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

June 29, 2020 | Article

The transition from fee-for-service to value-based reimbursement is one of the greatest financial challenges in healthcare. Reduced admissions coupled with high deductible plans and movement to alternative visit methods hold the potential for increasing bad debt and decreasing revenue from acute care volume.

Therefore, you need to review and track your denials in order to eliminate lost revenue. With the transitioning to value-based payments, denials management will play a major role in helping organizations maximize reimbursement.

Take a look at how your revenue cycle and denials management are impacting your healthcare organization.

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; organizations can utilize the claims adjustment reason codes and the remittance response codes for this. These codes 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.

You should track denials 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. The 80/20 rule is recommended to prioritize and focus efforts on denial reduction and elimination.

Denials Rapidly Growing
Hospitals will need to review, track and trend the impact of denials management on the revenue cycle. Recent estimates show that gross charges that are denied by payers have grown to an alarming 15-20% of all claims submitted, and of those claims, roughly 67% of all denials are appealable.

The top denials include:

  • Claim lacks information or has billing/submission errors.
  • Non-covered charges: service is not covered under the benefit plan.
  • Precertification/authorization notification is absent.

This leads to issues such as lack of payment transparency and inaccurate or unfair payment.

Identifying Missed Revenue
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. To begin, you will need to look at the timely capture of charges by answering the following questions:

  • Did you charge for all of the services that were provided?
  • Did you code for all conditions that were documented by the provider?
  • Does your facility perform internal audits to determine missed opportunities and take the time to identify issues?

If not, you create the opportunity for missed revenue. Since value-based programs reward healthcare providers with incentive payment for the quality of care they provide, it is important that you capture and report all services that are documented from the provider to allow for the highest reimbursement amount for services rendered.

Items to include during the review of charge capture include:

  • Reviewing the charge capture process for each clinical department. This will identify any potential gaps, such as outdated charge slips.
  • Following the charge through any system interfaces to ensure the charges are flowing through to billing as expected.
  • Following the charge from the patient accounting system to the final edited claims sent to the payer. This involves a review of the itemized statement, pre-edited bill, post-edited bill and the insurance remittance.

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, making note of any problems that could potentially result 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. What processes and controls, if any, could have prevented this denial for occurring?”

Denial Management Leads to Prevention
When you begin to track and trend denials, it allows for education to be provided to both providers and staff. In addition, it allows the opportunity to improve processes and to share in the satisfaction of improving and eliminating delays in the accounts receivable. Transitioning from denial management to denial prevention starts with making sure your staff understand the difference between a soft and hard denial.

The two types of denials are defined as follows:

  • Soft Denial: A temporary or interim denial that has the potential to be paid if the provider takes effective follow-up action.
  • Hard Denial: A denial that results in lost or written-off revenue. With these denials, an appeal is required.

Another opportunity is presented when reviewing your clean claim rate. What percent of edits impact the claims that you are trying to send out to your payors? Do revenue cycle leaders review and monitor claim scrubber reports to identify manual processes, which result in delays to the submission of claims?

As we mentioned before, denials occur due to people, processes and technology, so it’s important to closely examine all three. A missed opportunity equals increased denials, increase accounts receivable and decreased patient satisfaction.

Your healthcare organization should develop a zero-tolerance mindset for preventable and avoidable denials. Process improvement should focus on breakdowns in prevention. Start tracking your denials today.

Let us help you make sense of your denials management process.

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