The Denials Challenge: An Analytics-Driven Approach to Denial Prevention and Management

Whitepaper | Jason Williams
Vice President Strategy and Business Analytics, Change Healthcare

Williams has both an MBA from the Kellogg School and a Master of Engineering Management from Northwestern University.

Healthcare providers are chiefly concerned with two things: ensuring patients receive the highest quality of care, and getting paid for that care. Despite advances in medical technology and a declining number of uninsured Americans, hospitals still have trouble getting paid fully and in a timely manner.

Hospital and health system CEOs have named financial challenges as their number one concern every year since 2003 according to the American College of Healthcare Executives.²

Denials are a pervasive and persistent problem, with one in five claims delayed or denied.³ This represents a significant financial drain, ultimately costing a typical health system as much as 3.3% of net patient revenue, or an average of $4.9 million per hospital, put at risk due to denials.⁴

There is no single root cause for denials, nor is there one single trouble area. Rather, problems that lead to a denied claim occur throughout the revenue cycle.

When attacking denials, hospitals can employ best practices that yield positive results, regardless of an organization’s size. For instance, Knox Community Hospital, a 99-bed community-owned nonprofit in Mount Vernon, Ohio, and Orlando Health (Florida), a health system with six acute-care hospitals and 2,295 beds, employed similar approaches, and both saw significant decreases in denied claims.

As those organizations can attest, there are three key steps to keeping denials at a minimum. First, take steps to prevent them on the front-end. Second, when denials do occur, manage them through efficient workflows and processes. Finally, analyze denials, identify common causes, and integrate this information back into your prevention strategy.

An Analytics-Based Approach

A single-digit denial rate still means tens of thousands of denied claims for large hospitals and health systems each year. The revenue cycle contains many touch points, presenting ample room for error and for claims to go awry. Any attempt to control denials reactively or in an isolated manner will result in inefficient use of staff and a continuing denials issue.

Strategically addressing denials with an analyticsdriven approach, on the other hand, improves the efficiency of the entire revenue cycle. Taking a bigpicture approach empowers revenue cycle leaders and staff to identify processes and errors that contribute to denials.

Where do the bulk of errors occur in your organization? This is something Orlando Health wanted to learn.

In 2012, the health system invited a consultant to assess its financial performance. One area noted for improvement turned out to be claim denials. The consultant identified 9,231 denials between January and March 2012, according to Bridget Walters, corporate director of Patient Accounting, and Cyndra Alderman, manager of Billing and Governmental Patient Accounting, at Orlando Health.⁶

The system gathered those 9,231 discovered denials and conducted data analysis to stratify them by root cause. The analysis found most denials stemmed from:

• Authorization (annualized denial amount: $5.7 million) 
• Requests for additional information ($4.2 million)
• Medical necessity ($3.5 million)
• Claims for services that were not covered ($3.2 million)
• Coordination of benefits from primary carrier coverage ($1.7 million) 

As Walters, Alderman and their colleagues set out to devise a transformation strategy to better position the health system to combat denials, they identified three essential elements of the initiative: people, processes and technology.

First, Walters and Alderman created an enterprisewide denials task force (comprised of 15 fulltime employees and led by an administrator) to centralize its previously departmentalized denials management approach.

They then set out to tune up their processes. Orlando Health needed to establish processes that spanned beyond payer-specific issues to fight denials before the point of appeals. To address the various other potential sources of denials, the health system created 22 workflows by denial category to increase effectiveness.

Finally, it adopted new analytics solutions. Previously, revenue cycle staff manually loaded denials into a home-grown database. The health system lacked a standard denial mapping review and categorization method. After incorporating revenue cycle specific analytics, the health system could standardize denial mapping by payer, analyze revenue denial and recovery rate data, and optimize workflow.

Denials Prevention

While approximately two-thirds of denials are recoverable, 90% are preventable.⁷

However, prevention requires new levels of visibility and knowledge of where and why problems originate. It also requires staff flexibility to change the processes and work-flows to which they have grown accustomed.

Before service, determining patient coverage and ensuring clean patient data are critical components in denials prevention. “The culture has always been, ‘They’ll fix it on the back-end.’ Those days are gone,” says Daren Bush, director of Patient Financial Services at Knox Community Hospital. “It’s imperative we start at the time of the first patient encounter, which is pre-registration, to ensure the patient information is correct and valid. You can’t be effective on the back-end without technology to ensure data quality on the front-end.”

