Denial Recovery: Why Providers Must Find Opportunity by Allowables (Not Charges) & More

Denial rates have risen significantly (over 20% in the last five years), reaching 15% or more of claims and draining 5% of net patient revenue.

Addressing denials is so critical for providers that the AMA has made it central to their “Fix Prior Auth” campaign, an effort that has achieved some significant gains (legislation, the Gold Card providers). Still, providers must do all they can to limit their denials. 

There are three tiers to approaching denials:  prevention, management, and recovery. 

We’ve already covered denial prevention and denial management in previous posts. 

Here, we tackle denial recovery. 

Where denial prevention covers denial root causes and their solutions, and denial management covers protocols and workflows, denial recovery involves the actions to take after a claim is rejected. To recover or appeal a denial, you investigate the reason, correct errors, appeal the decision, and track the claim, aiming to overturn the denial and secure the deserved payment. Sounds simple enough, but–given it’s healthcare–of course, there are complexities and challenges. 

When you understand the denial recovery challenges ahead of time and prepare yourself for ways to overcome them, you become a healthcare organization revenue warrior.  You can make revenue recovery as cost-effective as possible, fueling EBITDA and topline revenue, making your organization more appealing to investors, lenders, and buyers. Beyond the dollar amounts recovered, a denial recovery process indicates you’ve implemented structured workflows, clear responsibilities, and effective monitoring systems to tackle complex financial challenges. Buyers, lenders, and investors like seeing these signs of proactive management. 

Review the biggest challenges to denial recovery and the strategies that overcome them. With solid workflows in place, you establish a respectable initial lift that persists for years to come. 

What is denial recovery?

Denial recovery is the systematic process healthcare organizations undertake to investigate, address, and ultimately overturn claim denials issued by insurance payers. This essential revenue cycle management function involves identifying the specific reason for a claim's rejection, correcting any errors or omissions, gathering necessary supporting documentation, and formally appealing the payer's decision or resubmitting a corrected claim. The primary objective of denial recovery is to secure payment for services that were legitimately provided but initially unpaid, thereby minimizing revenue loss and improving the organization's financial health.

Take a quick, self-guided tour through a powerful denial and contract management system:

Some recent denial statistics

Denial rates are heading higher

• 19% -  the in-network denial rate for ACA Marketplace plans on HealthCare.gov in 2023. Some ACA insurers deny over 30%. Rates vary significantly by state.
• 15% -  in-network denial across nearly all US states and markets (excluding pharmacy) 

But recovery is possible, even advised

• 67% - portion of denials that experts believe can be recovered
• 85% - portion of claims where denials could have been prevented by the healthcare organization

These statistics tell us that denial rates continue to rise and healthcare organizations are behind on using all tools available to prevent or appeal them. 

5 steps in effective denial recovery

If you don’t outsource your denials, you most likely have a denial management program in place. Hopefully, that overall strategy involves: 

• Conducting claims performance audits – to achieve a 95 - 98% clean claims rate.
• Fostering collaboration across departments and with payers – to get documents and answers when you need them. 
• Adhering strictly to filing and appeal deadlines – to avoid payers refusing to pay based on missed deadlines.  

Of course, it’s always preferable to avoid a denial in the first place. A denial prevention protocol helps you raise your clean claims rate. 

If you don’t have a denial prevention system in place, it’s time to get one. That protocol involves conducting a thorough root cause analysis to uncover the origins of denials. It also involves measures to avoid missed deadlines and using technology to keep denials management in-house and transparent. Read about how to start a denials prevention system here. 

Even those with management and prevention programs in place still get denials from their payers, however. 

Once you have a denial in hand, follow this denial recovery process to appeal and recover it: 

1. Examine all aspects: Gather data either manually or via denial management software to understand where and why the denial occurred. It might take examination across facilities, providers, payers, and procedures.
2. Analyze reasons behind denials: Use your denial management software or insights from your team or third-party partners to determine the root causes of denials, such as coding errors, missing data, or lack of prior authorization, to rectify all issues and prevent ongoing denials
3. Categorize denials: Group denials by cause (e.g., prior auth, coding) or type (e.g., soft, hard, preventable) to prioritize corrective actions and allocate resources effectively.
4. Marshall supporting facts and documents and resubmit: Correct the identified errors or issues causing the denial and resubmit the claim or initiate an appeal to recover rightfully owed revenue.
5. Pursue denial recovery: Your internal team, the revenue recovery expert your denial management software solution provides, or your third-party partner makes the calls and writes the emails to recoup rightful payments. These actions alert payers that you will contest incorrect denials.
6. Track results: Implement a system to monitor the progress of resubmitted claims and appeals, ensuring adherence to deadlines.
7. Build a preventative mechanism: Use insights gained from denial analysis to create strategies and checklists to prevent common denials from happening in the future. Analyzing denial trends, identifying root causes, and tracking performance metrics may require software to manage denials most effectively. 

