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Denial Management in Healthcare: How to Improve Your Bottom Line

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For healthcare organizations of all shapes and sizes, denied claims can be a major cost burden. They’re both hard to avoid and costly when they happen, which is why it’s critical to have a comprehensive plan in place to manage denied claims and prevent future claim denials.

This guide will cover three main subject areas to help you understand:

  • How claim denials can negatively impact healthcare professionals
  • The types of claims denials, their root cause, and how to avoid each one
  • Why implementing a denial management process is key to improving your bottom line

By the time we’re done, you’ll know not just how to avoid a denied claim and prevent denials, but also how to deal with them when they happen. You’ll also know the value of an effective denial management process. But first, let’s define medical claim denials and their management.

What are Medical Claim Denials and What is Healthcare Denial Management?

When healthcare recipients—patient-consumers—purchase healthcare services or products, there are other third parties involved as payors that cover some or all of the costs of the purchase. Most often, these payors are insurance providers or governmental programs.

In the process of medical billing, the healthcare organization submits payment claims to the payor, who will accept the claims and pay them. A claim denial occurs when the payor denies or rejects the claim and does not pay it. See our blog for more on medical billing tips.

A claim rejection typically happens when an error is identified prior to (or in the early stages of) claims processing. Denials, on the other hand, happen later, after a claim has been processed. This makes them especially difficult to deal with—which is where a claim denial management process comes in. For more information on the appeals process and appealing a denied medical claim, see our blog.

The Major Impacts of Denied Claims on Healthcare Providers

The most obvious and immediate impacts that denied insurance claims have on doctors, hospitals, and other healthcare organizations are financial. Namely, a claim denial results in a delay of payment, which might also extend indefinitely – meaning that a given service or treatment is never actually paid for. Depending on the severity of the denial and the scope of the payment itself, one individual claim denial may not be extremely impactful in the medical billing process.

But falling into a habit of neglecting these preventable denials can result in large, long-term costs and lost revenue that a healthcare organization may never be able to recover.

Beyond Immediate Costs: The Long-Term Effects of Claim Denials

The immediate delay in payment from denied healthcare claims is far from the only impact it can have on your practice. Most claim denials are recoverable directly from the payor. All it may take is reworking the claim, ensuring it is correct, and resubmitting it. But that’s not always the case.

In some instances, the work of addressing denials and correcting a claim may be arduous and resource-consuming in its own right. On average, the work of re-submitting a corrected claim costs $1,181, but that number varies depending on the fees, research, staffing, and resources required for any individual claim.

For claims that cost much more than the average, it might cost less to actually let the rejected claims go uncorrected, eating the loss. In other cases, billing or involving the patient may sour patient satisfaction and your payor-provider relationship with them, which can lead to further PR and opportunity costs down the road. All of this means it’s essential to take steps to prevent denials in the first place with an effective denial management process – or with outside help using our denial management services.

Categories of Claim Denials Impacting Healthcare Providers

The impact of a denial claim often relates to its specific denial reasons, which can determine the next steps for the patient, provider, insurance company, and all other stakeholders involved. However, denials are more generally categorized into “soft denials” and “hard denials.” A soft denial or initial denial is a denial that is potentially reversible by taking appropriate corrective actions before resubmitting. A hard denial is, on the other hand, not reversible. Both soft denials and hard denials have an underlying reason – to that effect, there are three main categories that encompass most reasons for claim denials:

  • Administrative denials, usually involving one or more coding errors upon submission
  • Clinical denials, usually involving patient eligibility or more technical details
  • Policy denials, usually involving details of the given health insurance policy itself

While there is crossover, these are the most common. They also commonly apply to another facet of claims management, prior authorization denials. Let’s take a close look at each root cause, what causes it, and how you can deal with it.

Administrative Claim Denials 101 and How to Deal with Them

The most common and avoidable denials are administrative or technical in nature. Administrative errors are directly related to missing data or errors in the medical coding and claims submitted to the payor. The errors result in denial codes, which indicate what was wrong with the medical claim and can help you categorize denials.

