Insights: Article

Revenue Cycle in a Value-Based World: Denials Management

By Marie Murphy

January 27, 2017

The transition from fee-for-service to value-based reimbursement is one of the greatest financial challenges in health care. 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 assisting organizations to maximize reimbursement.

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 to 20 percent of all claims submitted, and of those claims roughly 67 percent 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
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 of missed revenue. Since value-based programs reward health care 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 This will identify any potential gaps, such as outdated charge slips.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.

Denial Management 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 improvement and eliminating delays in the accounts receivable. Do staff understand the difference between a soft and hard denial? It is time to start the transition from denial management to denial prevention.

First, you'll need a definition of the two types of denials:

  • 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 in 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?

When you analyze the data, it is important to look at the people, process and technology in order to determine the source of the denial. A missed opportunity equals increased denials, increase accounts receivable and decreased patient satisfaction.

Your health care 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. After all, each denial is a loss of revenue!

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