3 denial recovery challenges and their solutions

Denial recovery challenge #1: Accurate differentiation between allowables and charges

In healthcare billing, the terms "charge" and "allowable" refer to distinct monetary amounts related to a medical service or procedure. When staff confuses the two, the payer comes right back with another denial.  

While staff might understand the basic definitions between charges and allowables, confusion can arise in accurately applying the correct allowable amount from complex contracts against the provider's charge, leading to appeals errors. 

Misunderstanding the relationship between the charge and the allowable leads to common appeals issues:

• CO 45 denials: Denial code 45 ("Charges Exceed Contractual Agreement") occurs when the provider's billed charge is higher than the payer's allowable amount under their contract. Resolving or appealing these denials inherently requires understanding both the charge submitted and the correct allowable amount.
• Contractual adjustments: The difference between the provider's charge and the payer's allowable amount is known as a contractual adjustment or write-off. This concept is fundamental to revenue cycle management, especially for in-network services where providers accept the allowable as payment in full. Confusing these terms can lead to incorrect billing or reconciliation.
• Complexity: Providers deal with numerous payers, each potentially having different allowable amounts for the same service. Staff must accurately track and apply these varying allowable amounts against the provider's standard charge. Failure to do so, perhaps due to using outdated fee schedules or misunderstanding specific contract terms, can cause billing errors and denials like the CO 45.
• Billing requirements: As mentioned above, providers set charges higher than many allowable amounts to catch the reimbursements from their highest payers for that charge. This confusing protocol means the billed amount rarely equals the expected payment for contracted payers, confusing staff.

Solution

Understand  – or make sure your denial recovery expert understands – the differenc and share the difference between these two important terms.

The "allowable" (or allowable charge/amount) is generally considered a payer term, while "charge" (or actual charge/billed amount) is a provider term.  The provider's charge is typically higher than the insurer's allowable amount. 

Specifically: 

• Charge: The charge is the initial price set by a healthcare provider for a specific medical service, procedure, or supply. It represents the amount the provider assigns to the service before considering insurance adjustments. Factors influencing the charge include the service's complexity, resources used, location, and market rates. This is also referred to as the "actual charge" or "billed amount".
  
  
• Allowable Amount: The allowable is the maximum amount that a health insurance company determines should be paid for a particular healthcare service. It's the total payment amount the insurer recognizes for a service, which includes both the portion the insurer will pay and the patient's responsibility (like co-pays, deductibles, and co-insurance). This amount is often based on negotiated rates between the insurer and in-network providers. For out-of-network providers, it might be based on what the insurer considers a "usual, customary, and reasonable" (UCR) fee for that service in that geographic area. Other terms for this concept include negotiated rate, eligible expense, payment allowance, UCR charge, or Medicare Allowable.

For in-network providers, there's usually a contractual agreement. The provider accepts the allowable amount as full payment. The difference between their charge and the allowable amount is considered a contractual write-off, and the patient is generally only responsible for their co-pay, deductible, or co-insurance based on the allowable amount.

For out-of-network providers, the insurer still determines an allowable amount. If the provider's charge exceeds this amount, the patient may be responsible for paying the difference (balance billing) in addition to their usual cost-sharing, depending on their plan and state regulations.

Denial recovery challenge #2: Resource constraints and staffing shortages

Many healthcare organizations lack adequate resources, staff, or capacity to effectively manage the volume of denied claims. This scarcity makes it difficult to investigate, correct, and appeal denials promptly, leading to missed opportunities for recovery. 

Solution

Addressing the challenge of resource constraints and staffing shortages requires a multi-faceted approach focused on efficiency, technology, and strategic resource allocation. Consider these tactics: 

• Implement automation: Provider organizations that combine advanced automation and analytics tools Automation manages repetitive tasks like claim status checks, follow-ups, and data entry, freeing up limited staff. Analytics tools allow for easy tracking of denial trends and patterns over time..
• Consider using a denial recovery services expert: Some denial management software platforms employ denial recovery experts who use the data and analytics to appeal critical lost revenue. Their deep experience ensures they submit the specific documentation the payer requests and follow each payer’s unique process. They help RCM teams increase reimbursement yields, as well as first pass resolution and clean claims rates.
  
