December 7, 2022
8 minute read
Workflow Automation

Denial Management Software for Healthcare Practices

Rex H.
Rex H.
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Table of Contents
Table of Contents

Having a medical claim denied by an insurance company can be frustrating. Providers and medical facilities depend on a steady revenue flow to provide services to patients and maintain their practice. Claim denials mean the service goes unpaid, or the claim goes to arbitration, and payment is delayed and reduced by the cost of arbitration.

According to some analyses, claim denials are increasing:

  • The average denial rate is now at 12%, up from 10% in 2020 and 9% in 2016.
  • 2 out of 3 denials are recoverable, but up to 40% are never resubmitted.
  • 41% of denials are coming from the front end.
  • Registration and eligibility are the biggest individual cause of denials at 22%.

A robust denial management strategy can reduce claim denials and increase the claim acceptance rate to better than 95%, increasing revenue and efficiency.

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Why denial management software is necessary

Denial management software helps providers properly code their claims and understand what the payer denial code means if a claim is returned. When claims are coded for payment, multiple code systems are involved, including the International Classification of Diseases (ICD), Current Procedural Terminology (CPT), and the Healthcare Common Procedure Coding System (HCPCS).

Multiple coding systems mean more opportunities for error, and a typo can have serious consequences. If the ICD code is not matched with the correct CPT code, an insurer will not pay for the service or treatment, potentially passing the cost on to the patient or provider.

Most insurers use the American National Standards Institute (ANSI) system for claim denials. The insurer's codes will often reference the ICD and CPT codes when giving a reason for the denial.

For instance, suppose a patient went to the hospital for an X-ray due to pain in their hip. The doctor uses an ICD code for the hip injury and a CPT code for the X-ray. When the patient is discharged, the hospital uses an HCPCS Level II code for crutches while they await a diagnosis.

Due to a coding error, the ICD code for the hip injury was entered as a back injury. The insurance company denied the claim for "service does not match the diagnosis."

Claim denial software can help prevent initial coding errors by spotting mismatches between ICD and CPT codes before claims are sent out. It will also automatically spot the specific errors marked by the denial and flag them for review.

How denial management software helps you maximize your financial performance

A surprising amount of income is lost through the costs of reworking and resubmission and chronic underpayment by insurers. Denial management software lets you improve your bottom line without adding more costs to your overhead.

Verify benefits eligibility and pre-submit to payers

As noted, 41% of denials occur at the outset of a claim. Eligibility and registration with the insurer are major causes of these front-end denials. Patients fail to maintain their insurance coverage or use their insurance for out-of-network treatment not covered by their plan.

Using denial management software as a proactive measure can help ensure claims are only submitted if they are eligible. This saves time and resources and avoids the cost of submitting a claim that will be rejected because of ineligibility. According to industry sources, reworking and resubmitting a claim can cost $25 per claim. Appealing is even more expensive since legal fees can drive the cost to $100 per claim.

Flag all denials that can be reworked or appealed

In most claim denials, resolving the cause of the denial is a simple matter of correcting the defect and resubmitting the claim. A denial management team needs to identify what is required and then:

  • Send the documents to the proper department for correction and resubmission.
  • Identify repetitive issues and flag them for entry in the denial management system.
  • Repeat as needed for new claim denials.

Developing a standardized action plan for claims denials is essential and probably the most time-intensive part of the denial management team's job. This may be why many time-strapped facilities never develop a workable system and must let denied charges fall by the wayside.

Prioritize denials by the largest reimbursement opportunity

Part of denial management is identifying cases that can be reworked and resubmitted with a minimum effort for maximum return and which will take more effort than they will recover. Knowing which claims are most likely to be reworkable or subject to appeal and which should be abandoned can save you time and maximize your revenue stream.

For instance, a smaller claim that only needs the patient's signature for resubmission is a better option than a larger claim requiring numerous documents and legal action to appeal. Don't be swayed by mere dollar amounts. Your denial management software can help compare and contrast your options for the best opportunities.

Identify trends by payer

Claim denial management helps narrow down the actual cause of the denial. Not all insurers use the standard ANSI codes. Once your system is set up, you can monitor and compare each payer's performance. Each company has its own preferences and quirks, and understanding what each wants enables you to negotiate future contracts more readily.

Improved staff productivity due to workflow automation

Effective billing requires a routine. Whether you have a billing staffer or billing is carried out by other office personnel, they need to follow the same process daily so that nothing gets missed.

Unfortunately, large practices or busy practitioners with smaller staff may find that submitting claims daily isn't always possible. Checking the coding for errors or pre-submitting claims may be overlooked in the rush of work.

Automating the submission and resubmission process with claim denial management tools reduces manual input. It assists with developing a regular claims review process and monitoring unpaid or rejected claims.

Claim denial management software can reduce your staff's workload and increase denial management workflows by automatically flagging aging accounts and submitting claims as they are due.

What about underpayment?

Underpayment is another place where claims are often mishandled, causing a reduction in your income that can be difficult to spot.

Industry estimates indicate that practices are underpaid an average of 7%-11% on submitted claims. Losing 10% on each claim over a year can become a substantial sum for a practice. On the other hand, it is a small enough amount that finding it in a list of codes and figures can be difficult.

Denial management automation software can detect and flag underpayments from insurers by comparing the returns to the bills and the codes applied. The same system that sets up workflow schedules for denial management will set up a schedule for underpayment detection and review incoming payments for manual review if necessary.

Underpayment software suites can also automatically notify your chargemaster or billing staff to rebill the insurer in case of underpayment and track patterns of underpayment so that specific payers can be monitored.

Cost of denial management software

When you add up the lost revenue from claim denials, resubmissions, and underpayment, not having denial management software is more costly than implementing it. But a practice needs to ensure they get the best software program for their needs instead of going with the first one they find.

The cost of denial management software is keyed on "encounter volume." Encounter volume is similar to claim volume and depends on how many denials the system tracks or "encounters" in each pass. Practices experiencing a high volume of denials and returns will have higher costs, but this will be offset by the returns from catching errors and resubmitting the claim promptly. Denial management software is scalable to your needs, so as the direction of denials changes, the cost may be affected.

The specific features your practice wants will affect the overall cost as well. Basic features will cost less than the full suite, including underpayment and other workflow systems. A practice looking for a denial management system should look for a software company willing to sit down and discuss their areas of lost revenue and other needs before discussing costs and features.

Automate denial management with MD Clarity's RevFind

When it's time to purchase or upgrade your denial management software, consider MD Clarity's RevFind. With RevFind, your staff can efficiently manage billing and other revenue cycle workflows, even in smaller or busy offices.

The integrated program enables you to monitor all your contracts and compare payer denials, late payments, and underpayments. You'll need this information when it's time to renegotiate your contract with insurance companies.

Book a demo to see how we can help automate denial management for your organization.

Improve your financial performance while providing a more transparent patient experience

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