Denied!

Denials are on the rise, and healthcare providers are losing money because of it. According to the Change Healthcare 2020 Revenue Cycle Denials Index, the average denials rate is up 23% since 2016, topping 11.1% of claims denied upon initial submission through the third quarter of 2020. That could be as much as 3.3 percent of a typical health provider’s Net Patient Services Revenue (NPSR), an average of $4.9 million per hospital. Even prior to the pandemic, annual losses from denial write-offs varied moving into 2020. Add to that the onset of COVID-19, which became a proponent for an 11% rise in denial rates.

To put things into perspective, let us take an average 300-bed organization into consideration. Even 1% of NPSR can equate to $2-$3 million annually. For the multi-billion dollar health alliances…well, you do the math!¹ 

Change HealthCare ran an analysis reviewing over 3.3 billion hospital transactions. Here are some results:² 

• $3 trillion in claims submitted annually. 
• Payers denied around 9% of all hospital claims. 
• Typical hospitals lost around $4.9 million due to denials. 
• Typical health systems lost around 3.3% of NPSR. 

Take New Jersey for example. Over the past five years, N.J. hospitals have experienced over $400 million in denied claims. Of the uncollected denials: 

• 67% were administrative denials. Payers denied these claims strictly on technicalities. 
• 21% were clinical denials. 
• 9% were contractual denials due to providers’ billing discrepancies. 
• 3% were “Patient Responsibility.” 

Hospitals across the country have doubtlessly seen similar statistics to those experienced by New Jersey when it comes their own increased rates of denied claims. Providers who have developed aggressive denial management processes and strategies collect 70% to 80% of their denials. Those who have not experienced recovery rates in the 30% to low 40% range. 

The implementation of ICD-10 and CPT coding changes in the last several years resulted in advances in process and technology that improved billing efficiencies. Yet this also led to a shortage of qualified IT and medical coder personnel – a problem greatly exacerbated by the overall staffing shortages experienced in the healthcare industry during the pandemic – which has in turn seen a 58% increase in denied claims due to coding errors. Even with an increase from 3%-4% when ICD-9 was in effect, up to 9% following the implementation of ICD-10, billing errors still comprise less than 10% of unresolved denials. So how is it that payers are still able to avoid making so many payments?

There are several reasons. And providers and payers can both share some responsibility. But, from the provider perspective, what can be done to lower the denial rate or, at least make hospital and physician groups more successful in appealing denials and getting them overturned? 

What They Know Can Hurt You

Have providers considered the possibility that their payers are using claims history against them? A review of many articles written over the last several years on denials all suggest very similar recommendations for improvement. Hospitals need to benchmark data, hire a seasoned analyst to locate key indicators, communicate more effectively with their denials staff, increase coordination between those within the organization who negotiate contracts and those who have to bill according to the contract terms, etc. These are all strategies sure to improve the process. But how many hospitals ever consider what their payers’ strategy is? 

Hypothetically, let’s say an insurance company runs a denials report on a provider and sees they aren’t appealing denials less than $2,500. Might not the payer then create a strategy to scrutinize these lower-balance accounts for reasons to deny them? Actually, this is probably not a hypothetical. A 2020  report based on actual data from millions of dollars of denied claims reveals that low-balance, high-volume denials have created a costly, wasteful ongoing scenario. One reason for this may simply be due to the migration of many procedures and tests to outpatient settings. But there is no refuting the fact that the increase in outpatient denials is overwhelming hospitals’ in-house staff. And you can bet the payers know this. Liken it to that scene in the I Love Lucy episode, where Lucy tries to wrap the flood of chocolates coming down the conveyor belt. There are just too many to handle. If a payer sees a hospital ignoring low-balance denials, then what’s stopping them from denying more and more of them? And, what’s your counter-strategy? 

The Clock is Ticking!

One company that specializes in follow-up and collection of denials recently ran a report on all placements they received from their clients in 2017. Of the tens of thousands of accounts they received, approximately 30% of them had already timed out! The denials simply couldn’t be fought because the hospital had already missed the appeal deadline by the time the accounts were placed. Are there just so many denials that it’s impossible for in-house staff to keep up with all of them and they “fall into a black hole?” Quite possibly, and perhaps, by design. 

One thing a hospital can do is to carefully review contract language regarding timely filing timeframes; they differ from payer to payer. Also, don’t forget Medicare’s 120-day reconsideration time-frame for denied accounts. Ensure that the process – whether it is internal, or in partnership with a business associate – takes into account the timely filing deadlines, so that denied accounts go out for a second look before it’s too late. 

Three Takeaways: 

1. Denials are up across the board, and many of them fall into the low-balance, high-volume category. Fine-tune your process to make sure that low-balance denials get the attention they deserve. Segregate them from your simple re-submits. Denials require more work than insurance follow-ups; don’t lump them together! 
2. Review coding, pre-certification, and pre-authorization processes to ensure compliance with contract terms and to avoid unnecessary administrative and technical denials. 
3. Timely filing is still a big problem. Review contract terms and internal processes to ensure that they are aligned to avoid missing appeal timeframes. If you work with a business associate, make sure they get a chance to take a second look after in-house efforts are exhausted, before accounts time out. 

Because denials represent a seemingly small piece of the revenue pie, they are often overlooked. But keep in mind, there is big money in that small piece! Don’t be in denial of your denials opportunities. Those providers who have aggressively addressed their denials management processes and strategies are counting the extra cash and adding, in some cases, millions of dollars to their bottom line.