Authorization Denial Rate is a key metric in healthcare revenue cycle management that measures the percentage of denied claims due to lack of proper authorization. This metric is particularly important for healthcare providers who require prior authorization from insurance companies before providing certain medical services or procedures. The Authorization Denial Rate is calculated by dividing the number of denied claims due to lack of authorization by the total number of claims submitted for authorization during a specific period, usually a month or a quarter. The resulting percentage provides valuable insights into the effectiveness of the provider's authorization process and the potential revenue loss due to denied claims.
A high Authorization Denial Rate indicates that the provider's authorization process may be inefficient or ineffective, leading to a significant number of denied claims and revenue loss. In contrast, a low Authorization Denial Rate suggests that the provider has a streamlined and effective authorization process, resulting in fewer denied claims and improved revenue cycle management.
By monitoring and analyzing the Authorization Denial Rate, healthcare providers can identify areas for improvement in their authorization process, such as staff training, communication with insurance companies, and documentation practices. This metric can also help providers negotiate better contracts with insurance companies and improve their overall revenue cycle performance.
Authorization Denial Rate is calculated by dividing the number of denied claims due to lack of authorization by the total number of claims submitted for authorization. The result is then multiplied by 100 to express the rate as a percentage. The formula for calculating Authorization Denial Rate is as follows:
Authorization Denial Rate = (Number of Denied Claims due to Lack of Authorization / Total Number of Claims Submitted for Authorization) x 100
For example, if a healthcare organization submitted 1,000 claims for authorization and 100 of those claims were denied due to lack of authorization, the Authorization Denial Rate would be calculated as follows:
Authorization Denial Rate = (100 / 1,000) x 100 = 10%
Therefore, the Authorization Denial Rate for this healthcare organization would be 10%. This metric is important for healthcare revenue cycle management as it helps identify areas where authorization processes can be improved to reduce the number of denied claims and increase revenue.
Best practices to improve Authorization Denial Rate are:
1. Verify insurance coverage: Before providing any healthcare services, it is essential to verify the patient's insurance coverage and ensure that the services are covered under their plan. This will help in reducing the chances of authorization denials.
2. Educate patients: Patients should be educated about their insurance coverage and the importance of obtaining prior authorization for certain services. This will help in reducing the number of authorization denials due to patient-related issues.
3. Streamline the authorization process: The authorization process should be streamlined to reduce the chances of errors and delays. This can be achieved by implementing an electronic authorization system that automates the process and reduces manual errors.
4. Train staff: Staff should be trained on the importance of obtaining prior authorization and the proper procedures for doing so. This will help in reducing the number of authorization denials due to staff-related issues.
5. Monitor and track denials: Denials should be monitored and tracked to identify patterns and trends. This will help in identifying the root cause of denials and implementing corrective actions to reduce the number of denials.
6. Appeal denials: Denials should be appealed promptly and with the necessary documentation to support the appeal. This will help in reducing the number of denials that are overturned on appeal.
7. Implement a denial management program: A denial management program should be implemented to identify and address the root cause of denials. This will help in reducing the number of denials and improving the overall revenue cycle management process.
The industry standard benchmark for Authorization Denial Rate is typically set at 5%. This means that healthcare organizations should aim to keep their Authorization Denial Rate below 5% to ensure optimal financial performance. However, it is important to note that the benchmark may vary depending on the type of healthcare organization, the payer mix, and the specific services provided.
A high Authorization Denial Rate can result in significant revenue loss for healthcare organizations. When an authorization request is denied, the healthcare organization must either appeal the decision or absorb the cost of the service provided. This can lead to increased administrative costs, delayed payments, and decreased cash flow.
Revenue cycle software can improve the Authorization Denial Rate metric by streamlining the authorization process and reducing errors. With the help of automation, the software can verify patient eligibility and benefits, check for pre-authorization requirements, and ensure that all necessary documentation is in place before the service is provided. This reduces the likelihood of denials due to missing or incomplete information.
Additionally, revenue cycle software can track authorization requests and denials, allowing for analysis of trends and identification of areas for improvement. This data can be used to optimize the authorization process and reduce the overall denial rate.
If you're interested in seeing firsthand how revenue cycle software can improve your Authorization Denial Rate metric, book a demo with MD Clarity today. Our software is designed to streamline the revenue cycle process and improve financial outcomes for healthcare providers. Contact us to learn more.