Strategies for Combating Increased Denials in Healthcare RCM 

Introduction

Claim denials represent a major obstacle for providers when it comes to ensuring their cash flow in the nuanced universe of healthcare revenue cycle management (RCM). Successfully working with these denials will help organizations get paid for the services they are rendering.

The bottom lines of healthcare organizations are continually under immense pressure due to wage inflation, rising costs, lagging patient and service volume, and pandemic-driven uncertainty. This situation is further exacerbated by unresolved claim denials, which represent an average annual loss of $5 million for hospitals and represent up to 5 percent of net patient revenue.

Denial rates for hospitals have increased by over 20% in the past five years, with an average denial rate of 10% or higher. In 2021, survey respondents reported an average increase in denials of 17 percent on the practice side, according to a Medical Group Management Association (MGMA) stat poll. As many as 60% of returned claims are never resubmitted, and nearly 20% of all claims are denied, according to industry averages. The cost of reworking or appealing denials, which averages $25 per claim for practices and a staggering $181 per claim for hospitals, further exacerbates the impact on the bottom line.

The good news is that claims are not inevitably relegated to the write-off bin as a result of denial. In reality, up to two-thirds of rejected claims are recoverable. Finally, we look at the state-of-the-art in denial management and how our technical capabilities are constantly evolving to automate this all-important process. By taking the proper steps, health care organizations can take some of the sting out of denials and protect their revenue and streamline processes. Continue reading to learn more about it and discover some useful tips that will assist you in streamlining your revenue cycle via RCM denial management.

Procedures for the RCM Denial Management Process

Providers should adhere to four important measures in RCM denial management process. First, determine the reason for the denial of a claim. Secondly, deal with the issue in order to manage the claim. Third, keep an eye on other claims regarding the matter. Lastly, develop a strategy to prevent future denials.

According to Curlett, insurance companies are motivated to compensate only legitimate claims. They cannot anticipate that the provider will enforce their own policies. They will discover any discrepancies in your claim and deny it accordingly.

Therefore, it is imperative to respond appropriately.

In order to ensure that a denial is converted into revenue, we consistently adhere to a set of essential steps whenever we receive one. We identify the underlying cause of the claim denial, implement immediate corrective measures, and subsequently integrate this valuable information into our prevention program with the objective of minimizing the number of incoming claims.

The following are the primary steps in the RCM denial management process.

Identifying the problem

The initial stage involves the identification of the claim problem.

A claim adjustment reason code (CARC) is appended to an explanation of benefit (EOB) form by payers when they reject your claim. The payer’s rationale for rejecting the claim is delineated in the code.

There are a variety of reasons why a claim may be denied by the payer when we submit it. Common causes include technical constraints on the provision of the service, non-coverage of the service, and a lack of prior authorization. Denials can result from even the smallest of errors, such as an incorrect insurance policy number or a misspelled last name.

To understand the rationale behind the denial, the denial management team is primarily responsible for interpreting the CARC code. The CARC code can be challenging to comprehend; however, our primary goal is to figure out the cause for the payer’s rejection of the claim. 

Frequently, the denial management team must communicate with the payer in order to comprehend the problem. 

Handle

Now that you are aware of the reason the payer denied your claim, you can take the necessary measures to resolve the issue and receive payment. You formulate a strategy to rectify the error and resubmit the claim. This is also known as appeal management.

Typically, the payer permits the correction and resubmission of the claim within a specified timeframe; it is crucial to comprehend and comply with this timeline. Your right to payment is forfeited if you fail to resubmit within the designated time frame.

Numerous claims are simultaneously processed by the majority of healthcare providers and clinics. Therefore, they prioritize claims and adhere to a protocol to guarantee that they address denials promptly and do not forfeit funds.

Observe

This stage involves the monitoring of denials to ascertain their categories and volumes. Subsequently, you organize the denials according to their nature, date of receipt, date of appeal, and result.

You also organize the insurance payers and the reasons for denials. With this intelligence, they can engage in discussions with the insurer regarding more effective strategies for decreasing claim denials.

Prevent occurrence

You execute an exhaustive prevention strategy in the final phase.

A significant number of claims can be avoided through the process of prevention, which involves ensuring that our pre-billing procedure is robust. This process begins with the enhancement of front-end processes.

Prior to the provision of services, pre-billing involves the verification of card copies, the verification of multiple checks and balances, the confirmation of members’ eligibility and benefits, and the completion of all necessary preparations.

The labour persists even after appointments have been scheduled.

Whether or not the codes are chargeable to the particular payer is something that we check. We perform all of these validations prior to submitting claims, underscoring our dedication to proactive measures from the outset.

It is inevitable that individuals will make errors; however, this does not necessitate the accumulation of more significant issues.

A successful organization with robust denial management practices will extract common system weaknesses from past data, as a good denial management team will learn from their errors. For instance, the pre-billing team becomes exceedingly vigilant in its examination of this issue in the event that numerous claims are rejected as a result of prior authorization issues.

