Yes, you figured it right! This guide is all about mastering denial management in the healthcare space.
Medical claim denials occur when an insurance provider declines to pay for medical services that a patient has received from a qualified healthcare practitioner.
They are a persistent problem, negatively impacting cash flow, operational efficiency, and revenue for hospitals and healthcare providers. Luckily, by employing effective strategies for denial management and with the correct knowledge and procedures, you can prevent claim denials.
So, before we dive into the details, here is a quick preview of what this comprehensive denial management guide covers.
This guide will discuss denial management, its importance, the difference between claim denial and claim rejection, and denial codes. We will also walk you through the denial management process and share some key strategies to make it more efficient.
What Is Denial Management?
The process of locating and evaluating claim denials to develop new workflows that eventually lower the denial rate or increase practice reimbursements is known as denial management in the healthcare industry.
Effective denial management offers a way to lower the denial rate and provides ways for claim reconsideration or resubmission, even if it might not be able to stop 100% of denials.
Difference Between Claim Rejection and Claim Denial
Before diving into the intricate denial management process, you must understand the difference between claim rejection and denial.
| Claim Rejection | Claim Denial |
|---|---|
| A claim gets rejected when the insurance company cannot process it due to one or more errors. | Claim denial happens after an insurance company receives and processes the claim. |
The primary distinction between claim rejection and claim denial is that rejection happens before claims are received and handled by insurance companies at the clearinghouse. While denial occurs after insurance firms have received and handled claims.
Rejected and denied claims can usually be amended and resubmitted. Your biller must prioritize managing denied and rejected claims to prevent needless write-offs.
Importance of Denial Management in Healthcare
A payer will not pay you back for the treatment or services you rendered if your submitted claim is denied. It implies that you are giving care without compensation.
A few denials will not ruin your practice. However, if they accumulate, you could face serious financial difficulties. Recognizing patterns in your denials and fixing these problems will ensure that your practice gets paid on time and has a steady flow of revenue to run smoothly.
Now that you understand why denial management is important, it is time to explore the different types of denials.
Different Types of Denials
At a high level, denials fall into two primary categories, hard and soft denials. Understanding the type of denial is crucial to determining whether or not you can initiate the denial management process.
A hard denial occurs when a patient’s insurer straightaway declines to cover the claim. Typically, this happens when a claim is submitted for uncovered services.
When your practice receives this type of denial, appealing it will be of no use. Hard denials result in no money as the insurance company refuses to reimburse you for services rendered to a patient who is not eligible. Simply put, these denials are usually considered losses.
When there is a chance to recover reimbursement, it is known as soft denial. In other words, a patient is eligible for a claim when an insurance company examines it and declines it due to incomplete information or inadequate documentation.
Soft denials are just temporary. Here, healthcare providers can appeal to the payer, overturn the original decision, and collect the reimbursement owed. In this instance, the provider must revise the soft refused claim and resubmit it to the insurance company, after making the necessary modifications.
At this point, you might be thinking “What type do most denied claims fall under?”. You will be glad to know that the number of soft denials is greater than hard denials.
Common Denial Codes
For efficient denial management, another key factor is your team’s knowledge of denial code. Even though it is annoying when insurance companies deny your claims, understanding why they were not accepted is crucial for appeals.
Luckily, insurance payers return claim denials with “reason codes” attached.
Claim Adjustment Reason Codes (CARC) is the terminology used in the industry to describe these reason codes. CARCs are formal, decided upon, and dispersed by X12. The only issue is that there are several hundred of them.
Fortunately, MediBillMD is a professional medical billing company that has helped providers with denial management for years. Based on our experience, we have observed a pattern within the CARCs and made a list of common denial codes.
| Denial Codes | Description |
|---|---|
| CO 4 | The procedure’s code and the modifier don’t match, or there is a missing modifier. |
| CO 16 | The claim is incomplete or has submission, billing, or other errors required for adjudication. |
| CO 18 | Duplicate services or claims. |
| CO 45 | The fee surpasses the highest allowable amount for a service. Alternatively, the charge exceeds the agreed-upon fee arrangement. |
| CO 97 | The allowance or payment for a service that is already decided upon constitutes the benefit for that service. |
| CO 151 | The claim’s supporting documentation fails to substantiate the frequency of services. |
| CO 197 | Absence of precertification, authorization, or notification. |
| PR 31 | The patient’s insurer could not locate them as a member. |
| PR 177 | The patient does not fit the criteria for eligibility. |
| PR 204 | The patient’s present coverage plan does not cover the services, medications, and/or equipment. |
Denial Management Process
You can manage denials by recognizing, addressing, and preventing them. Here is the step-by-step process for effective denial management:
Step 1 – Claim Submission
Provider files a claim with the insurance company for their rendered care services. Every patient has enrolled in an insurance plan. You must file claims in compliance with the regulatory authorities’ standards. Claims are filed either on paper or electronically.
Step 2 – Denial Identification
The insurance companies notify providers in case of rejection or denials with the rationale for the refusal. Based on this, the team identifies the reason behind the denial.
