Denial Management in Healthcare: Benefits, Strategies & Key Trends

According to The Change Healthcare Claims Denials Index, the average U.S. claims denials rate is now 12 percent, a 30 percent increase from 2016’s rate of 9%. The Pacific Northwest suffers the highest denial rate - 17 percent.

With this surge, it’s not surprising that, in the 2023 Plutus Health Revenue Cycle Management Challenges Index, 59 percent of respondents pinpoint denials as their greatest challenge. A full 22 percent relayed that their organization loses more than half a million dollars in annual revenue each year due to denied claims. Ten percent of the respondents suffer $2 million in losses due to claims denials. 

When proven strategies and technology exist to tackle the issues behind rampant denials, it’s baffling that these numbers persist. Research shows 85 percent of denials are avoidable and 41 percent of all appealed denials get reversed, a robust result. Clearly, many health organizations are not utilizing proper denial management strategies to curb their climbing denials. 

Certain of the feasibility of denials management and recovery, Healthleaders Media made 2023 the year of reducing denials. Still, the publication points out that preventing denials requires strong leadership and improved skills of prevention and recovery. 

Denial management is vital to your organization because, according to a recent HFMA study, unresolved denials can deplete 5 percent of net patient revenue. Stop your denied claims from going straight to the write-off bin when you explore the importance of denial management in healthcare, best practices, and solutions to optimizing your revenue cycle management.

What is denial management in medical billing and RCM?

Denial management is the process of preventing, investigating, analyzing, and resolving denied insurance claims. Physicians lose a significant amount of money every year because of denied healthcare claims that may have been prevented with strong denial management processes. For instance, according to “The Change Healthcare Revenue Cycle Denials Index,” the average cost to rework a claim ranges from $25 to $117. If you decide to appeal 100 denials per month, your organization invests $2,500 to $11,700 in this effort. By proactively managing denials, healthcare professionals can focus on delivering quality patient care while ensuring timely and accurate reimbursement from payers.

The denial management process

The denial management process can return meaningful revenue if handled correctly. Effective denial management involves the following steps:

Step 1: Examine all aspects of denials 

The first thing provider groups and management services organizations need to do is examine where denials occur. You need to get a clear picture of what types of denials occur most frequently and which payers are the most likely to deny which procedures. Gathering data on what facilities, providers, payers, and procedures result in the most common denials uncover not only where your errors are occurring, but where payers could be making mistakes as well. Pinpointing root causes prompts staff to rectify them.  

Step 2: Analyze reasons behind denials

On the provider end, behind these claim denials lie coding errors, missing data, late submissions, out-of-network care, lack of prior authorization, and lack of medical necessity. Robust denial management software covers all of these areas. The top reasons for denials according to Change Healthcare Revenue cycle Denials Index are:

By identifying the causes, you can develop strategies to prevent similar denials. Denial management software pinpoints the issues behind your denials so that you can adjust your workflow processes to prevent them. 

Step 3: Categorize denials

The next step in the denial management process is categorizing denials to develop targeted strategies for preventing future denials of a similar nature. Denials can be categorized by specific causes, such as:

• Prior authorization: If prior authorization is required for the services given or prescribed, a claim may be denied without it.
• Incomplete information and coding errors: Missing information and incorrect coding can result in a denial.
• Claim filing delays: Payers have time frames for submitting claims. If you miss this deadline, the claim can be denied.
• Coverage: If a claim is submitted for a service not covered by insurance or the payer determines that there is a lack of medical necessity, it can result in a denial.

Other categories to consider are the types of claim denials, such as:

• Soft denials: A temporary denial that does not require an appeal and that may be paid if your healthcare organization corrects the issue
• Hard denial: A denial that results in lost revenue and requires an appeal
• Preventable denial: A hard denial caused by avoidable reasons, such as code errors or insurance ineligibility
• Clinical denial: A hard denial in which a claim is not paid due to a lack of medical necessity
• Administrative denial: A soft denial in which your organization is told by the payer precisely why the claim was denied

After categorizing the denials, you'll need to assign departments/teams for corrective actions. Not all denials are equal, and categorizing denials can help teams determine which are most pressing. No team has unlimited resources, so this step can also help you use your staff and resources wisely.

