The Era of Claim Denials and How to Avoid Coding Errors that Cause Them

The Era of Claim Denials and How to Avoid Coding Errors that Cause Them

On 10th June 2021, one of the biggest health insurers in the US announced a new policy that would see as many as 1 in 10 emergency room claims denied. The policy, which was an attempt at curbing healthcare costs, was met with significant resistance from hospitals, healthcare institutions, and medical societies, causing the insurer to delay the controversial policy.

The policy was not the first of its kind. It is, in fact, the latest in a line of crackdowns on emergency outpatient visits. In 2018, a series of ER policies had impacted the reimbursement of low- and high-acuity cases. Over the past few years, amidst outcries to reduce the providers’ documentation burden, the healthcare industry has been witnessing a stark rise in the number of denied E/M coding related claims. And while stringent policies have played their part in it, they are not the sole reason for the increasing number of denied claims.

A Growing Concern

Claim denials due to coding errors represent a major portion of lost revenue for hospitals and healthcare systems. Each year denied claims stemming from errors result in the loss of an approximate average of US $20 billion, in the US alone. But lost or delayed reimbursements is just one side of the coin. The cost to rework a denied claim is the other. Healthcare providers spend an average of US $118 for each reworked claim besides losing out on profitability and productivity due to duplication in administrative effort.

State-wise breakdown of average denial rate for in-network claims by healthcare.gov issuers 2019

Fig. 1: State-wise breakdown of average denial rate for in-network claims by healthcare.gov issuers, 2019

While 63% of all denials in medical coding are recoverable, the costs associated with claims reprocessing, payment, and reconciliation often become an overwhelming burden. As a result, nearly 65% of all denied claims are never reworked. In recent years, this has become a cause for growing concern due to the steady rise in denied claims since 2016. According to the Change Healthcare 2020 Denials Index, the percentage of denied claims stood at 9% in 2016. By the 3rd quarter of 2020, that number was almost 11%.

The value-based healthcare ecosystem is a constantly evolving one, where margin for errors is excruciatingly small. And with the much-talked-about changes in E/M coding guidelines coming into effect at the start of 2021, the tension around the rising number of claim denials is likely to grow.

What’s Causing Denials?

While some denials are easy to recover (registration errors or missing data), others require a full-scope investigation to unearth the root cause, which could be anything from missing charges to incorrect sequence of procedures. And when it comes to E/M coding related denials, one of the most common reasons is disparity between diagnosis and procedure. Although rooted in the documentation cycle, it is critical to flag errors such as this during the coding process. This error occurs when the procedure of care fails to justify the diagnosis codes (representing the description of the disease) in the claim.

Another common reason for denial is undercoding. With the implementation of ICD-10, and subsequent emphasis on the diagnostic specificity in the coding process, it has become increasingly critical for hospitals to ensure code accuracy and consistency with documented service provided. And at times, the claim fails to capture the necessary information to specify the diagnosis and service procedure. Similarly, other reasons for denials include claim duplication and failure to file claims within the time limit.

The final common reason for denied claims is overcoding. This error occurs when a service is not deemed a medical necessity by the payer. Stemming from assigning incorrect billing code for a service or procedure, an overcoding violation can become a troubling issue in the form of medical fraud. In outpatient settings, where providers have to navigate a seemingly endless variety of potential medical scenarios, inadequate coding, and lower proficiency leads to undercoding as well as overcoding E/M levels. 

The growing rate of denials have made them a constant factor in the claims management landscape. And, more often than not, implementing a complete claim denial management program can seem like a herculean task. However, following a few best practices can help align your coding procedures to minimize denials and maximize revenue.

From Denials to Revenue

Denials in medical coding are a thorn in the side of the healthcare revenue cycle management. But despite this, a vast majority of denials are, in fact, avoidable. According to the Change Healthcare 2020 Denials index, as many as 86% of denied claims can be avoided if proper measures are taken. At EZDI, we believe a majority of claim denial situations can be fixed relatively easily, simply by identifying the root cause of the denials. And almost always, the root causes are of three types:

  • Errors at end-user touchpoint: This is primarily related to department processes that include data entry or charge entry. This eventually translates to missed codes that are payer-required information.
  • Issues in the technical set-up: A result of disparity in coding systems, this causes claims to capture invalid CPT® (common procedure terminology) codes and is one of the most commonly found errors.
  • Unfulfilled patient requirements: Certain payers require patients to submit predefined information prior to treatment. Failing to submit this information could lead to a denied claim.

Fortunately, there are a few best practices that can be leveraged to minimize the risks of denied claims such as

  • Continuous analysis of coding-related denials 
  • Ensuring coding accuracy
  • Leveraging analytics and technology

At EZDI, years of experience and innovation has allowed us to create a set of solutions that help healthcare organizations strike the perfect balance between performance and profitability. Our comprehensive AI- and NLP-enabled computer-assisted coding (CAC) and computer-assisted professional coding (CAPC)solution offers a one-stop solution for coders to maintain and coordinate a seamless outpatient workflow. Moreover, the inbuilt automated E/M calculator provides coders with a graphical interface that ensures capturing all relevant CPT® codes. Leveraging its NLP capabilities, the solution extracts necessary information from unstructured sources and identifies and automatically selects the right E/M codes based on the 2021 guidelines. 

The analytics engine, on the other hand, presents healthcare organizations with a powerful data visualization tool. By providing operational insights such as coder productivity and benchmarking, this tool allows healthcare organizations to achieve prominent financial growth.

In Conclusion

The E/M coding practice has evolved significantly in the last 20 years. And by the next 20, it will have evolved further still. The role of new-gen technologies like AI/ML/NLP cannot be overstated, especially considering the growing productivity and accuracy expectations.

For now, the recent changes to the E/M coding guidelines, the growing need to reduce the administrative burden on physicians, and the proliferation of digital tools are shaping the way ahead for the healthcare industry. And the road to progress is not always simple. But with EZDI as a partner, you too can brace the winds of change and establish the healthcare organization of the future.



By designing a next-generation clinical NLP engine supporting advanced documentation and coding functions, EZDI turned their vision to reality. Their CAC and CDI solutions received tremendous feedback, providing system accuracy and ease of use. EZDI removes the data complexity and highlights what matters for healthcare professionals.

EZDI is a provider of AI-based mid-revenue cycle management solutions to Hospitals and Health Systems.

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