  
• Prioritize denials strategically: Instead of attempting to work all denials equally, ask RCM staff or your denial recovery expert to prioritize claims based on factors like the likelihood of recovery, dollar amount, and filing deadlines. This focuses limited staff effort on denials with the highest potential return.
  
  
• Optimize workflows and specialize roles: If you won’t be using a denial recovery expert or a third party partner, you can streamline the denial management process by streaming the denial management process in-house. Designate specific staff to handle these tasks.
  

Denial recovery challenge #3: Complexity of payer requirements and appeals processes

Payers’ complex and varying requirements for appeals mean that what works for one payer, or even one type of denial from the same payer, may not work for another. 

Coordinating the necessary information to meet diverse demands requires swift input and detailed records from busy clinical teams. It makes the denial recovery or appeals process exceptionally demanding, time-consuming, and prone to errors if not managed with meticulous attention to each payer's unique protocols. Because a denial recovery expert has extensive experience with the intricacies of both private and public payer plans, they can efficiently update contracts and navigate how a change will impact denials. Without this professional oversight, how does a healthcare organization get this done with an understaffed and sometimes inexperienced team? 

Solution

Navigating the labyrinth of diverse payer requirements demands a proactive and organized approach. To simplify this complexity and improve appeal success rates, consider these strategies:

• Develop a centralized payer rule repository: Create and maintain an easily accessible knowledge base or digital library that details the specific appeal requirements, documentation checklists, timely filing limits, and contact information for each major payer. This ensures staff have a go-to resource for accurate information.
  
  
• Standardize appeal letters and documentation packets (where possible): While payer specifics vary, develop core templates for common appeal types that outline the necessary arguments and include placeholders for specific patient and claim details. Create standardized packets of frequently required supporting documents to streamline assembly.
  
  
• Leverage denial management technology with payer-specific logic: Invest in or optimize denial management software that can store payer-specific rules, automate the population of appeal forms, and flag missing documentation based on the payer and denial reason. Some advanced systems can even suggest appeal language.
  
  
• Enhance interdepartmental communication and collaboration: establish clear, efficient workflows for requesting and obtaining necessary clinical documentation or clarifications from physicians and other clinical staff. Designating a liaison or point person for appeals-related clinical queries can expedite this process.
  
  
• Conduct regular payer policy reviews and staff training: Assign responsibility for monitoring payer policy changes and ensure this information is regularly disseminated to the denial recovery team through updates and training sessions. This step keeps the team current and reduces errors based on outdated information, improving your clean claims rate. 

MD Clarity fires up your denial recovery system

An efficient, documented denial management and recovery system signals a culture of continuous improvement and careful risk management to lenders, partners, investors, and buyers.  Using an internal denial recovery process or the denial recovery services from a partner signals strong financial stewardship and management competence.

Conversely, signs of reactive measures indicate a lack of control, potential for recurring issues, higher operational risk, and an inefficient use of resources that could negatively impact financial stability and growth prospects.  

You can get control of your denials, appeals, contracts, underpayments, and more with MD Clarity's RevFind software and our denial recovery services. By unifying RevFind software and payer reimbursement expert services, MD Clarity provides end-to-end revenue recovery that improves net revenue. You get clear visibility into denial trends to see which claims are being denied by specific payers or for particular CPT codes. It even quantifies the potential revenue tied to these denials. RevFind further alleviates the resource-intensive nature of manual appeals by enabling users to mark appeal stages, add account labels, and create work queues for bulk processing, streamlining the delegation of tasks. 

Denial identification, tracking, and analysis are the foundation of your appeals efforts, but it often takes an RCM team member or outside partner to carry out the actual recovery. Our denial recovery experts configure appeals in a way to maximize overturn rates and reduce denial backlogs while reducing administrative burden. They use RevFind data and insights to identify even the most granular hidden revenue opportunities. This two pronged approach constitutes MD Clarity's Denial Recovery Services, which provider organizations increase reimbursement yield. 

Find out how you can unleash a powerful, two-pronged approach to overturning denials.  Schedule a demo today! 

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