The denial management process in healthcare requires a healthcare provider to rectify a denied claim. The process generally involves identification, rework, and resubmission of denied claims. In addition to this, it includes preventing future denials of insurance claims.
Denial management is an important component of revenue cycle management (RCM). The process acts like a safety valve to capture revenue losses before becoming permanent write-offs.
There is usually a structured sequence of steps that billing teams or healthcare professionals must follow when denials in healthcare occur. The practice or providers are notified regarding the denial, and then they can choose to take action.
- Breaking Down Denial Management
- Claim Rejection vs. Claim Denial: What is the Difference?
- Different Types of Denials in Medical Billing
- Common Denial Codes in Medical Billing
- Denial Management Process in Healthcare
- Denial Management Metrics to Track
- Common Causes of Claim Denials in Healthcare
- Best Practices for Denial Management in Healthcare
- How Does MediBillMD Help Providers With Denial Management?
Breaking Down Denial Management
When a claim is denied, the provider should:
- Understand the cause of the denial
- Fix the problem
- Re-file or appeal the denial decision before the payer’s filing deadline
The prevention and recovery of denials are related concepts but distinct actions. Denial recovery entails fixing, re-filing, appealing, or in some other way resolving denials of previously submitted claims. The primary objective is to recapture revenue that may be lost otherwise.
On the other hand, denial prevention includes solving problems that arise before the actual claim filing, like coding mistakes or insurance coverage issues.
Efficient denial management in healthcare improves RCM through better cash flow. So, in other words, managing denials on time:
- Reduces payment delays
- Increases cash flow
- Decreases claim resolution time
It also decreases the accounts receivable (A/R) aging and eliminates repetitive denials. Therefore, effective management of denials allows practices to avoid mistakes that increase administrative expenses.
Claim Rejection vs. Claim Denial: What is the Difference?
The words “rejection” and “denial” are often used interchangeably, but are they actually identical? No, they are not. Each denotes a separate step in the claim process, and knowing their difference is an absolute must for billers.
Rejection takes place during the pre-adjudication stage of claim processing, typically at a clearinghouse. Claim rejections occur because of:
- Formatting issues
- Missing data
- Technical error
Conversely, a denial occurs once the payer has processed and reviewed the claim but decides not to pay it (either in part or in full).
Knowing the difference is essential for effective denial management in healthcare. Therefore, the following table distinguishes the two.
| Factor | Claim Rejection | Claim Denial |
|---|---|---|
| When Does It Occur | Before claim adjudication, within initial claim scrubbing. | Post-adjudication, once the claim review is complete. |
| Why It Occurs | Missing, invalid, or mismatched data (e.g., wrong patient ID, invalid procedure code). | Coverage, medical necessity, timely filing, or contractual issues. |
| Who Identifies It | Clearinghouse or payer’s front-end claims system. | Payer’s claims adjudication or medical review department. |
| Typical Resolution | Correct the data and resubmit the claim. | File a corrected claim or formal appeal, depending on the reason. |
| Effect on Reimbursement | No payment determination has been made; the claim must be corrected and resubmitted before adjudication can occur. | A payment decision has been made; reimbursement is denied until appealed or corrected. |
Different Types of Denials in Medical Billing
According to Business Wire, the rate of initial denials of medical insurance claims continued to rise in 2024. Unfortunately, initial denials occur for multiple reasons, which fall into a handful of recurring categories.
New practices implementing denial management should categorize denials according to their root cause rather than treating each denial individually. Such an approach will allow the practice to discover underlying problems and prevent future denials.
Types of denials in medical billing can be classified as follows:
Administrative or Technical Denial/Rejection
Denials due to administrative error usually happen because of:
- Incorrect patient IDs
- Incomplete information
- Incorrect provider NPIs
These kinds of denials can be avoided through claim scrubbing before filing.
Eligibility Denials
Eligibility denials can happen because the claim was submitted for a period in which insurance coverage was inactive. The patient’s coverage expired before the date of service. Or, if an incorrect member ID, insurance plan, or eligibility information was submitted. Eligibility denials can multiply quickly and typically require quick resolution.