Step 3 – Denial Categorization
Every denial is classified based on its nature. Administrative, technical, and clinical denials are a few examples of denials you may encounter. The billing team then performs a thorough analysis and determines the core source of the denials.
Step 4 – Denial Resolution
Providers have the option to appeal the refusal of their claim. Some additional documents are submitted to strengthen the argument in favor of the healthcare practitioner.There is a deadline for submitting the codes, documentation, and any other supporting material. It is crucial to follow up on the appeal and check its progress status after some time.
Step 5 – Identifying Areas of Improvement
In this step of the denial management process, a review is conducted to find areas that need improvement. The findings of this analysis are shared with the revenue cycle management department to eliminate any possibility of error. With the help of this report, healthcare practices can take preventative action.
Step 5 – Monitoring and Tracking
Healthcare practices can gain valuable insights to improve claim accuracy, resolve denials faster, and maximize revenue by effectively monitoring and tracking the denial management process.
4 Key Strategies for Effective Denial Management
To reduce the denial rate and improve your practice’s overall financial health, you must implement an effective denial management strategy.
In this section, we will propose key denial management strategies that you can use all at once or implement periodically to achieve financial success.
So, without further ado, let’s get started!
Strategy # 1 – Focus on Denial Tracking and Management
Over the last five years, claim denial rates have increased by more than 20% on average. The majority of healthcare systems need a well-defined process for managing denial tracking.
To address denied claims successfully, we advise you to include the following in your denial management process:
- Make a clear list of CARCs and arrange them according to the similarity of their next steps.
- Create separate sub-buckets for related issues inside the denials A/R bucket.
- Ascertain the most qualified person within your staff to work on a particular type of denial, then assign them ownership of that bucket or sub-bucket.
- Record every claim denial you receive, the date it was resolved, the upcoming review date, and the anticipated results of your follow-up actions by creating a denial dashboard.
- Despite technological advancement, many providers continue to handle claim denials manually. If you lack the necessary technology to efficiently monitor and handle denials, invest in some or partner with an appropriate billing provider.
Strategy # 2 – Prioritize Denial Management
The denial of a claim delays your reimbursement by 21–45 days. All businesses depend on cash flow, and your practice is no different. Thus, consistent collection of payments is necessary to provide quality care to patients.
The following tips can help you prioritize denial management:
- All denials must be processed within 48 hours from the time you receive the notification.
- Each follow-up should be accompanied by detailed notes highlighting a plan and the date of the next review.
- Set a review date for every activity and compile a list of consistent action codes for every situation.
- Ensure that the team discusses this and everyone knows exactly how each code is meant to function.
- Stick to the course to ensure the issues are resolved and outcomes are assured.
Strategy # 3 – Clearly Define Claim Dispute Plan
Contrary to common belief, not all denials require appeal. Be wise and determine which denials should be accepted and which should be disputed using a well-defined dispute approach. It is significant because processing each denial costs around $25.
Essential components of a successful denial management plan include the following:
- Establish a procedure to determine which denials should be contested and how to defend yourself in the best way.
- Configure your CARCs to specify the fate of a denial once it is posted with a specific code.
- Some denials should be written off or rolled over to the next level while those that require disputation should go into a dispute bucket. When correctly configured and supported by technology, your CARCs should be able to handle this automatically at the moment of publishing.
- The appeal’s content has a significant impact on its success percentage. Therefore, you should have standard appeal templates with authorized standard language.
- Keep tabs on the success rate of each kind of appeal and adjust your appeals procedure for ongoing enhancement.
- Workers with exposure to the clinical side should handle clinical denials.
- Not every denial requires a phone call or written appeal. The best course of action is to review the Explanation of Benefits (EOB). Once the demographic issue is corrected, it might just require a simple refile.
Strategy # 4 – Leverage Preventive Denial Analysis
Preventing claims denial is the best approach Preventive denial analysis is the core denial management strategy, and you can implement it to lower the denial rate in the future.
Therefore, we advise you to examine the following:
- Why did the denial occur? Was there a billing error, coding problem, patient eligibility issue, incorrect payer, etc.?
- Was it possible to avoid this denial?
- If so, what could have stopped the denial? If there was a problem with eligibility, analyze whether your eligibility verification procedure needs optimization.
- Analyze your denials using the 80:20 rule to determine the problems that impacted you most and how to fix them.
- Avoid attempting to enhance every procedure at once. Taking things one step at a time will yield better outcomes.
Bottom Line
Denial management is essential to operating a profitable healthcare facility. Without it, insurers will not pay you for the rendered services, and the financial health of your practice will suffer.
However, the denial management process can be time-consuming and poses some challenges, making it difficult to focus on quality patient care. Hiring a professional billing staff, like the one at MediBillMD, will relieve you of this burden and guarantee that your practice receives payment as soon as feasible.
The survival of your practice will depend on your ability to track denial trends and develop efficient denial management processes, regardless of whether you choose to work with a third-party billing company or manage everything in-house.
