Insights: Article

Is Your Denials Management Program as Effective as it Could Be?

By Marie Murphy

December 05, 2017

How much money is your organization losing due to insurance denials? Is it 3 to 5 percent of your monthly net revenue—or even more? It’s vital that your organization understands the complexity of denials and begins to monitor and implement an effective denials management program to reduce lost revenue.

Everyone is Responsible
Denial write-offs should be under 3 percent of your monthly net revenue. Nearly everyone in the organization—from Patient Access to Information Systems—is responsible for denials management. When you look at each of the areas and identify the potential for denials, you can establish a revenue cycle team to analyze, manage, and ensure that they’re under three percent of your monthly net revenue.

According to the American Medical Association, 25 to 30 percent of the country’s total health care expenditures are direct transaction costs and inefficiencies associated with the claims management revenue cycle.

Getting Started
Before you can do anything to manage and prevent denials, you first need to understand the types and volumes of denials that are occurring. Begin by tracking and trending, and organizations can utilize the claims adjustment reason codes and the remittance response codes for this. These can be tracked automatically by pulling data from the electronic remittance advice (ERA) or through the Explanation of Benefits (EOBs). Unfortunately, these codes may not provide enough detail to determine why the claim is really denied so a more manual approach may work best, at least while you get started.

When tracking denials, you should track by the following:

  • Payor
  • Reason for the denial
  • Ability to appeal
  • Date of denial
  • Billing date
  • Amount denied and amount recovered

Denials should be tracked for at least three months to develop a baseline ratio of denials to charges. The revenue cycle team should review the data and categorize top payors and the reasons for the denials, then categorize by both volume of denials and dollar amount. It is recommended to use the 80/20 rule to prioritize and focus efforts on denial reduction and elimination.

Analyzing the Data
When analyzing the data, it is important to look at the people, process, technology, and data in order to determine the source of the denial. Start with mapping out the current clean claim process to identify any vulnerabilities in the process, making note of any problems that could potentially occur resulting in a denial. After that, focus on the largest problems first to identify corrective actions for reducing and improving detections. Then, assign responsibility for each of the actions and set target dates for completion. Organizations should develop a zero tolerance mindset for preventable and avoidable denials.

Ask yourself two questions when a denial occurs:

  1. Is the denial preventable?
  2. How could a preventable denial have occurred if the appropriate process and controls were in place?

Process improvement should focus on breakdowns in prevention. It’s important to start tracking your denials as soon as possible—after all, each denial is a loss of revenue.

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