Step 4: Marshal supporting facts and documents and appeal

After identifying the reasons for the denial and categorizing it, you can correct the errors or address the issues that caused the denial in the first place and then resubmit the claim for payment. Because so many denials are reversible, this step is critical to increasing revenue rather than losing money that may rightfully be owed to your organization.

Appeals can be won. Even though 67 percent of denials are recoverable, 65 percent of claims are never resubmitted according to the Change report mentioned above. Clearly healthcare organizations simply do not have either the staff or systems to handle denials effectively. Payers only benefit from provider overwhelm. 

Step 5: Track results

The fourth step in the denial management process is to develop a tracking mechanism to monitor the progress of resubmitted claims. When you track and stay within timelines, payers cannot deny due to missing a deadline. Further, if they miss a deadline, they are subject to penalties, a fact you can remind them of should they start dragging their feet on your appeal.  

Step 6: Build a preventative mechanism

With clear insight into the missteps clinicians and administration make that prompt denials, as well as the payer issues, prepare a checklist of the top reasons for denials. Work with your team to implement strategies to prevent these common denials from occurring. 

Monitoring future claims before submission

Some revenue cycle managers have dropped their denials rate by using RCM software that features a predictive analytics tool. Because appealing a claim can cost your organization between $25 and $117, preventing a denial should be a first step. 

Predictive functionality understands which of your claims are most likely to result in denials. It ultimately improves financial outcomes for healthcare organizations. These tools utilize data analytics, machine learning algorithms, and historical data to detect patterns and trends and then accurately predict the likelihood of claim denials before submission. 

With the types of high-denial-risk claims flagged, you can create a workflow for staff to include all aspects that have gotten similar claims approved in the past. A proactive approach addresses the common billing and coding issues involved with the procedure, physician, or payer. 

Best practices and strategies for denial management

With the increasing complexity of healthcare reimbursement and coding requirements, effective denial management requires significant input from teams. More teams are looking to software for support.

Leverage denial management software 

A healthcare staffing shortage and expertise deficit has pushed many physician groups and management services organizations to use software to tackle denials and appeals.

Valerie DeCaro is the revenue cycle management vice president at DOCS Dermatology. With dozens of locations hosting over 150 providers, DOCS works hard to standardize and simplify their revenue cycle. DeCaro laments how healthcare has lagged in the adoption of technology. One of the biggest problems management services organizations like her face today is:

 “the lack of catch-up in healthcare around using automation and technology. We have many archaic workflows, and we still use fax machines regularly. Some practices still operate on paper systems. We're not anywhere close to where other industries are. You can check in at an airline on your phone, pay for your bag, print your tag, do all of that before you even get to the airport.”

The rate of change in the healthcare industry juxtaposed with a debilitating staffing shortage has prompted organizations to depend more on technology to get critical RCM administrative tasks completed.  

Healthcare leaders are unanimous in urging providers to adopt technical solutions. 

In “The gathering storm: the uncertain future of US healthcare,”, healthcare leaders at the renowned healthcare consulting firm McKinsey explain, 

“The healthcare industry faces an acceleration in costs of nearly $600 billion in 2027. However, a path to weather the storm exists—the staggering $1 trillion opportunity to create value and improve healthcare by transforming the delivery of care, improving clinical productivity, applying technology, and simplifying administrative procedures. What’s more, this level of opportunity is based on innovations already in use and available to executives today. The imperative for companies that seek to thrive in coming years will be scaling up these innovations much more quickly than they currently do.”