Identifying eligibility at the very beginning of the revenue cycle is the first line of defense. When front office staff have accurate patient financial information upfront, the hospital experiences fewer rejected claims and returned statements.8 Problems can arise when patients identify as selfpaying at the point of registration. If registration staff can verify the patient is covered by Medicare or Medicaid, as well as identify Medicaid/Medicare HMO coverage that is often missed, these patients can be reclassified to “covered” and the provider can secure payment.

Another important area of focus for denial prevention is pre-authorization and medical necessity management. Many hospitals struggle with the increasing complexity of pre-authorization and medical necessity payer requirements that lead to costly provider rework, resubmissions, denials and write-offs. In his experience, Bush says medical necessity is the most common cause of denials, “Insurance companies use it and it’s very vague,” he says. “It can mean a number of things.” Ensuring a patient service is medically necessary at the point of registration helps prevent this issue down the road.

Certain services and tests are more susceptible to medical necessity scrutiny than others. According to data analysis from Change Healthcare, five revenue codes have the highest likelihood for medical necessity outpatient denials nationwide.9 These include:

• Revenue code 301 (laboratory chemistry test) — denied 38% of the time 
• Revenue code 300 (laboratory general test) — denied 28% of the time 
• Revenue code 360 (operating room services) — denied 18% of the time 
• Revenue code 305 (laboratory hematology services) — denied 15% of the time
• Revenue code 404 (PET scan) — denied 9% of the time

Automating the management of pre-authorization and medical necessity processes can help prevent downstream denials, accelerate overall care decisions through administrative care coordination, and increase patient satisfaction through quick administrative and payer decision resolution.

The focus on claim cleanliness and patient coverage continues after service by employing timely and complete claim edits, such as those addressing regulatory, payer-specific, medical necessity, and clinical requirements. This is a continuous effort and implementing edits for any changes that impact claims processing must be made before the effective date or denials will occur. It’s also very effective to have a process in place to check eligibility one last time before claims submission to identify lapses or changes in coverage.

Ensuring clear and quick identification of coding errors prior to claims submission is also an integral part of preventing denials as well as avoiding the opportunity cost of waiting for days only to have to rework and resubmit claims. Finally, delays getting a clean claim out the door not only slow down payment but could determine whether the claim is paid or becomes an irreversible denial. Missing filing deadlines is easily avoidable, but only if there is awareness.

The ability to set alerts on claims drawing near to the filing deadline can prevent denials on claims that are completely compliant otherwise.

Denials prevention must be a continuous strategic initiative with buy-in from multiple departments, according to Walters and Alderman. But as hospitals know, prevention isn’t the only strategy to employ.

Denials Management

Despite taking every preventive measure available, denials will still occur. The key to lessening the negative impact is advanced workflow that lets staff manage all types of claims in one workflow to make the process as efficient as possible and bring more data into one place for more comprehensive denial analysis. Traditional claims management and follow-up is labor-intensive and complex, but an approach leveraging enhanced claim life cycle visibility can improve staff productivity and help speed payment.

Greater transparency means staff sees where all claims are in the process at any given time — those claims that need attention immediately, those that are progressing as they should, and those that may be headed for trouble. Analytics-driven claims management learns from high volumes of data moving to and from payers and uses that intelligence to inform typical patterns and timing of payer responses and remittance. As timing thresholds are passed, a smart claims system can alert the user that human intervention is needed. Rather than numerous phone calls to payers to confirm a claim is progressing as expected or to find problems, a user can focus on claims known to be in trouble or denied and make the appropriate steps to fix the problem or gather missing information.

When a claim is denied, one goal is to act in a way that helps gain the most complete and accurate reimbursement possible. It is imperative to review all denials within 72 hours and act on them within seven days.

By promptly correcting claims — such as by adding missing or incomplete information — the chance for reimbursement improves significantly. The sooner staff knows a claim is in trouble, the sooner they can begin to work toward the best resolution possible.¹⁰

While it may be tempting to correct each individual claim, work each denial and send it on its way, doing so negates denial prevention opportunities.¹¹ By analyzing the reason claims are rejected in the first place, revenue cycle managers have the power to address the problem at its source, rather than perpetuate it.

Denial Analysis

Through denial analysis, revenue cycle managers not only take steps to prevent and mitigate issues that lead to denials, but they also access nuanced, actionable insights to inform more efficient processes and compare performance metrics with hospital peers to gain context — is our performance good, bad, or right on track?

