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Handling Denied Claims: An Essential Guide for RCM

January 31, 2024

Denied claims don’t just hinder your cash flow. They also place a significant financial burden on your patients. 

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Though it’s often overlooked in our industry, the patient’s financial experience is a core driver of RCM success. Optimizing your approach to denial management is the best way to improve the patient’s financial experience, which is a foundational piece of your organization’s long-term financial health.

To enhance your efforts in denials management, our team at Revco has compiled this essential guide to handling claim denials. We’ll walk you through the main causes of claim denials, how to master the appeals process, and most importantly, how to save time, preserve resources, and empower your patients by preventing denials in the first place.

The Denials Landscape in Revenue Cycle Management

Denied claims are on the rise. 

Change Healthcare reported a 23% increase (from 9% to over 11.1%) in claim denials from 2016 to 2022, with a significant portion of that increase coming in the final year. In some cases, organizations are facing denials for claims that, until recently, have been processed without issue. For health systems that haven’t yet adapted to this sudden rise in volume, those numbers can be much higher, as providers struggle to keep up with compounding denied claims.

Hiding behind those percentages are hundreds of thousands (or even millions) of dollars in lost cash. To put it in perspective, a 10% denial rate at the typical hospital could result in a yearly revenue loss of up to $5 million.

Worse yet, the process of resolving denied claims can detract from your organization’s financial health in a major way. According to Becker’s Hospital Review, hospitals spend an average of $118 reworking or appealing a single denied claim. As the denials roll in, that can rapidly amount to a huge volume of unrealized revenue. 

Each time a claim is denied, your RCM department is faced with what seems to be a lose-lose situation: either write off the revenue or pour additional resources into recovering it. Thankfully, there is a way to win — stopping denials before they occur.

With the right approach, nearly 90% of denials are avoidable. Here’s how you can get started.

Why Are Claims Denied?

Before your organization can proactively prevent claim denials, you must understand what’s causing them in the first place. Here’s a breakdown of the most common reasons behind denials, followed by an in-depth exploration of one particularly problematic variety: the “medical necessity” denial. 

Common Causes for Claim Denials

Missing or Incorrect Information

If a claim is submitted without all of the essential details (demographics, insurance information, diagnostic codes, etc.), or if those details are inaccurate, it will likely be rejected by the payer. Double-checking the details of all claims — ideally, by leveraging technology that checks for errors in real time — is vital.

Expired Eligibility

Occasionally, a patient will receive a service for which their insurance coverage has recently expired, leading to a claim denial. Confirming that a patient is eligible for a service before it’s rendered is the best way to minimize these types of denials.

Non-Covered Services

Even if a patient’s coverage hasn’t expired, they may still be ineligible for certain procedures or treatments. Preventing coverage denials is relatively simple: Just conduct a review of the patient’s plan beforehand and contact the payer with any questions.

Duplicate Claims

Submitting the same claim multiple times will result in a denial. To avoid these denials, implement tracking technology to flag any duplicate claims.

Bundled Services

Sometimes, payers bundle multiple services into one CPT code. 

For example, when a patient visits the doctor’s office, they’ll likely have an electronic pulse oximeter placed on their finger to measure the oxygen saturation in their blood. This procedure, pulse oximetry, has its own CPT code. However, because pulse oximetry is a routine part of an office visit, a payer is likely to bundle it into the umbrella CPT code for “evaluation and management services.” So, if you include claims for both CPT codes, one of them will likely be rejected. 

To avoid bundled service denials, your billing staff must stay up-to-date with payer rules and have a thorough understanding of the proper codes and modifiers for each type of service. 

Timely Filing

Claims must be submitted within a payer-defined time frame. Often, this time frame ranges from 90 days to one year, but it’s important to stay vigilant: Some payers have windows that are as short as 15 days. If your organization fails to file in time, you’ll likely be faced with a hard denial and have no choice but to write off that revenue.

Medical Necessity

Medical necessity denials occur when a payer disagrees with medical professionals about the necessity of a service. Let’s dive a little deeper as to why medical necessity denials are so common in the realm of RCM — and how you can shore up your defenses against them.

Medical Necessity Denials: How to Win the Uphill Battle

In March 2023, a team of journalists at ProPublica investigated medical necessity denials at one major health insurance company: Cigna. They found that Cigna had implemented a review system called PXDX, which allowed the insurer to efficiently deny hundreds of thousands of claims on the grounds of medical necessity. 

The problem? Cigna’s doctors didn’t actually review the health insurance claims before rejecting them. According to ProPublica:

Over a period of two months last year, Cigna doctors denied over 300,000 requests for payments using [the PXDX] method, spending an average of 1.2 seconds on each case.

