Best practices for preventing claims denials, optimizing revenue capture

How much revenue do hospitals lose because of denied or delayed medical claims?

Tammie Phillips, RN, vice president of business consulting with McKesson Health Solutions, and John Holyoak, director of product management with RelayHealth Financial, discussed best practices in claims denial management and prevention during a presentation at the Becker's Hospital Review 2nd Annual HIT/CIO + Revenue Cycle Conference in Chicago on July 27.

The denials challenge
Reducing and preventing claims denials is a top strategic priority for all hospitals looking to optimize revenue capture. Unfortunately, claims denials can be a pervasive and difficult problem for revenue cycle leaders to resolve. About one in five claims for services rendered are denied or delayed at some point in time, according to PNC Financial Services. As hospital administrators bear increasing pressure to cut costs, many hospitals are looking to revenue cycle departments to reduce overhead and improve efficiency.  

Traditionally, hospital administrators focus denial management efforts on the backend of the revenue cycle in billing and coding departments. But it is important hospitals also address and resolve problem areas on the front-end of the revenue cycle that cause adjudication problems downstream. Simple registration errors, such as incorrect data entry, cause between 30 and 40 percent of payer denials. These commonly occur during pre-registration, registration, eligibility and verification processes.

Incorrect data entry or medical codingdrain hospitals' time, human capital and other resources. On average, nursing staff spend 13.1 hours per physician per week on tasks related to prior authorization. The Healthcare Financial Management Association estimates a single claim rework costs hospitals $25. This can have a profound affect on a hospital's bottom line. The Advisory Board Company estimates denials cost hospitals 3 percent of their net revenue on average.

Hospitals can improve operational efficiency and save cash by reviewing claims management processes. Effective denials management for one hospital may not look the same at another organization, said Mr. Holyoak. Hospital leaders need to custom tailor denial prevention initiatives to their organization's unique strengths and weaknesses. By deploying analytics tools to assess current revenue cycle benchmarks, administrators can focus resources to support best practices in their most error-prone processes.

Preventing denials on the front end
Eligibility errors account for 43 percent of total claims denials for services rendered, according to RelayHealth. Eligibility errors often occur when a patient has changed insurance plans. Root-cause analysis may reveal hospital staff aren't performing thorough eligibility verification to catch problems early on, said Ms. Phillips. To reduce eligibility-related denials, staff should confirm eligibility multiple times throughout the episode of care.

Registration errors are also responsible for a significant portion of denied claims. Fortunately, hospitals can leverage technology to target process issues and ensure data quality. For instance, hospitals can implement electronic registration forms that flag missing patient data or contradict prior patient records. Some technology vendors bake quality assurance tools into EMRs and other systems to account for human error in data entry. "Technology should not be used as a punitive tool, but rather an educational tool so hospitals can help staff identify pain points and fix processes," said Ms. Phillips.

Managing denials from a clinical perspective
The marriage of clinical and administrative departments is crucial to reforming hospitals' denial management prevention processes, said Mr. Holyoak. Blending revenue cycle, clinical leaders and care management staff in clinical documentation improvement initiatives can drive meaningful and long-lasting change. Seamless interdepartment communication, particularly in cases of medical necessity, is key to reducing preventable insurance denials after services are rendered.

Below are key medical necessity denial prevention strategies for clinicians.

  • Ensure medical necessity is validated by the payer prior to each admission.
  • Ensure medical review is conducted on admission and repeated every couple days during hospitalization.
  • Ensure evidence-based content is used correctly.
  • Ensure clinical documentation supports decisions made and level of care.
  • Educate physicians about the affect of clinical documentation practices on charge capture and revenue cycle performance.
  • Ensure nursing and other departments are equally invested in length of stay management.
  • Ensure the medical review demonstrates holistic understanding of the patient with a clearly articulated medical and discharge plan.

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