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Rising Hospital Claims Denial Rates and the Case for Better Claims Management


Processing medical claims can be a daunting task. Still, it is an essential part of the healthcare revenue management cycle. While most claims are accepted and processed without exception, denials occur, and they are rising. 

Claims denials have various causes but once received, if mishandled, they could spell disaster for providers and healthcare organizations. Thus, a prevention-focused denial management strategy may reduce unpaid claims significantly.

In the debate about healthcare workflow, many argue that current in-house processes, including billing and coding procedures, are minimally effective. Indeed, there is some support for that assumption. The healthcare industry has seen a 20% increase in claim denial rates over the past five years, with a 23% increase in 2020 alone. 

These increases leave many healthcare providers perplexed. Considering the recent Public Health Emergency (PHE) due to COVID-19, some confusion of claims processing is expected. However, there is more to the substantial recent increase in denial rates than a defined medical crisis.

Current national denial rates average between 6% and 13%. HealthCare.gov’s commercial plans report denying about 17% of in-network claims for 2020. These for-profit health plans denied claims through post-payment audits, partial or line-item denials, and automatic down-coding to a less expensive procedure or service. However, data indicates that issues surrounding prior authorizations were the most troublesome.

In fact, according to a public report from the Centers for Medicare and Medicaid Services (CMS), almost 30% of Medicare claims in 2020 were either rejected, lost, or denied. Additionally, Medicare’s Comprehensive Error Rate Testing Program (CERT) found that the improper payment rate averaged slightly over 6% for the same period. CMS classifies improper payments as claims paid without supporting documentation or sufficient medical necessity. This revenue will be recouped, adding to the management staff’s burden and requiring a lengthy appeal process to recover payment.

According to recent research, of $3 trillion in total claims submitted by healthcare organizations, $262 billion was denied, an average of nearly $5 million in denials per provider. The data also showed that the cost to rework a denied claim ranges from $25 to $31.50 for each claim. For complex denials requiring medical record review, the cost escalates to more than $5,000 per denial. 

Even more impactful, 50% to 65% of first-round denied claims go unchallenged due to a lack of understanding, perceived time restraints, or inadequate procedural training. This inefficient process results in permanently unrecoverable revenue.

According to current statistics and market reports, the increase in claims denials continues without signs of slowing, which suggests a growing potential for adverse conditions throughout healthcare.

Given today’s challenges, hospitals must be proactive in developing strategies to improve revenue cycle management (RCM).

Common Areas of Claims Denial

Analysis of a survey by Change Healthcare suggests that “86% of claims denials processed between July 2019 and June 2020 were potentially avoidable.” Moreover, the highest percentage of denials involved improper front-end processing, including intake, registration, and eligibility. 

Proper registration of patients is mandatory. Front-line staff members are considered the cornerstone of the claims management process, and data accuracy at this initial stage can avert downstream denials. However, increased burdens on staff can negatively affect the initial patient contact.

Pre-authorization is both a bane and a blessing. An ongoing cycle, once received, the pre-authorization process requires due diligence. Physicians’ orders are only one part of the medical record, and keeping up with medical prerequisites requires comprehensive staff knowledge and time. Furthermore, unexpected mid-cycle regulatory changes can create chaos within the revenue cycle department, affecting patient care.

Medical coding is another foundation of the revenue cycle. Procedural coding changes can impede an accurate and thoroughly supported healthcare record; otherwise, a claim denial is imminent.

Missing or invalid claim data or non-covered services make up a surprising percentage of claim denials. At a minimum, staff should ensure that identifiers, procedure codes, diagnosis codes, and service dates are accurate, minimizing claim denials.

Sound overwhelming? It can be. But accurate and consistent healthcare claims submission and data collection is an integral part of medicine, and the “whys” are just as crucial to quality patient care as the “hows” or “costs.”

Why are denials increasing?

In most cases, the revenue cycle management team lacks the clinical experience to support appeals or manage clinical denials. While more than two-thirds of healthcare providers use electronic health records systems (EHR), it is still not enough. An ever-evolving regulatory climate and the complexity of clinical denials require continuous training. Even basic errors, without the proper procedural understanding, can affect filing deadlines and challenge revenue recovery.

Consider the bigger picture.

Inadequate workflow automation, insufficient clinical documentation, lack of communication between revenue team and medical professionals, and increasing denial backlogs equate to lost revenue.

Claim denials impact hospital revenue. In addition, rising denial rates affect patient care, quality, staff morale, and practitioner credibility, according to the American Hospital Association (AHA).

Enhancing claim denials management strategies help providers recoup lost healthcare revenue and maximize reimbursements

Many hospitals have been overwhelmed throughout the coronavirus pandemic. While unquestionably a debilitating healthcare challenge, the PHE provided valuable insight for many into their organizational operations, highlighting numerous opportunities for improvement within medical coding and billing processes.

An established best practice in determining and implementing claim denials management requires developing a comprehensive approach to improving claims acceptance rates. However, when asked, many providers view this strategy as seemingly out of reach.

The conversion process can evoke apprehension, an anticipation that significant time requirements and human resources will be spent. Thus, it frequently goes unaddressed. However, these beliefs are starting to change.

Rather than doing everything internally, 31% of providers have recognized the need to ally with a healthcare solutions company. This partnership establishes a revenue cycle management strategy, simplifies the workflow process, and reverses revenue loss by minimizing claims denials.

An Ounce of Prevention

Are you interested in implementing a prevention-focused claim denial management program but are unsure where to start? Consider outsourcing or partnering with an experienced, comprehensive healthcare solutions company. 

GeBBS Healthcare Solutions combines advanced technology, AI-driven data analysis, and a team of skilled RCM professionals to solve complex billing challenges and help providers reduce claim denials. Contact us today to learn more or request a consultation

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