Claims denials continue to be a thorn in the side of most healthcare organizations. The transition from manual to electronic value-based car denial preventiondocumentation and billing has helped but denial rates still consume an average of nearly three percent of an organization’s net revenue annually. In recent years, denials have grown to encompass 15-20 percent of the billing value of total claims. That can mean a $6 million hit for a 200-bed hospital to over $260 million for an 1100 bed facility.[1]
And things don’t figure to get any easier. The switch from fee-for-service to value-based care will complicate billing even further despite new technology solutions. Value-based payments are complex and will undoubtedly lead to more denial issues.
Reducing revenue leakage due to denials is usually at the top of every organization’s focus list. Here are three things you can do to better manage your claims process and minimize denials.
Move from static metrics to evolving trends
Management consultant Peter Drucker has said what gets measured, gets done. But you won’t be successful in resolving a problem unless you’re using the proper measurement. Using the wrong metric is one reason organizations fail to get their arms around denials management.
Traditionally, most organizations use ‘net denials as a percent of net revenue’ as their main key performance indicator (KPI) when measuring denials. To calculate this KPI, providers must track total dollars written off due to payer denials that are either not challenged with appeal or have exhausted all avenues for appeal. Most healthcare associations rate a 2-4% net denials rate as top performing, 4-6% as very good and anything higher as a significant problem. Within this metric, denials are defined as claims that are justifiably denied by a payer and therefore need to be written off.
All that is technically correct, but the metric is misleading. It doesn’t consider accounts that have been denied partial or full payment but remain on active accounts receivable (A/R) while the claim is being investigated. Because of the complexity of identifying, segmenting, tracking, and reporting every payment delay and denial, this data is not usually available for this section of A/R.
Triage, an organization that assists providers in identifying and capturing lost revenue, estimated that anywhere from 30-70% of active hospital A/R is pending due to a payment delay or denial. The same study also revealed that 60-98% of all “denied” claims are eventually paid the full expected amount but the negative cash flow impact isn’t captured when using the “net denials” metric.
Using the narrow “net denials” definition also leads to denials management programs that measure effectiveness primarily on net revenue denied or the net receivables lost due to something the provider did or did not do. These programs can mask a variety of operational deficiencies that result in higher cost and lower reimbursement.
To really understand and better manage your claims process, move away from the static “net denials” metric and build a model that provides an ongoing trend analysis by root cause owner. Conducting the analysis means identifying accounts where the primary payer has been changed after the final billing date, segregating service areas (inpatient, outpatient, ambulatory clinics, specialty units), then sorting by payer comment codes to group payment delays by reason and priority. Finally, sample select accounts to verify suspected trends, root cause, and account resolution activity. Looking at denials trends in this way will provide a much broader view of the impact of denials mismanagement.
