The formal definition of a medical billing denial is, “the refusal of an insurance company or carrier to honor a request by an individual (or his or her provider) to pay for healthcare services obtained from a healthcare professional.”1
As a financial executive for a hospital or health system or their employed practice, you know medical billing denials as constant headaches that negatively affect your organization’s revenue, cash flow and operational efficiency.
Numbers tell the story. The industry benchmark for medical billing denials is 2% for hospitals.2
In medical practices, medical billing denial rates range from 5-10%,3 with better performers averaging 4%.4 Some organizations even see denial rates on first billing as high as 15-20%! For those providers, one out of every five medical claims has to be reworked or appealed. Rework costs average $25 per claim,5 and success rates vary from 55-98%, depending on the medical denial management team’s capabilities.6 When all else fails, write-offs can range from 1-5% of net patient revenue. In an average 300-bed hospital, 1% can mean $2 million to $3 million dollars a year—significant by any standards.7
The good news is, many medical billing denials can be avoided. Granted, they may never go to zero, but reducing them even by a fraction of a percent can have a substantial impact on your organization’s bottom line. A good approach is to understand the different types of medical billing denials, pinpoint the most common billing problems and take steps to avoid them.
Denials fall into two big buckets: hard and soft. Hard denials cannot be reversed or corrected, and result in lost or written-off revenue. Soft denials are temporary denials with the potential to be paid if the provider corrects the claim or sends additional information. Here are the top five reasons for medical billing denials, according to the 2013 American Medical Association National Health Insurer Report Card.
While working denied medical billing claims after the fact is a critical component of revenue cycle management, relying on this alone can slow cash flow to dangerous levels. A much sounder financial approach is to proactively measure the volume and causes of denied medical billing claims so they can be prevented before they occur.
Adding more people to the healthcare claims management team won’t necessarily help reduce or prevent denials unless they know what to focus on. The following should be part of any sound denials management plan:
Many hospitals and practices lack the technology and staff capacity to manage denials effectively, especially in light of constantly changing regulations and payer rules. Outsourcing revenue cycle management to experts like Change Healthcare who have dedicated denials management teams can be a profitable, sustainable alternative. We can help you establish medical billing benchmarks, reduce backlogs, identify root causes of denials and augment your revenue cycle team.
Learn more about how Change Healthcare’s medical denials management services can help reduce denials and improve compliance your hospital or employed physician practices.
1Health Insurance Glossary, healthinsurance.org.
2“Are You Getting to the True Root Cause of Your Denials?” by Christine Fontaine, HFMA.
3“Quantify Denial Rates for Smooth Revenue Cycle Management,” by Jacqueline DiChiara, RevCycleIntelligence.com, March 30, 2015.
4“Insurance denials: Is your practice to blame?” by Madeline Hyden, Medical Group Management Association, Dec. 21, 2011.
5“Reducing the Expenses of Claim Denial Management Through Automation,” May 31, 2016.
6Leveraging Data in Healthcare: Best Practices for Controlling, Analyzing, and Using Data, by Rebecca Mendoza Saltiel Busch, CRC Press, 2016, ISBN-13: 978-1-4987-5773-7
7“4 ways healthcare organizations can reduce claim denials,” by Kelly Gooch, Becker’s Hospital CFO, July 26, 2016.
9“Top 5 Medical Claim Denials in Medical Billing,” by Harold Gibson, M-Scribe Medical Billing, Aug. 28, 2014.
10“Differences Between RACs’ Automated and Complex Reviews,” by Leigh Page, Becker’s Hospital Review, Dec. 16, 2010.
11News: Inpatient coding errors top reason for hospital complex claim denials,” CDI Strategies, March 17, 2016