Authorization Denials
Authorization denials usually happen for services that require pre-authorization. So, a denial would occur if the authorization was:
- Not provided
- Expired
- Inconsistent
Improving workflow processes before service authorization and checking the authorization expiry dates and authorized services list can help you avoid this problem.
Coding-Related Denials
Coding-related denials may result from:
- Reporting obsolete codes
- Inconsistency in CPT and ICD-10-CM codes
- Improper sequencing of codes
- Unbundling of codes
- Improper usage of modifiers
All of these errors can be avoided by providing training to the coders and including auditing in the workflows.
Medical Necessity Denials
Proof of medical necessity is essential for submitting clean and compliant claims, but mistakes happen when the documents provided do not match the services reported on the claims. Some areas where medical practices should pay attention to include:
- Thorough documentation
- Reviewing payer policies
- Following Local Coverage Determinations (LCD)
- Complying with National Coverage Determinations (NCD)
Timely Filing Denials
Timely filing denials occur when a claim is submitted after the payer’s filing deadline. Some common contributors may include:
- Delayed claim submission
- Missing documentation for charge capture
- Coordination-of-benefits issues
- Delayed eligibility or authorization resolution
Fortunately, practices can prevent denials in healthcare with the right denial management tactics (more on this ahead).
Coordination of Benefits (COB) Denials
Coordination of Benefits (COB) issues occur when the order of primary and secondary coverage is incorrect, missing, or not properly established. The claim may be denied or delayed until the payer order is verified.
Common Denial Codes in Medical Billing
Claims may be denied for various reasons, which are documented using Claim Adjustment Reason Codes (CARCs). Payers use CARCs to explain why a claim or claim line was:
- Adjusted
- Reduced
- Not paid
- Subject to other payment adjustments
Moreover, Remittance Advice Remark Codes (RARCs) are often mentioned alongside CARCs. They provide additional details surrounding these denials.
In addition, Group Codes indicate financial responsibility, such as:
- CO: Contractual Obligation. Generally indicating an amount assigned to the provider’s contractual responsibility and not normally billable to the patient.
- PR: Patient Responsibility, i.e., the patient owes a particular amount.
- OA: Other Adjustment. Used for adjustments that do not fall under the other group-code categories.
For denial management in healthcare, a reason code doesn’t fully describe the denial scenario. Thus, billers interpret the group code and reason code simultaneously to determine rectification steps.
| Code | Meaning | Common Cause | Recommended Action |
|---|---|---|---|
| CO-16 | Claim lacks information or has billing/submission errors. | Missing or invalid information, depending on the accompanying remark code. | Review the RARC and payer instructions, correct the claim, and resubmit or appeal as appropriate. |
| CO-18 | Duplicate claim/service. | Duplicate claim or service previously submitted or processed. | Review claim history before filing claims. |
| CO-22 | Payment rejected because another payer may be responsible. | Incorrect or unresolved payer order. | Verify the payer order and COB. |
| CO-29 | Timely filing limit expired. | Late submission. | Monitor specific filing deadlines for each payer. |
| CO-50 | Not medically necessary. | Missing documentation. | Review the payer’s medical-necessity policy, verify coding and documentation, and submit supporting records or an appeal when permitted. |
| CO-97 | Service bundled into another already paid service. | Unbundled billing. | Review NCCI edits before claim submission. |
| PR-1 | Deductible amount. | The patient hasn’t met the deductible. | Bill patient accordingly. |
| PR-2 | Coinsurance amount. | Patient share per plan. | Bill patient accordingly. |
Denial Management Process in Healthcare
Denial management in healthcare is a step-by-step process. Each step plays a vital role and builds the next.
If billers or denial managers fail to accomplish any of these tasks, then the entire process will fall apart. Below is the denial management process.
1. Identification of the Denial
Identifying the underlying problem that leads to the denial is the first step in the denial process. It is always recommended to review remittance advice on a daily basis for detecting any denials. However, this has to be done as soon as the claims are posted.
2. Cause Categorization
After denial data is collected, it must be arranged correctly. Denial management teams are supposed to arrange denials according to:
- CARC
- Payer
- Department
Classification prevents denial patterns from becoming the basis of denied claims.