Resilient providers are overcoming hesitancy and investing in revenue cycle technology. In fact, the industry is projected to grow at a compound annual growth rate of 10.3% from 2023 to 2030.

Despite concerns about time, budget, and capacity, healthcare leaders can rest assured that third-party solution partners have made efforts to ensure seamless integration with your current EMR, billing, and other systems. Understanding healthcare organization’s limited time and budget, partners aim to make the experience as "touchless" for healthcare leaders as possible. Data seamlessly flows through your existing systems, and the partner offers comprehensive onboarding and support at every step.

Furthermore, even given initial resistance, research indicates that employees quickly embrace the automation brought by new technology. In the "2019 Kofax Intelligent Automation Benchmark Study" conducted by Forbes, 92% of senior executives who implemented automation technology reported improved employee satisfaction after full onboarding.

Conduct performance audits

According to suggestions from AHIMA, continually performing audits on things like remittance advice reviews, zero payment claims, registration, and insurance verification quality can improve denials and appeals rates. 

Collaborate

Your denial management team should not be a one-person endeavor. Establishing a multidisciplinary team of key members from various departments such as registration, patient financial services, nursing, health information management, and information technology can help you put solutions in place and track developments to alleviate bottlenecks in the processes and identify the root causes of these denials. Collaborating with payers to resolve denial claims can also ensure a more efficient process.

Another form of necessary collaboration is staff training. Training staff to stay current on best practices will help ensure that you are mitigating denials as much as possible.

Be mindful of statistics and trends

Knowing what’s “normal” in today’s healthcare landscape helps keep you on track. As mentioned above, denial rates have increased by 30% from 2016.  

These numbers have more meaning when you break them down by your specialty. Medscape surveyed 17,461 U.S. clinicians representing more than 30 specialties. These are just 10 of the denial averages:

• Plastic surgery: 28 percent
• Emergency medicine: 22 percent
• Radiology: 20 percent
• Orthopedics: 18 percent
• Oncology: 16 percent
• Gastroenterology: 16 percent
• Dermatology: 15 percent
• Internal medicine: 15 percent
• Family medicine: 14 percent
• Ophthalmology: 13 percent

Comparing your denials numbers to industry averages let you know when you need to double-down on your denials management system. Showing divergence from industry averages also helps you get buy-in from peers and managers. 

Stay on time

When it comes to denials, time is of the essence. It's crucial to comply with both the initial claims filing as well as appeals deadlines set by insurance companies. Keep staff on track with a documented process. Keep in mind, too, that payers must conform to deadlines. When they don’t they are subject to penalties. 

Benefits of managing denials in a healthcare organization

There are tremendous benefits to managing denials in your healthcare organization. Some of these key advantages include improved initial clean claims rate, increased net revenue collection, and enhanced patient experience and loyalty.

Improved clean claims rate

According to HFMA, physician groups and management services organizations should strive for a clean claims rate of 98 percent.  As mentioned above, denied claims rack up administrative costs, staff working hours, and payment delays. 

Increased net revenue collection

Another advantage of proactively managing denials is the potential for net revenue increase. 

Enhanced patient experience and loyalty

In addition to the financial benefits, managing denials can enhance patient experience and loyalty. Denied claims frustrate patients who are anxious to get the care they need. Only satisfied patients drive the word-of-mouth referrals critical to increasing your patient base. 

Solutions to denial management when your staff is constrained

Healthcare revenue cycle managers and management service organizations would love to unleash all of the solutions mentioned above. When you’re struggling just to get patients scheduled and in the door, however, denials become a secondary consideration.

Denial management software

Denial management software assists healthcare providers in navigating and resolving claim denials from insurance companies and other payers. Aiming to improve revenue cycles and maximize reimbursement, this software identifies, tracks, and even appeals these claim denials in some cases. These software solutions offer real-time denial tracking, data analytics, customizable workflows, and integration with existing electronic health record systems. 