For example, a denial coded with CO is related to a Contractual Obligation, whereas one coded with PR relates to Patient Responsibility. These medical billing codes also indicate what to do with the denial, as a CO should be corrected internally, whereas a PR denial may need to be billed to the patient.

Other common codes include Other Adjustment (OA) and Payor Initiated Reduction (PI). These are highly variable and may relate to a combination of clinical and policy-related issues.

Clinical Claim Denials 101 and How to Deal with Them

Another common reason a claim you submit to a payor may be denied has to do with what they deem as “clinical” reasons. These usually relate to whether or not the patient care received is considered “medically necessary” or “appropriate” by the payor.

The metrics by which necessity or propriety is determined will vary depending on the payor, the patient, and the policy. Typically, they relate to the kind or extent of service(s) or product(s) provided, the length or duration of patient care, and how these intersect with the patient’s health condition(s) or disorder(s).

Likewise, dealing with these is highly variable and revolves around careful communication with the patient, payor, and all other parties involved in treatment.

Policy Claim Denials 101 and How to Deal with Them

Finally, the last common type of claim denial is related to specific insurance coverage details of the policy that would (or wouldn’t) cover the payment in question. These are the most variable of all, as they may involve a combination of coding errors and considerations related to medical necessity or appropriateness outside of the general scope of administrative or clinical denials.

For example, your patient may carry a unique insurance plan that foregoes coverage for certain procedures or types of medication, such as more experimental options. For denials from payors in situations like these, it’s imperative to expand the scope of communication and work closely with both the payor and the patient (before, during, and after the issue arises) to avoid costs.

Improving Your Bottom Line with Claim Denial Management In Healthcare

Given the impacts of claim denials on healthcare organizations and the various reasons they occur, it’s essential to take an active approach to healthcare denial management with your insurance carrier. Denial prevention and navigation come down to three key steps:

  • Step 1: Proactive understanding – Doing a root cause analysis and gathering information about your patients and payors, their policies, and past denials to better prepare for future billing cycles
  • Step 2: Integrity in processing – Prioritizing accuracy and timely filing, along with any reparative work needed, including allocation of resources to a denial management process or denial management team
  • Step 3: Relationship building – Communicating clearly with all stakeholders and establishing transparency to foster strong, lasting relationships despite denials

Importantly, these steps are not stagnant but cyclical and continuous. To help implement all of them, it may help to partner with a payor management service provider like PayrHealth. Not every healthcare organization has resources or cash flow for a dedicated denial management team, meaning a service provider can be a valuable investment in your revenue cycle.

Denial Management Services with PayrHealth

A denial management solution can help prevent future denials and free up resources for what matters – patient care. The team of experts at PayrHealth is happy to work with your staff to actively manage claim denials and all other elements of your relationships with payors and patients through our denial management in healthcare system. Plus, we’ll also help you implement a growth strategy that leverages four key payor management pillars:

We know how painful claim denials can be for all parties involved in the healthcare industry. That’s why we want to work with you, your patients, and your payors to reduce denials and provide effective claims management. To see how powerful your effective denials management approach to payors can be, contact us today!


    1. Beckers Hospital Review. Denial rework costs providers roughly $118 per claim: 4 takeaways.
    2. Fast Pay Health. 11 Claim Denial Management Solutions to Improve Your Bottom Line.
    3. Fast Pay Health. Common Coding Denials You Need to Know for Faster Payments.
    4. Healthcare Financial Management Association. Success in Proactive Denials Management and Prevention.
    5. MGMA. You might be losing thousands of dollars per month in ‘unclean’ claims.
    6. NThrive. Technical and Clinical Denials: 8 Top Questions Answered.
    7. Revcycle Intelligence. Overcoming the Top Challenges of Claims Denial Management Audits.
    8. RXNT. The Financial Impact Of Denied Claims: It’s Bigger Than You Think.
    9. Theranest. Denial Management Best Practices.

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