In industries other than healthcare, when there is an agreement between the buyer and seller to supply goods or services and the goods or services are provided, the seller is supposed to be paid. For example, if you agree with a painter to paint your house for a specific cost, and you are satisfied with the result, then it is clearly understood that the painter should get paid. However, if you and your doctor have decided that surgery is an appropriate treatment for you and you are satisfied with the result, the doctor might not get paid.
Healthcare Providers’ Claims for Payment Regularly Get Denied
Healthcare providers’ bills get denied and are never paid by third-party payers 8-17% of the time across US geographic regions. The average denial rate is 12%. These denial rates have been continuously increasing over time, yet it is estimated that 90% of these denials are potentially avoidable.
Although the ultimate denial rate averages 12% across the US, 30% of claims get denied or ignored on the initial submission. To bring this initial denial rate of 30% down to a final denial rate of 12%, healthcare providers must incur additional time and expenses to rework these claims and negotiate for payments of their claims that were initially denied.
For example, for every $1 million of revenue generated by a healthcare provider based on the contractual rates that they have with payers, only $700,000 is allowed for payment by payers upon receiving the bill from the healthcare provider. Additional work and costs to clarify the bill and/or provide additional support are required to collect more, but on average, the ultimate amount paid for every $1 million contractually owed to the healthcare provider is only $880,000, or 88% of what is owed. As a result, healthcare providers leave $120,000 on the table for every $1 million of patient services that they provide.
What are the Reasons for the Denials?
There are many reasons that payers deny healthcare providers’ bills for services. The table below summarizes some of the most common denials.
Denial Rates are Trending Up
Not only are the rates of claim denials high, claim denial rates are rapidly increasing. Average denial rates have increased by about 100 basis points per year over the last four years. They have gone from 9% in 2019 to 12% in 2022.
Increasing denial rates are severely impacting profits of healthcare providers and cutting heavily into earnings. For example, it is estimated that hospitals could relatively easily increase their earnings by at least $5 million on average by better prevention of denials.
Increasing denials are attributed to staffing, volume, and dated technology. Staffing issues and lack of training from a tight labor market make it difficult to hire and retain quality employees, especially when there is inadequate access to data to understand and interpret the root causes of denials. It is common that denials build up and result in backlogs that are difficult to overcome. Legacy technology is also a big contributor to denials and makes it difficult to adjust to regulatory changes, automate workflows, and leverage advanced analytics.
Try to Collect the Whole Apple
Piles of money are being left on the table with denials. It is estimated that 90% of denials are preventable and 65% are never worked. Moreover, two-thirds of denials are appealable, yet denials are almost never appealed. It doesn’t have to be this way.
It starts with identifying the areas of denials. As explained in CenturyGoal’s blog on the Collections Calculator, generally any healthcare provider can utilize reasonably affordable and manageable digital solutions to deploy an approach and methodology used to understand what a healthcare provider should expect to be paid for each patient visit. Actual collections vs. expected collections are quantified and organized into reasons for shortfalls, thereby highlighting the largest areas of denials.
Once the areas of denials are identified, processes need to be put in place to prevent denials. In other words, be proactive to avoid denials instead of reactive in attempts to undo denials. For example, if one of the biggest areas of denials is lack of pre-authorizations, then steps should be put into place to determine when pre-authorizations are required and be certain that they are obtained prior to providing treatments to patients. Upon identifying the main areas of denials, it generally doesn’t require rocket science to develop a proactive process that prevents these denials.
Going to the Mat with Appeals
When you file an appeal, you are asking your insurance company to reconsider its decision to deny covering a medication, treatment, or service. Even though the vast majority of denials are not appealed, more than 50 percent of denied claims appeals are ultimately successful.
Challenging a coverage denial by a health insurance plan is a legal right. Every health insurance plan must provide a process for reconsideration of any adverse determination of coverage by the plan.
Don’t Leave Money on the Table
The desired outcome for any submitted claim is of course the receipt of payment. The most obvious way to make that happen is to send out clean claims the first time. Analyzing payment shortfalls helps point out where denials are happening. Denials can be prevented with proper training and the right operating procedures to make sure coding and billing departments run smoothly and efficiently. If you feel you submitted a clean claim and disagree with a denial, you can appeal it.
Upon submitting clean claims, your denial rates will drop and result in additional collections that go right to increasing bottom line earnings.
- The Change Healthcare 2022 Revenue Cycle Denials Index
- Waystar Denial Management Calculator
- KFF – Claims Denials and Appeals in ACA Marketplace Plans in 2021
- American Health Information Management Association –Claims Denials: A Step By Step Approach To Resolution
- Healthcare.gov – Appealing a Health Plan Decision
- Medical Claim Denials Appeals Statistics That You Want To Know
- Health Insurance Claim Denial Statistics
- Eligibility Denials: A Major Challenge For Hospitals
- Denials and Appeals: What to Do When Your Insurance Company Denies You Coverage