Denial Types in RCM

Two categories of denials are discussed by certain professionals: hard and soft. It is challenging to appeal hard denials, which typically pertain to clinical matters. Minor technical errors that are readily rectifiable are the subject of soft denials. Additionally, you may encounter terms such as administrative, technical, and clinical denials.

Nevertheless, Waldorf asserts that those designations are not frequently encountered in the context of denial management.

In practice, we do not formally classify denials as ‘soft’ or ‘hard’; rather, we endeavour to appeal all potential denials. Nevertheless, we do occasionally employ the terms when communicating with external stakeholders, such as healthcare organizations, due to the fact that distinct denials necessitate diverse workflows. It facilitates our elucidation of our approach to managing the various denials they may encounter.

The following is a more comprehensive examination of denial terminology

Hard refusals:

In technical terms, a strong denial is a resolute refusal to pay the claim. The provider must initiate a formal appeal procedure in order to contest these types of claims. The provider may abandon the claim due to the complexity of this procedure, which results in lost revenue.

Typically, hard denials are the consequence of the provider failing to adhere to pre-authorization procedures, the recipient determining that the service is not covered, or the provider filing the claim too late. Preventable and clinical denials are the two subcategories of severe denials.

A preventable denial is a denial of an insurance claim that could have been avoided or mitigated by implementing the appropriate measures. Accurate patient information, correct classification, comprehensive documentation, timely claim submission, and adherence to insurance policies are frequently the focus of these measures. Healthcare providers can optimize their revenue collection processes and decrease the probability of preventable denials by proactively addressing these factors.

Clinical denials are harsh denials that occur when a payer refuses to reimburse due to their disagreement with the clinical justifications that the provider used to justify treatment. For instance, clinical denials may result from incorrect coding, uncovered services, or a lack of medical necessity.

Soft denials

Soft denials are denials of insurance claims by a payer, citing reasons for coder education that are typically administrative or procedural. Soft denials, in contrast to hard denials, are more of a definitive action that necessitates a formal appeal. Actually, they are generally viewed as temporary, which means they may be either corrected or resubmitted with additional information or explanations. 

Scenarios of RCM Denial

Common RCM denial scenarios involve errors such as lacking information or coding errors. Additionally, denials will be based on patient eligibility and prior authorizations. The clearinghouse electronically transmits the information when an insurance claim is filed with the payer by the healthcare provider. It is returned to the provider for correction and is rejected if an issue arises. If no faults are found, the claim is sent to the payer. 

At this time, the payer will enter the adjudication stage, at which time they will thoroughly review and determine whether to accept or deny the claim based on medical necessity and policy terms. When a claim that had previously been approved by the clearinghouse is denied by the payer, it is generally indicative that the provider did not follow the correct submission process.

The following is a concise overview of the primary reasons why creditors reject claims

Invalid and incomplete information, as well as missing modifiers

A vacant field, such as the social security number box or the demographic information fields, may be a problem. A technological problem may also be present, such as the absence of a modifier. A modifier is a two-character code that indicates a service change without a corresponding code change.

Another prevalent issue is the absence or misspelling of a last name, as well as the absence of a date for the commencement of a medical emergency or condition.

A denial and the necessity of claim adjustments will result from inaccurate information regarding the patient’s date of birth, gender, and other pertinent details. Additionally, ensure that claim numbers, insurance payer details, group numbers, diagnosis codes, and other pertinent information are included.

Qualifications

Eligibility concerns typically arise when your team is unaware of the patient’s extent of coverage. Typically, this occurs when the provider fails to verify the patient’s insurance information. Occasionally, the payer may be prompted to locate a different patient due to a misspelled last or first name.

Prerequisites for medical necessity

The payer disputes the physician’s assessment of the necessary services to address the patient’s condition, and the policy does not provide coverage for medically superfluous healthcare services.

Modifier and coding errors

Medical coding professionals convert the specifics of a patient’s appointment into claim codes.

Medical coding encompasses each interaction between the patient and the provider, including admission, treatment, and discharge. The diagnosis code may not correspond with the procedure that was conducted by certain coders. The insurance company will likely reject the claim if the scribe fails to rectify the error, as the treatment does not correspond to the health condition.

Unrecognized services

In this instance, the payer determines that the medical service is not included in the approved list of covered procedures and services.

Failure to obtain prior authorization

In the event that healthcare providers fail to adhere to prior authorization guidelines, payers deny claims. These guidelines may prove to be perplexing. The American Medical Association (AMA) reports that 64% of physicians are unaware of which procedures or tests necessitate prior authorization.

Failure to timely submit or file the claim

You are required to submit your claim within the time frame specified by the payer. Even if your claim is not deficient, the payer will reject it if you submit it after the deadline. This rule also applies to any claim modifications that you make when appealing a denial.

The Effects of Denials on RCM

Health care providers encounter obstacles when an insurance company rejects a claim. For instance, the denial causes a delay in their payment and disrupts their cash flow. Additionally, it elevates the provider’s administrative expenses. Nevertheless, it is possible to address these issues through the implementation of denial management strategies.

