Revenue Cycle 101: Understanding Denial Management in Healthcare 

In the ever-evolving healthcare landscape, claim denials often become a thorn in the side of providers and physician practices, costing them financially and draining them physically and mentally. Changing payer behavior and growing staff shortages and burnout further add to their woes. This domino effect can be sensed across the board, landing providers with a heap of claim denials while also hindering their pursuit to delivering high-quality patient care. This makes timely and effective healthcare denial management critical to their financial and operational sustenance.  

Decoding claim denials 

A claim is said to be denied when the payer refuses to pay for the services by the healthcare provider. Such denials can result in delayed payments and, in some cases, total revenue loss for the providers, if not they are timely appealed or reworked. This not only affects their financial viability to serve patients but also impacts their patient satisfaction score. This makes claim denial management a non-negotiable aspect of healthcare revenue cycle management (RCM). 

Through this guide, we’ll help you navigate healthcare denial management, understand why it is critical for your practice, and how you can strategize your way to RCM success with a forward-looking approach to denial prevention to minimize your claim denials, administrative costs, and staff burnout and maximize your prospects of revenue integrity and recovery while staying focused on patient care. 

What is claim denial management in healthcare? 

Denial management is a systematic way of investigating the root cause behind each payer denial, carefully analyzing similar denial patterns occurred in the past, and taking corrective measures to resolve them and prevent them from happening in the future. Every year, providers lose revenue (in billions) to claim denials stemming from process inefficiencies due to manual errors, siloed workflows, lack of access to unified data, staff shortages and burnout, and insufficient RCM expertise and technological infrastructure to identify and fix denials.   

Besides financially impacting the health of the practice in the form of increased accounts receivable (AR) days, cost to collect, and stagnant cash flow, claim denials affect the patient experience with their provider. 

This makes a robust claims denial management strategy imperative for the financial and operational success of practices, best achieved through revenue cycle optimization, from the front-end through to the back-end processes. 

The industry trends indicate the pressing need for denial management  

The industry statistics emphasize the urgent need for denial management in healthcare: 

1. Around $19.7 billion was spent by health systems in 2022 to overturn denied claims. 
2. An estimated $43. 84 is spent as an average cost of fighting a claim, excluding additional clinical labor cost. 
3. About 15% of claims submitted to private payers are initially denied. 
4. About 65% of denied claims are never resubmitted, causing significant revenue loss for the providers. 

Reinstating the growing pressure of claim denials on health systems, a new study by the American Hospital Association (AHA) reveals that in 2023, health systems continued facing challenges on account of high labor costs and low reimbursements from insurers, and that commercial payer practices increased hospital costs and hampered access to care due to delayed/denied payments.  

The good news: around 90% of denials can be prevented and an estimated two-thirds of all denied claims are recoverable with front-end, mid-cycle, and back-end improvements.   

But before we delve into healthcare denial management strategies, it’s important to look at the impact of claim denials on providers and the common reasons behind claim denials. 

How do claim denials affect healthcare providers? 

The mounting volume of denials eventually hurts the financial backbone of the practice, impacting patient experience as well. Here are the ways in which claim denials can impact providers: 

Delayed or lost revenue: The immediate negative impact of any claim denial appears on the financial state of the provider as a result of the lost income. Even appealing a rejected claim cause temporary revenue loss, impacting the finances of the organization.  

High administrative costs and burden: Each claim rejection by the payer adds to the cost of reworking that denial, adding to the staff burden as well. Since reworking a claim requires time and resources, the overall operational cost increases for the healthcare provider. 

Unhappy patients: Frequent denials can contribute to poor patient experience with the provider if they need to pay unexpected out-of-pocket expenses and face inconvenience throughout the process. 

Types of claim denials 

Errors arising in the front-end, mid-cycle, and back-end processes of RCM may lead to claim denials, which can be broadly categorized as soft and hard denials.  

Hard denials: These denials happen when the payer denies payment for the service not covered under the plan. Even appeals can fail to reverse such denials, resulting in absolute revenue loss for the provider. 