3. Claim Correction and Resubmission
The denial management process is based on the underlying issue causing the denial. Depending on the reason for the denial, the team might:
1. Resubmit the claim
2. Appeal
3. Complete some other task prescribed by the payer
The deadline for doing so must be observed carefully, so that all denial resolution steps are performed within the prescribed deadlines.
4. Resolution Tracking
Kaiser Family Foundation (KFF) states that 56 million claims were denied by the ACA Marketplace insurers in 2023. Furthermore, only a few of the denials were reviewed. In many cases, the denials could not be reviewed since they were not even monitored.
Denial management teams should see each denial process through until either the claim is paid, written off, or appealed successfully.
5. Prevent recurrence
Denial management in healthcare is challenging because correcting individual denials does not automatically prevent future denials. Practices must input root-cause findings into the front-end processes, such as:
- Eligibility checks
- Coding accuracy
- Authorization workflows
Practices will face the same refusal process each time they practice corrections. Loop closure practices reduce denial processes over time, and there will be less need for corrected claims.
Denial Management Metrics to Track
Did you know that Counter Force Health (CFH) has stated that less than 1% of denied claims get appealed? This shows that practices miss out on revenue that could be recovered.
One of the reasons why this happens is that practices don’t use the appropriate tracking metrics. With the appropriate tracking metrics, practices are able to determine gaps in their revenue cycles, and these metrics are as follows:
Denial Rate
The denial rate is the percent of the total number of claims denied. It gives an overall performance review of the total claims.
Initial Denial Rate
The percent of claims that get denied at first submission, which tells us the efficiency of the submission process.
Clean Claim Rate
Clean claim rate is the percent of claims submitted without any mistakes or errors that need to be corrected manually or automatically.
Denial A/R
The total amount of dollars worth of claims that are denied but still remain unresolved or are unpaid. Denial A/R shows the direct effect of denial on cash flow.
Denial Recovery Rate
The rate at which denial dollars are successfully recovered due to correction, resubmission, or appeal.
Appeal Win Rate
The rate at which appeals succeed for the providers. This can help determine the average financial performance of the practice.
Write-off of Denied Dollars Rate
The rate at which denial dollars are written off without attempting to recover them; indicates lack of ability to pursue recovery.
Denials by Payer
Denials classified according to the payers, which can determine the ratio of claims that are subpar. The higher the number, the more improvement a practice’s revenue cycle requires.
Common Causes of Claim Denials in Healthcare
Healthcare denial management requires an in-depth knowledge of the denial reasons so that the necessary resolution steps can be taken and future denials can be prevented.
Below are some of the root causes of claim denials that your healthcare practice is probably overlooking:
- Registration errors due to wrong patient and insurance data at the time of registration.
- Eligibility denials due to expired insurance or exclusions in benefits.
- Authorization denials due to failure to conduct pre-service checks.
- Coding denials due to inconsistency in codes and clinical documentation.
- Bundling and modifier denials due to improper use of payers’ rules.
- Timely filing denials due to late claim submissions.
Best Practices for Denial Management in Healthcare
Proper denial management in healthcare calls for having proper practices in place. Some of the most appropriate practices are as follows:
- Notify leadership about the denial trends every month to maintain the prevention process.
- Check eligibility and benefits of the patient prior to each visit, since there could be changes in it.
- Direct the denials according to the reason for denial, which means that coding-related denials should be sent to coders and registration-related denials to the front-desk staff.
- Use appropriate documentation templates so that clinical notes match the billing codes.
- Check the claims before sending them to the payer to catch any coding and formatting errors.
- Provide the cost estimate in advance when required. The federal good faith estimates usually apply to uninsured or self-pay patients and not to insured patients.
- Maintain internal deadlines ahead of payer deadlines.
How Does MediBillMD Help Providers With Denial Management?
Effective management of claim denials needs an understanding of denial drivers and the workflow holes that continue to create them. This way, your team will not be wasting their time fixing the same denials over and over again every month.
MediBillMD’s solution provides claim-level fixes and process-level analysis for practices to manage denials and recover from them.
Optimize your practice’s revenue cycle through MediBillMD’s denial management services.
