For healthcare practices and providers of all shapes and sizes, claim denials 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 them.
This guide will cover three main subject areas to help you understand:
- How claim denials can negatively impact your healthcare provider business
- What different kinds of denials there are, 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, but also how to deal with them when they happen. But first, let’s define a claim denial and their management.
What is a Claim Denial, and What is Claim 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 provider submits a claim to the payor, who will accept the claim and pay it, or sometimes deny or reject the claim and not pay it. See our blog for more on medical billing tips.
Rejections typically happen when an error is identified prior to or in the early stages of 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 claim denial management comes in. For more information on 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 providers 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 denials can result in large, long-term costs that a healthcare provider may never be able to recover.
Beyond Immediate Costs: The Long-term Effects of Claim Denials
The immediate delay in payment from a denial claim 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 to do so is reworking the claim, ensuring it is correct, and resubmitting it.
But that’s not always the case.
In some instances, the work of correcting a claim may be arduous and resource-consuming in its own right. On average, the work of re-submitting a corrected claim costs $1181, 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 claim go uncorrected, eating the loss. In other cases, billing or involving the patient may sour your payor- provider relationship with them, which can lead to further PR and opportunity costs down the road.
Categories of Claim Denials Impacting Healthcare Providers
The impact of a denial claim often relates to its specific reason, which can determine the next steps to take for the patient, provider, payor, and all other stakeholders involved. 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 more technical details of evidence in a given case
- Policy denials, usually involving details of the given health insurance policy itself
While there is crossover, these are the most common. Let’s take a close look at each, what causes it, and how you can deal with it.
Administrative Claim Denials 101 and How to Deal with Them
The most common category or reason for a healthcare claim to be denied by the payor is administrative or technical in nature. Administrative errors are directly related to errors in the medical coding the provider submits to the payor. The errors result in denial codes, which indicate what was wrong with the medical claim.
For example, a denial coded with CO is related to a Contractual Obligation, whereas one coded with PR relates to Patient Responsibility. These 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 treatment received by the given patient or client 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 treatment, 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 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
Given the impacts of claim denials and the various reasons they occur, it’s essential to take an active approach to manage denials with your insurance carrier.
Prevention and navigation come down to three key steps:
- Step 1: Proactive understanding – Gathering information about your patients and payors, their policies, and past denials to better prepare for future billing cycles
- Step 2: Integrity in processing – Optimizing speed and accuracy of the initial filing of claims and any reparative work needed, including allocation of resources to denials
- 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.
How Partnering with PayrHealth Can Improve Your Bottom Line
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 healthcare claims denial management system. Plus, we’ll also help you implement a growth strategy that leverages three key payor management pillars:
- Signing better contracts with new and existing payors, including better denial protection
- Negotiating higher rates, proactively accounting for and mitigating risks like claim denials
- Expanding your team with apt personnel to avoid all identified claim denial risk factors
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 help minimize their frequency and severity.
To see how powerful your denial management and approach to payors can be, contact us today!
- Beckers Hospital Review. Denial rework costs providers roughly $118 per claim: 4 takeaways. https://www.beckershospitalreview.com/finance/denial-rework-costs-providers-roughly-118-per-claim-4-takeaways.html
- Fast Pay Health. 11 Claim Denial Management Solutions to Improve Your Bottom Line. https://www.fastpayhealth.com/blog/claim-denial-management-solutions
- Fast Pay Health. Common Coding Denials You Need to Know for Faster Payments. https://www.fastpayhealth.com/blog/common-coding-denials-faster-payments
- Healthcare Financial Management Association. Success in Proactive Denials Management and Prevention. https://www.hfma.org/topics/hfm/2018/september/61778.html
- MGMA. You might be losing thousands of dollars per month in ‘unclean’ claims. https://www.mgma.com/resources/revenue-cycle/you-might-be-losing-thousands-of-dollars-per-month
- NThrive. Technical and Clinical Denials: 8 Top Questions Answered. https://www.nthrive.com/blog/technical-and-clinical-denials-8-top-questions-answered
- Revcycle Intelligence. Overcoming the Top Challenges of Claims Denial Management Audits. https://revcycleintelligence.com/news/overcoming-the-top-challenges-of-claims-denial-management-audits
- RXNT. The Financial Impact Of Denied Claims: It’s Bigger Than You Think. https://www.rxnt.com/the-financial-impact-of-denied-claims-its-bigger-than-you-think/
- Theranest. Denial Management Best Practices. https://theranest.com/blog/denial-management-best-practices/