Claim Denials Guide for HIM Professionals & Coding staff

April 2, 2018 | Claim Denials, Healthcare IT
Claim Denials Guide for HIM Professionals & Coding staff

“Managing Hospital Revenue cycle is a challenging job. Denial of claims make it even tougher.

Claim denials are an inevitable problem for hospitals. Typically, hospital suffer annual losses from denial write-offs within range 1% to 5% of net patient revenue.

Denial of a claim 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]

Post claim submission, payer reviews it on various aspects. A claim can be refused by the payer for a variety of reasons.

Reasons for Denials

As per the 2013 American Medical Association National Health Insurer Report Card, below are the 5 major reasons for medical billing denials:

  1. Missing information, like leaving one required field blank, a missing modifier, the wrong plan code or no Social Security number.
  2. Duplicate claim or service,  claims re-submitted for the same beneficiary for the same date, same service item and same provider
  3. Service already adjudicated, when benefits for a certain service are included in the payment/allowance for another service or procedure that has already been adjudicated.
  4. Not covered by payer, procedures not covered under patients’ current benefit plans
  5. Time limit for claim submission already passed: Claims need to be submitted within a specified timespan. Outside of the set time period, claims get denied.

Types of Denials

CMS & RAC contractors categorised denials in two parts:

  1. Complex Denials: This level of review uses licensed medical professionals who

examine a claim and related documentation to identify whether the service was

covered and was necessary and reasonable.

  1. Automatic Denials: For these reviews,  system edits are leveraged to check claims for

proof of inaccurate/ improper coding, or other mistakes. RACs may send the provider a letter demanding repayment based on these reviews.

Difference between Denials & Rejections

CMS differentiates denials and rejections in the following manner:

  1. Claim Rejections: These type of claims don’t meet the specific data requirements or basic formatting. Before re-submitting the rejected claim, correction of error is required . E.g. Transposed digit from the patient’s insurance ID number.
  2. Claim Denials: These are the claims where negative determination was made by the payer.  Unlike claim rejections, these claims cannot just be re-submitted, though it can be appealed with necessary proof.

Knowing the differences between rejections and denials can help hospital staff accelerate the appeals process drastically, and pinpoint areas for continuous improvements.

Is Denial a big enough issue?

The answer is YES!

Claims denials represented a major threat to hospitals’ financial health as per the Nov 2017 Revenue Cycle Survey from Advisory Board. [2]  Payors initially deny about 9% of hospital claims, putting about $5 million in payments per hospital at risk. [3]

Claims of Denials

Denials are increasing!

Advisory Board study revealed that Hospitals denials write off accounts for $3.5 million for a median 350-bed hospital. Successful denial appeals fell from 56% to 45% for commercial payers and from 51% to 41% for Medicaid over the past two years. [4] As per the ICD-10 monitor survey 2016, 71% of respondents believe that denials have increased post the ICD-10 adoption. [5]

Good News

Though, hospitals successful denial appeals got dropped for private payers and Medicaid payer. However, Medicare payer seemed to be relatively beneficial for the hospitals. The median successful denial appeals increased from 50% to 64% for Medicare.[6] Change Healthcare study found that about 63 percent of denied claims were recoverable. [7]  

Computer assisted coding (CAC) can reduce the denials due to coding errors and medical necessity by a significant margin. According to HFMA, best practice for initial denials should be 5%. [7]

How Computer assisted coding can help hospitals reduce denials?

With its NLP based CAC, ezDI targets denials in following ways :

  • No More Inaccurate codes: Built-in coding compliance to prevent submitting the erroneous codes
  • Appealing against initial denials become easy: Complete audit trail between each assigned code and the related documentation, which can be used as a proof while appealing denials
  • Real time alerts: Providing edits to coders to warn them about medical necessity errors
  • Categorizing denials: Identifying the root causes of denials by service lines/ MDCs, patient class/type, coders, physicians, DRGs, LOS etc.

ezCAC targets to reduce the coding related denials by 50%.  ezDI has helped hospitals moving from denial management to denial prevention by addressing the root causes of denials.

KPIs for Claims Management

Indicator Calculation Target/Best Practice (HFMA) [9]
Final-Billed-Not Submitted to Payer (FBNS) (Gross dollars in FBNS)/ (Average daily gross patient service revenue) 1-2 days
Clean Claim Submission Rate (Number of claims that pass edits requiring no manual intervention) / (Total claims accepted in to billing scrubber for editing ) > 85%
Net Days in A/R (Net A/R) / (Average daily net patient service revenue) 45 – 55 Days
(Should exclude credit balance accounts and any non-patient service A/R )
Billed A/R >90 Days ∙ a) 3rd Party >90 Days b) Self Pay >90 Days (Billed A/R > 90 days) / (Total billed A/R) 15 – 20 %
(Should not include accounts in preadmit or in-house status.)
Total Denial Rate (Denial write-off amount) / ( Net patient service revenue) 2-3 %
(Should include all net account balances written off within the month resulting from un-appealable denials. Do not include contractual allowances. )
Days Net Revenue Held in Credit Balances (Dollars in credit balance) / ( Average daily net patient service revenue) 1.5 – 2 Days

References

  1. Health Insurance Glossary, https://goo.gl/JgLFN2
  2. Advisory Board Survey, https://goo.gl/Ayfzrs
  3. Modern Healthcare, https://goo.gl/Hc7fJQ
  4. Advisory Board Survey, https://goo.gl/K6Q1Ps
  5. ICD-10 Monitor Survey 2016, https://goo.gl/3z45jR
  6. Revenue Cycle Survey from Advisory Board, https://goo.gl/ya99dC
  7. Change Healthcare, https://goo.gl/STcin3
  8. HFMA, https://goo.gl/2WmLtw
  9. HFMA, http://hfmamd.org/downloads/REGION_IV_2015/12__pnc_presentation.pdf

Gaurav Arya completed his MBA from IIM Ahmedabad and graduated from IIT Varanasi. As a strategist at ezDI, he is responsible for devising S&M strategy for client acquisition. He is engaged in helping hospitals and physicians deal with compliance and revenue challenges so that they can go back to focusing on patient care.

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