This method isn’t unique to Cigna. Other health insurance powerhouses (UnitedHealthcare, Anthem BCBS, etc.) also deny claims based on lack of necessity without conducting a thorough review. For RCM teams that work with payers like these every day, a question arises: How can you prevent medical necessity denials when they’re occurring automatically?

For RCM leaders, there’s good news and bad news. The bad news: You can’t realistically expect to avoid every denial up front. The good news, though, is that you can lay the foundation for a streamlined appeals process that minimizes resource drain. 

To set your team up for success in denials management, you’ll need to prioritize high-ROI denials, invest in outstanding people and technology, and revamp your documentation processes.

Best Practices for Handling Denials

Let’s review the core pillars of a successful denials management strategy. 

Prioritize Denials

As with any process in RCM, your first step should be to define which denials will generate the most value with the least effort. During this phase, data analytics is your closest ally.

By leveraging the four pillars of RCM analytics — descriptive, diagnostic, predictive, and prescriptive — you can evaluate which payers will respond most favorably to appeals and identify which claims harbor the greatest potential payday.

Once you’ve ranked your claims by importance, you can begin the appeals process, working your way down the priority list. 

Assemble the Response Team

For your appeals to be as successful as possible, you’ll need an outstanding response team. Your team should be able to easily tap into expertise from a wide range of departments. Members should have experience in the fields of admission/registration, case management, patient financial services, IT, compliance, and of course, care provision — doctors and nurses.

This adept, adaptive team will help your organization understand the root causes behind denials, define and surpass industry benchmarks, and illuminate any issues in the appeals process for prompt resolution. 

Quickly Take Action

Now that you have your all-star team in place, it’s crucial to strike while the iron’s hot. Newly active denials are often the easiest to overturn, and waiting too long increases the risk of an unfavorable result (or a missed filing deadline). While denials can be overturned at every stage (Revco specializes in doing just that), it’s best to stay ahead of the game so you can keep your organization’s cash flow steady. 

Enhance Documentation Practices

Documentation is the pillar of successful appeals — especially medical necessity denials. 

We’ve already seen how payers often reject claims without an in-depth review. The key to overriding those denials is powerful, comprehensive documentation. If a patient requests that Cigna pay for a blood test to confirm an iron deficiency, and Cigna refuses on the grounds of medical necessity, your team will need documentation that clearly demonstrates that the test actually is necessary. 

Typically, you must demonstrate the service was:

  • provided for the diagnosis, treatment, cure, or relief of a health condition, illness, injury, or disease,
  • necessary for and appropriate to the diagnosis, treatment, cure, or relief of a health condition, illness, injury, disease or its symptoms,
  • within the generally accepted standards of medical care in the community, and/or
  • not solely for the convenience of the insured, the insured’s family, or the provider.

To do this, your team needs to ensure that your data (patient information, diagnostic codes, treatment details, etc.) is accurate and complete. Remember: Even if you have rigorously demonstrated that a service was medically necessary, your appeal could still fail if you’re missing basic patient information!

Build Bridges with Payers

Of course, your RCM team and the payer are inherently at odds: You want them to pay, and they want to pay as little as possible. However, you both benefit from resolving appeals issues efficiently.

Using this common goal as a foundation, your team should work to establish strong relationships with payers. No matter the result of an appeal, a spirit of collaboration will get both parties there faster, which saves resources all around.

Continuously Invest in Your People

In the realm of denials management, knowledge is power. Educating and empowering your staff is the best way to make them more effective in the appeals process.

You should regularly train your administrative and billing staff to keep them up-to-date with the best practices in coding standards, insurance policies, wide-scale payer trends, and claim submissions.

Leverage Technology

People work best when they’re equipped with robust technology, and technology works best when it’s guided by talented people. As you train your RCM team, you should also equip them with the business intelligence tools that will catalyze their work, identifying and projecting patterns and trends that will help your organization maximize its time investment. 

With top-notch training for your people and cutting-edge technology for your team, your denials management department will hum along like a well-oiled machine, boosting your cash flow and cementing your long-term financial health.

Proactively Prevent Denials With Revco

Winning more appeals is a great way to enhance cash flow. The best way is to avoid denials before they happen. Our team at Revco would love to partner with your organization to do just that.

Whether a denial is newly active, aged, or closed, we’ll diligently guide it to a positive outcome. More importantly, our team will investigate the patterns and trends behind your denials to help you prevent them in the first place.

If you’re ready to lower your write-offs and maximize your revenue, we invite you to explore our denials management capabilities today. 

Affiliations Audits & Achievements

  • HFMA: Healthcare, financial, management, association
  • AAHAM: American Association of Healthcare Administrative Management
  • ACA International

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