Healthcare organizations' annual losses from denial write-offs range from as little as 1 percent of net patient revenue to as high as 4 or 5 percent, according to Advisory Board.
There are organizations that see up to 15 to 20 percent of all claims come back with an initial denial when they first bill it, according to Advisory Board's Jim Lazarus. That means these organizations have to rework or appeal one out of every five claims.
What are the most common reasons for denials?
Demographic and technical errors are far and away the leading source of both initial denials and write-offs reported in Advisory Board's 2015 Revenue Cycle Benchmarking Survey. These errors could include a missing modifier, having the wrong type of plan code or not having the patient's Social Security number. According to the survey, 61 percent of initial denials are due to demographic/technical errors, followed by eligibility (16 percent) and medical necessity (12 percent). Forty-two percent of denial write-offs are due to demographic/technical errors.
The survey also found that more than half of all denials (54 percent) are now attributable to commercial payers, much higher than reported 2013 rates (43 percent). Additionally, anecdotal reports also suggest these payers carry more complex requirements than government payers, creating more work for teams that follow up on denials.
How can organizations work to reduce denials?
1. Change the paradigm in denial management. Organizations try to solve the issue of claims denials by deploying additional staff and communicating with their payers. But Mr. Lazarus encourages organizations to make a fundamental shift to proactive denial management. He says hospitals and health systems must focus on preventing denials by deploying technology to automatically and proactively flag claims likely for denial and address these claims before they are submitted. Combined with better communication with payers, this can help healthcare organizations to drastically reduce denials.
2. Use predictive analytics. Organizations can use predictive analytics to anticipate which claims a payer is likely to deny and why. This allows hospitals and health systems to provide the information the payer needs before the payer has a chance to deny the claim. "Organizations really have to be deploying those capabilities and leveraging them to really change the paradigm because in the end these technologies are cheaper than solving the problem through staff or seeing net revenue losses mount up as they struggle with denials," Mr. Lazarus says.
3. Invest in relationships with payers. Mr. Lazarus notes that some providers are aggressively negotiating with payers to get rid of contract requirements that frequently lead to denials that are overturned on appeal.
Some organizations are sophisticated enough to access and leverage data needed for lobbying payers to remove rules leading to frequently overturned denials. "Denials are meant to keep providers in line to be reimbursed what is owed and the best organizations are changing contracts to make that happen. Everyone should be examining this, but not every organization is in that position," Mr. Lazarus says.
4. Focus on quality of patient data. Mr. Law notes that denial occurs when the carrier can't identify the patient. Therefore, providers must ensure they have policy numbers and names spelled correctly so things line up in the payer's system. According to Mr. Law, there are approximately 350 data elements in a claim, and errors in any element represent a potential denial.
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