A denial rate of one percent is not a concern, as it indicates that we have successfully processed 99% of claims. However, the organization is significantly affected when this rate exceeds approximately 5%.

Financial instability may result from denial.

It impedes our capacity to manage office costs, maintain our revenue cycle, and cover day-to-day expenses. Our financial capacity to maintain operations, pay employee salaries, and provide care is limited.

In further, it is impossible to circumvent all denials.  However, it is imperative that you maintain it at a level that does not have a substantial impact on your organization. Otherwise, your revenue will be either lost or remain stuck.

Financial Consequences of Denials

The financial well-being of a healthcare organization can be substantially impacted by claim denials. When denial rates surpass 5%, they restrict cash flow and the availability of resources for patient care and employee salaries. Ultimately, the organization’s revenue is diminished by denials.

Numerous healthcare organizations are ensnared in a denial wave, which results in a sense of distress and exacerbates their problems, according to experts. Eventually, they experience a financial deficit as a result of their inability to keep up with the claims.

Operational Consequences of Denials

Cash flow is delayed and the daily operations of a healthcare organization are impacted by denials. Staff members are additionally burdened by the management of denials. They are obligated to concentrate on denials rather than other responsibilities.

Operations can be substantially affected by the administrative challenge of handling denials. Your team is responsible for decoding the EOB (explanation of benefits) that a payer sends in order to comprehend the situation. Occasionally, clinicians are involved in this, which diverts their attention from their primary objective of providing patient treatment. The objective is to optimize the efficiency of your team’s work in order to minimize operational disruptions and guarantee the seamless processing of claims, particularly for clinicians.

The Current State of Denial Management in 2023

Denial management is perceived as the most significant challenge by the majority of healthcare professionals in 2023. The finances and daily operations of the majority of healthcare organizations are substantially impacted by denies. Fortunately, the implementation of new technologies is beginning to automate the process of denial management.

Healthcare organizations from a number of states, such as Georgia, Illinois, New York, California, Texas, Florida, and others, participated in the survey in 2023. It focused on organizations with yearly revenues between $25 million and $5 billion and RCM teams consisting of 50 or more members.

The primary conclusions of the survey were that numerous healthcare organizations encounter difficulties in managing denials. Fortunately, there is a promising technology on the horizon that has the potential to automate a significant portion of this process and, presumably, decrease the average denial rate.

Index of Management Challenges

One of the most significant obstacles in RCM is denial management.

The majority of providers surveyed (59%) identified insurance denials as the most significant obstacle to their RCM. Additionally, 42% of healthcare providers reported that their RCM claim denial management process was consistently backlogged.

Providers are incurring losses.

The effect is so substantial that 22% of healthcare organizations reported a revenue loss of $500,000 to $1 million annually as a result of denied claims.

Technology is not being utilized by providers to automate and enhance denial management.

Although 43% of healthcare providers have identified claim denial management in rcm as their primary RCM priority for the upcoming year, only 15% of respondents intend to enhance the RCM process through the use of robot process automation (RPA) and 10% intend to employ artificial intelligence (AI).

In conclusion,

We are confident that you are currently capable of effectively managing a variety of healthcare claims denial management issues. Consequently, our beneficial advice will enable you to conserve 6 to 8 percent of your revenue from these issues. Aim to motivate your team and reduce the number of denials by incentivizing and training your staff.

Additionally, you may establish a robust and adaptable procedure to effectively address these concerns. Therefore, refrain from being the team that neglects to resubmit claims. Guide a team that is both proactive and well-informed in order to preserve your revenue.

Managing an in-house team for medical invoicing denial management in rcm can be a time-consuming and complex process in numerous instances. The process can be simplified by entrusting it to an external provider. Velan is a distinguished provider of denial management services that provides healthcare organizations with customized solutions. We are experts in the optimization of revenue cycles, the reduction of denials, and the resolution of intricate invoicing challenges. Please reach out to us today to discover how we can assist in decreasing the number of claim denials.

Frequently Asked Questions:

1. What is the procedure of denial management in medical billing?

The objective of the denial management service in medical invoicing is to effectively resolve claim denials through a systematic approach. It commences with the identification of denied claims through a comprehensive analysis and categorization of the reasons for denial, including insufficient documentation, eligibility issues, or coding errors. Upon identification, the subsequent step is to investigate the underlying causes of denials in order to prevent their recurrence. claim denial management this is followed by corrective actions, such as the collecting of additional information, the correction of errors, or the appeal of the denial if it is justified.

2. What exactly is RCM, and what is denial management?

Revenue Cycle Management (RCM) is the financial process of managing claims, payments, and revenue generation in the healthcare business. Denied claims are efficiently managed through denial management, which is a critical element of RCM.

It encompasses the following: the identification of the reasons for denials, the correction of errors, the prompt submission of claims, and the appeal of unjustified denials when necessary.