Of all the revenue cycle metrics you can track, one of the most important is your denial rate.
When calculated and measured accurately, your denial rate gives you a window into your organization’s overall financial health and integrity. It also gives you a clear view of your denial pain points that you can use to reduce denials for good.
So, why aren’t most healthcare organizations tracking their denial rate regularly?
It’s a fair question. After all, about two-thirds (67%) of respondents to HCPro’s HIM Briefings 2022 Denials Management Survey said they didn’t know their average denial rate. When we asked attendees of our recent Denial Pain Points webinar if they knew their denial rate, 84% of our guests answered no.
Yet denials represent a rapidly growing threat to a healthcare organization’s bottom line. The average denial rate is up 23% since 2016, and it rose another 11% since the start of the COVID-19 pandemic, according to data from Change Healthcare. The current national average denial rate is between 6-13%. If your organization’s denial rate is over 10%, it’s time to take immediate action.
The good news: 86% of denials are avoidable. Implementing a well-rounded Denial Management System can help you identify and remedy the worst offenders.
Where do denials come from?
The top cause of denials, says Change Healthcare, has remained steady since 2016. More than one-quarter (26.6%) of them come from registration and eligibility issues. This category includes denials stemming from a lack of coordination of benefits, maximum benefits reached by a plan member, or other plan-specific issues.
Other frequently cited reasons for denials:
Missing or invalid claim data (17.2%) – This category includes all billing-specific issues.
Authorization / pre-certification (11.6%) – Causes include failing to get required preauthorization, invalid authorization, performing services even though you have a denied preauthorization, or performing a service that was greater than what was preauthorized.
Service not covered (10.6%) – This category may include specific items not covered, managed care contracts, non-covered days, or other coverage-specific issues.
Medical necessity and medical coding – While Change Healthcare’s report cited medical coding in only 4.8% of denials, the reality is that coders also bear responsibility for medical necessity denials. They comprise another 6.6% of the most frequently occurring denials
How can a Denial Management System help solve your denial pain points?
First, let’s look at what happens when you don’t have a Denial Management System. In our Denial Pain Points webinar, we reference a story Leigh Ann that shares often about an organization that found a stack of old denial letters gathering dust inside a mailroom. They sat there because nobody knew what to do with them. Had someone known to give them to the coding manager, the appeals process could’ve been started sooner, and the organization wouldn’t have lost that revenue.
A well thought-out Denial Management System closes the loop. It starts by forming a cross-functional team. Ideally, that team should include a Chief Financial Officer, Chief Nursing Officer, and representatives from:
- Patient Access
- Medical Coding
- Managed Contracts
- Revenue Cycle
- Billing Office
This team must commit to meeting regularly so they can review reports, track denial trends, discuss issues, and brainstorm solutions. Doing so will build accountability and transparency into your revenue cycle process. When team members begin to see the big picture, the outcomes will follow.
By their nature, larger organizations will have larger teams, while smaller organizations will have fewer people at the table. No matter your organization’s size, make sure not to exclude these three often-overlooked roles from your Denial Management Team:
Patient Access – The root cause for many denials start in admission and registration. So, it’s important to help these front-end employees communicate effectively with employees on the back end of your organization.
Physicians – So many denials hinge on thorough and proper documentation. That’s why physicians must have a seat at the table.
Nursing – As more services shift to outpatient, denials are shifting there, too, and procedures like injection and infusion require accurate nursing documentation. As a result, nursing is a must-have role on your Denial Management Team.
The role of analytics and appeals in solving denial pain points
Once you establish your Denial Management Team, the next step is using software to help create a true Denial Management System. Small practices can use spreadsheets to track key denial metrics. Larger organizations should consider investing in more sophisticated technological solutions that help them identify trends and develop strategies to deal with denials effectively.
Key items your Denial Management System should track include:
- Number of denied cases
- Reasons for denials
- Denials by payers
- Top DRGs, CPT codes and ICD codes involved in denials
- Number of payer downcodes
- Number of appeals (opened vs. codes)
- Appeal success rate
- Associated dollar amounts
By reviewing these metrics regularly with your Denial Management Team, you’ll engage and motivate teammates toward achieving your goal of reducing denials.
In addition, a highly functioning Denial Management System will track the appeal process. It will help you confirm which denials are accurate, give you the capability to match back reimbursements to negotiated terms, and allow you to log verified appeals and add evidence to them that you can file with each appeal. By tracking your appeals and their outcomes, you’ll measure effort expended vs. dollars realized more accurately so you can right-size your audit strategy.
Find the root cause of your denials
Leigh Ann and I covered so much ground in our Denial Pain Points webinar that you’ll want to listen to the whole presentation. You’ll learn why clinical validation errors comprise a sizable percentage of inpatient coding-related denials. You’ll get tips to help prevent clinical validation denials. And you’ll get an overview of common outpatient and pro-fee denials.
If you want to start brainstorming about what an ideal Denial Management System might look like for your organization, let’s talk.