The Cost of Denial Management in Hospital RCM

 In Advantum Health Blog, Revenue Cycle Management

Nationally, denial management costs hospitals roughly $262 billion per year, creating significant cash-flow issues with their revenue cycle management.

On average, insurance companies initially deny about 9% of hospital claims, which means that hospital staff are continually engaged in denial management and appeals. Of these denied claims, hospitals typically claw back about 63% at an average cost of $118 per claim plus the amount of time staff spends on the denial appeal. That leaves the hospital on the hook for the remaining denied claims and in some cases billing the patient for unpaid services. Unfortunately, patients who receive surprise bills do not leave positive reviews for the hospital, which impacts satisfaction scores, causing more headaches for the hospital.

In 2017, Medicare denied close to 5 percent of claims, according to the American Medical Association’s Health Insurer Report Card. For healthcare organizations which contract with multiple payers, as many as one-quarter of claims are rejected or denied, costing them millions in lost or delayed revenue. As a result, claim denials cost healthcare organizations about 5 percent of their net revenue stream.

In the past three years, Chicago-based Cook County Health and Hospitals System lost at least $165 million in potential revenue due to widespread errors, including employee mistakes and billing lapses, according to an inspector general report cited by the Chicago Tribune… The Office of the Independent Inspector General-Cook County attributed the revenue losses to staff errors during patient scheduling, registration and coding, as well as billing mistakes that resulted from a lack of accountability. Some of the [claim denials] problems for the hospital system resulted from poor coding practices that led to wrong or incomplete coding… In addition, the inability to properly schedule patient appointments was a “central operational inefficiency resulting in a significant number of claim denials.” Further, the OIIG interviewed hospital staffers who said there are “a significant number of registration clerks, coders and billers who do not possess… the required skill sets and knowledge base” to do their jobs, according to The Tribune.Source: Becker's Hospital CFO Report

Denial management is an ongoing challenge for any hospital. Denied claims happen for a number of reasons, but most commonly, for services which did not receive prior authorization and medical coding mistakes due to undereducated staff or inadequate clinical documentation. Experts estimate that 90% of these denied claims are avoidable.

 Learn about Advantum Health’s Denials Management services. 

Consider these best practices for denials prevention to speed up your hospital’s revenue cycle:

  • Make sure the signature of the certifying physician is included.
  • Encounter notes should support all elements of eligibility.
  • Clinical documentation should meet medical necessity.
  • Include completed healthcare certifications and recertifications.
  • Implement data analytics with industry standard key performance indicators for claim denials.
  • Billing departments should diligently follow up on denials, so you know which are affecting collections and cash flow the most.
  • Have a 3rd party perform a medical coding audit to educate your staff in best practices.
  • Focus on rolling accounts receivable for accurate and effective revenue cycle reporting.
  • Use robotic process automation to determine a patient’s potential financial responsibility. Get data directly from payer websites automatically. Automating authorization from initiation to submittal can reduce authorization-related denials and denial write-offs.
  • Use CMS’s Targeted Probe and Educate (TPE) program to help reduce claim denials and appeals through one-on-one help with Medicare and Medicaid claims. Medicare Administrative Contractors (MACs) work with staff to identify errors and help correct them.
  • Make it standard procedure for your team to work on denied claims every single day. Just because a claim was denied once does not mean it will be permanently denied. Your billers should be able to make the necessary adjustments and capture the reimbursement.
  • Consider outsourcing this part of your RCM to a denial management company with expertise in pre-authorizations, coding, and the many intricacies of healthcare billing.

The best way to avoid denied claims is at the start: focus on the submission of quality, clean claims, as they are far less likely to be denied.

Let’s talk about your denials management problem.

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