Because multiple code systems are used in the claims process, there are many opportunities for mistakes. Even a single typo can result in a claim being denied. Denial management software assists you in properly coding your claims and understanding the meaning of a denial code if a claim is denied.

Denial management software proactively prevents many errors, a critical contribution if you are short on staff. By leveraging technology to automate tasks within the denial management process, your team accomplishes more. 

Outsourced denial management services

Another denial management solution that may be helpful when you have limited staff resources is to outsource denial management tasks to third-party providers. Many healthcare organizations go this route, and you can use the outsourced party's expertise and resources to identify and address issues quickly and effectively when you do not have a team in-house.

TruBridge

TruBridge is a healthcare revenue cycle management company that provides a comprehensive suite of services, including outsourced denial management services. The company's denial management program is designed to identify and eliminate the causes of denials to increase reimbursements.

With this outsourced program, TruBridge's denial management experts first work with you to analyze your claims data and then categorize and prioritize your denials. Then TruBridge performs an on-site assessment and remediation of your organization to determine the root causes of your denials, review your workflows, and implement best practices to prevent denials.

TruBridge also offers ongoing tracking and surveillance of your systems and workflows to fine-tune processes and ensure everything works as intended.

Savista

Another company that provides outsourced denial management services is Savista. Savista is a healthcare technology and services company specializing in revenue cycle management services. The company's denial management program is an outsourcing option that also aims to simplify the denial management process for healthcare organizations. Savista's denial management experts use a combination of technology and human expertise to identify the root causes of denials, develop processes within the company to avoid denials, and create an effective appeal process. According to their website, Savista was even able to recover $20 million for their client, Southwestern Health System.

Denial management software solutions

To address the rising concern regarding claim denials and their challenges, a growing number of companies are focusing on healthcare denial management and providing specialized services and solutions designed to help you manage denials effectively.

MD Clarity

MD Clarity’s RevFind tackles one of the major causes of front-end denials: eligibility and registration. Research shows that 41 percent of claims denials originate in the front end RevFind ensures that claims are only submitted for eligible patients, preventing a costly claim denial.

Change Healthcare

Change Healthcare publishes The Change Healthcare Denial Index mentioned throughout this guide annually. Change Healthcare typically serves large hospitals and healthcare systems. 

The Denial Index is a valuable resource for healthcare organizations looking to decrease their denial rates as the report provides insights into denial trends, denial causes, and avoidable denials. The Denial Index also provides best practices on proactively managing denials and answers frequently asked questions from the healthcare community about denials. Change Healthcare offers a lot of value for the continual development of the denial management process.

Vyne Trellis

Another company that is focused on healthcare denial management is Vyne Trellis. While Change Healthcare provides relevant insights for a range of healthcare providers, Vyne Trellis is focused specifically on dental practices. The company provides a suite of denial management solutions designed to help dental practices manage denials more effectively, such as their eligibility tool that allows dental professionals to verify patient benefits quickly and in real time. They also offer claim denial support to help with rejection reasons and status updates.

The cost of these solutions for managing denied claims

When it comes to denial management solutions, the costs can vary depending on the provider. According to Dental Claim Support, Vyne Trellis denial management services, for example, charge $99 per month per practice location, which adds up to nearly $1,200 per year.

However, TruBridge, Savista, and Change Healthcare have not disclosed their pricing information for their denial management services, which is a common practice among software sellers and service providers. In general, denial management software is priced on specific features needed and patient encounter volume.

If you're interested in obtaining current pricing for those solutions, you will need to contact each company directly.

Automate eligibility verification 

Claim denials are a huge burden for healthcare organizations. Denials management software can do much of the work for you.

MD Clarity's RevFind is an advanced software solution that can automate processes in the denial management cycle. It identifies patterns of denials and underpayments from payers. RevFind is a far more effective way to increase reimbursement than the outdated manual processes that are so common. Schedule a demo today.

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