Claims management solutions generate vast amounts of data. Unfortunately, most healthcare organizations lack the ability to extract the true value of this information. When data originates from incongruent sources or is outdated, it is impossible to unlock insights to support strategic decisions.

Revenue cycle analytics provide near real- time visibility into overall revenue cycle performance — by integrating data from across multiple facilities and by comparing metrics to peers across the industry, including best performers. Equipped with more complete and timely data, revenue cycle staff is well-positioned to immediately see where performance is lagging and the root cause of issues. Advanced intelligence enables the prioritization of improvement efforts based on dollar-value impact.

Understanding which specialties, departments, physicians, or payers are contributing most to denials and having data to empower confident discussions is the key to correcting behavior that will produce positive results.

Revenue cycle analytics such as this have been Bush’s “saving grace” at Knox Community Hospital. He is now able to take all of the gathered data and insights and “compile it into a nice, tight, pretty little package that I can sell the rest of the directors in a language they can relate to — which is volume and dollars.”

Walters and Alderman expressed similar thoughts at Orlando Health. Having easy access to meaningful, actionable data without relying on IT to pull reports has led to significant and rapid improvement in reducing denials after identifying the root cause.

“Data is powerful and can change behavior. In most departments, if you show them something quick and easily identifiable, it is most effective. Don’t overdo the data; make it visual and easy to understand,” said Walters. “You must have some kind of stimulus to get them moving. If you can clearly tie denials back to one department, or even a particular physician, those people will get kind of antsy. Well, we need them to be antsy so the backend isn’t doing all of the work.”

Conclusion

By employing the steps detailed above, both Knox Community Hospital and Orlando Health have experienced significant improvement in denial rates.

Prior to starting a denials management initiative, Knox Community Hospital’s clean claim rate ranged between 60 and 65%, according to Bush. Since reinforcing its prevention, management and analysis efforts, the hospital achieved a consistent 88% clean claim rate across the board. The Medicare clean claim rate improved dramatically, from approximately 62% to 98% — and clean claims mean fewer denials and lower AR days.

Orlando Health also saw marked improvement. According to Walters and Alderman, the latest analysis showed a 15% improvement to the claim acceptance rate. Authorization-related denials decreased by $3 million, eligibility-related denials decreased by $112,000, and billing error-related denials decreased by $265,000.

Learn more about the Change Healthcare Revenue Cycle solutions.

^{_{1 "An ounce of prevention pays off: 90% of denials are preventable." The Advisory Board Company, Dec. 11, 2014
2 "10 Most Concerning Issues for Hospital CEOs in 2016," Becker's Hospital Review, 2017. 2017 source: https://www.beckershospitalreview.com/hospitalmanagement- administration/10-most-concerning-issues-for-hospital-ceos-2017.html
3 "Automated Billing/Payment Process Can Reduce U.S. Health Care Costs without Sacrificing Patient Care." PNC Financial Services Group, November 2007
4 "Change Healthcare Healthy Hospital Revenue Cycle Index" Change Healthcare, 2017. http://healthyhospital.changehealthcare.com/wp-content/ uploads/2017/06/change-healthcare-healthy-hospital-denials-index-2017-06-a-2.pdf
5 "Denial Management and Prevention," RelayHealth Financial Solutions, 2015
6 "Reducing Denials and Increasing Revenue with Workflow Redesign" Bridget B. Walters & Cyndra Aderman, Orlando Health, July 2015
7 "An ounce of prevention pays off: 90% of denials are preventable." The Advisory Board Company, Dec. 11, 2014
8 "Denial Prevention, Management and Analysis: Revenue Cycle Visibility to Help Reduce Denials, Delays and Downtime." RelayHealth Financial, 2015
9 "Medical Necessity Outpatient Denials," RelayHealth Financial Solutions, 2015
10 "Improve the claims management process: Preventing payer denials" by Debra Beauliew-Volk, Medical Economics. Feb. 18, 2015. http:// medicaleconomics.modernmedicine.com/managed-healthcare-executive/news/improve-claims- management-process-preventing-payerdenials? page=full
11 "3 Reasons Why a Local Health Department's Insurance Claims May Be Denied" by Marciella Ardolino, Smart HealthClaims, Jan. 30, 2014. http://www. smarthealthclaims.com/blog_post/3_reasons_why_local_health_ department%E2%80%99s_insurance_claims_may_be_denied}}