Soft denials: These denials, on the other hand, are those that can be appealed to an issue like missing data or lack of documentation. Soft denials are temporary and have the potential to be reversed if the provider makes necessary corrections in the claim or provides the required information. 

Medical billing denials  

Claim denials may happen due to various underlying systemic and manual errors, and here are some of the common causes behind denials. 

1. Missing information or inaccurate documentation  
2. Unauthorized services; medical necessity 
3. Coverage limitations; benefits exceeded 
4. Coding and billing errors 
5. Compliance-related errors 
6. Missed claims filing timelines 
7. Place of service (POS) and procedure mismatch 
8. Claim duplicity 
9. Incorrect provider credentialing 

Understanding top denials in medical billing 

Denial management is critical to ensuring the financial well-being of the practice. Claim denials can have a significant impact on providers in terms of delayed payments or revenue loss and increased operational costs and burnout if they are not managed with timely intervention. However, with a better understanding of medical billing denials, healthcare providers can take corrective measures to streamline their processes to reduce their denial rate. Let’s dive into the top denial reasons in medical billing and how healthcare providers can mitigate them: 

Missing, insufficient, or inaccurate information

One of the most common causes of claim denials is missing, inaccurate, or insufficient documentation. Missed modifiers or diagnosis and procedure codes, coding errors, and incorrect patient details, such as contact and birth details, may result in claim rejections. However, with the utilization innovative technologies like artificial intelligence (AI), business intelligence (BI), and robotic process automation (RPA) with EHRs for eligibility verification, prior authorization, and claim scrubbing, process efficiency can be achieved to minimize such denials.  

Coverage-related denials

Another reason for frequent denials is the lack of coverage or benefits under the patients’ insurance plan. Often, patients’ coverage expires or does not cover the services they require. It happens when patients fail to update their insurance information or renew their existing coverage. Such medical denials can be reduced with automated eligibility verification that helps capture updated information from payer databases. This process automation helps providers reduce error-related denials, expedite patient treatment, and improve revenue. 

Duplicate claims

Medical billing denials can also happen on account of the submission of another claim for the same service for the same patient for the same date. This mostly happens when the provider’s billing system fails to identify and flag the duplicate claim in the system before submission. Implementing automated claim review process can help detect such duplicate claims to prevent denials.  

Non-adherence to claim submission timelines

Claims that are not submitted within the specified timeframes of the payers often end up getting denied. Thus, it’s important to stay updated on the payer timelines for making timely claim submission. Regularly reviewing payer guidelines, thus, becomes critical to mitigating such medical billing denials. 

Medical necessity and coverage limitations

Payers can deny certain claims on grounds of documentation that makes them view the service as medically unnecessary. Thus, providers need to ensure they submit a comprehensive view of the claim that underlines the medical necessity and rationale behind their services. Besides, payers can deny claims on grounds of insurance coverage limitations or exclusions. Thus, it’s important to ensure that the services align with the covered benefits and that providers convey the financial responsibility to their patients in a transparent manner to avoid any kind of disputes at a later stage. 

With a thorough root cause analysis (RCA) behind claim denials in medical billing and implementing effective healthcare denial management strategies, providers can optimize their processes, targeting revenue leaks and reducing the occurrence of denials in the first place. 

Why does your practice need a robust RCM denial management strategy? 

A robust healthcare denial management strategy is critical to maintaining the financial health of your practice, as it is aimed at minimizing process inefficiencies resulting in errors and revenue leaks and eventual claim denials. The priority in this strategy should be denial prevention, achieved by streamlining the revenue cycle with technology for optimized workflows across the board. However, it might not always be possible to prevent claims from happening, and therefore, those that can’t be prevented need to be managed effectively with expert intervention.  

Effective RCM is best achieved by leveraging technology, for instance, by deploying RPA for automating repetitive manual tasks, like eligibility verification and prior authorization; using AI for denial RCA and resolution; BI for key performance indicators (KPI) tracking for continuous process improvements; training staff regularly on changing payer requirements and regulatory trends; and performing claims scrubbing to ensure accuracy in coding and charge capture. These steps are crucial for streamlining the revenue cycle, minimizing claim denials, and achieving revenue integrity.