation requested.
Another trending challenge from this 5-year time span is the growing volume of claim denials, including those denied upon initial submission. The average rate of those grew from 9% to 10%. Half of denials are caused by front-end revenue cycle issues, but other reasons for the rise include a lack of denials resources, staff attrition, growing denials backlogs, and the use of legacy technology.
A survey from the American Hospital Association (AHA) found that 89% of hospital leaders have experienced an increase in payment denials over the last 3 years. About half of the respondents described the increase as significant. They also described failure to obtain a prior authorization as one of the most common reasons for a claim denial from a commercial health plan.
Specifically, 86% of physician respondents to a recent survey from the American Medical Association (AMA) described the administrative burden associated with prior authorizations as high or extremely high in 2019. They also disclosed that their prior authorization burden had increased over the past 5 years. On average, practices complete 40 prior authorizations per physician per week.
Let’s look at prior authorization denials rates by product type:
Prior authorization denials rate
Medicaid Managed Care
Claim denials from Medicare, Medicaid, and commercial payers continue to increase, especially commercial denials: 80% of denials are from commercial payers. Commercial and public payers are both denying about 1 in every 10 submitted claims, costing healthcare systems up to 2% of net patient revenue. On the positive side, denials to due to avoidable care have decreased 80%.
The preponderance of more coding denials from clinical validation denials (CVDs) is also a major trend that makes it difficult to determine the type of denial. Here, providers use a combination of clinical and coding references, and “payers sometimes erroneously reference guidelines in place at the time of review but not in effect at the time of service.” The problem is that those guidelines might have changed by the time of review and must be applicable to the date of the claim – even if the reference is accurate.
Detailed denials management
Perhaps the most impactful way to address claim denials is through a strong and detailed denials management process or strategy. Claim denials management is designed to investigate every unpaid claim, uncover trends by insurance carriers, and appeal rejections appropriately as per the appeals process in the provider contract.
It seeks the root cause for the denial as well as the coded cause.
Some healthcare providers still manually perform their denials management process. This often results in increased human errors and reduced transparency. Even the smallest amount of inaccurate or incomplete patient information can result in a claim being denied.
Without the right team of experts and technology to effectively prioritize, manage, and channel claims, those providers are unlikely to be able to streamline their denials management and obtain revenue they’re owed by patients and payers.
Knowing the denials rate of your practice lets you target areas that are especially troublesome for your revenue cycle. The American Academy of Family Physicians (AAFP) suggests the following method to calculate a provider’s denials rate: add the total dollar amount of claims denied by payers within a given period, and divide by the total dollar amount of claims submitted within the given period.
The AHA offers examples of payment denials strategies in use by some health plans:
- failure to obtain prior authorization
- observation status/short stay denials
- site of service exclusions
- inaccurate enrollment files
Stepping stones toward improvement
By being knowledgeable of these strategies and having the right experts in place to track, measure, and analyze denials trends, providers can better quantify and categorize denials. They can also ensure claims are submitted and appealed in a timely manner.
Identified denials trends should be addressed and fixed immediately – whether that’s accomplished internally or through collaborating with payers to address the reason(s) for the denials. It’s essential that healthcare organizations maintain detailed oversight of the claims portion of their revenue cycle.
We take a pragmatic approach when placing experts that allows us to plug into your organization’s process at any point. We can lead, plan, and manage, or simply provide highly qualified talent to fill gaps as we guide you through your project and serve as an agent of change to affect continuous improvement.