Like an injury that won’t heal, claim denials represent a chronic and growing financial problem for hospitals and other providers, both in terms of lost revenue and the ongoing costs of remediation.
Approximately 9 percent of $3 trillion in U.S. hospital claims were initially denied in 2016, with the administrative costs of denial rework and appeal now estimated at nearly $9 billion annually. Moreover, denial volume keeps increasing: The average 350-bed hospital saw denial write-offs jump by 79 percent between 2011 and 2017, from $3.9 million to $7 million.
Most denials are preventable
The enormous numbers underscore the challenges providers face both in preventing denials and handling the rework and appeals process efficiently and successfully. Despite available technology that can automate and expedite denial management, it is telling that nearly one-third of providers continue to rely on labor-intensive manual denial remediation, according to a HIMSS survey from 2016.
With the average cost of reworking a claim at $25, administrative expenses can multiply quickly if denials continue to pile up. As it stands, 65 percent of payer rejections are never reworked and resubmitted to begin with.
Fortunately, about 90 percent of denials are preventable, and two-thirds are recoverable, according to a 2014 Advisory Board study. So how can intelligent automation help prevent denials in the first place while expediting the successful recovery of payments when denials do occur?
Intelligent automation and root cause analysis
Root cause analysis is essential for identifying denial causes and what changes are necessary to prevent them from occurring again. However, it takes more than just a spreadsheet to obtain this critical information. Digging deep to retrieve meaningful data in a timely manner requires intelligent automation (IA), an essential component in the most effective denial management programs.
ParaRev is a leading accounts receivable (AR) resolution and recovery firm with more than 20 years’ experience helping hospitals address rejected and aging AR. Through a significant investment of time and resources, we’ve developed advanced IA capabilities that help us quickly understand how, why and where payment delays are occurring.
Here’s how IA works: Bot applications are programed via proprietary software to scrape denied claims, hospital billing systems, EDI applications and other transactional data for all available information relating to a specific account. This can include everything from denial codes and payment and service history to contractual information and filing deadlines.
From this data aggregation, common, relatively simple barriers to account resolution, such as misallocated remittances, can be identified and addressed automatically through automated applications, thereby dramatically reducing cycle time. Once these areas are identified, corrective action can take place to help keep the denial from happening again.
Here are some of the most common denial causes we’ve identified:
- Utilization: This category includes the clinical areas of medical necessity, pre-authorization, DRG downgrades and experimental treatments. Insurance companies will often challenge whether a specific treatment was medically required, whether the level of care provided corresponded to the underlying morbidity, or whether the length of stay was justified.
- Coverage: Unresolved claims due to coverage issues make up about 21% of denied charges for ParaRev clients. As the name implies, coverage denials involve real or perceived errors or omissions surrounding health plan coverage limits.
- Contractual: Payment delays and rejections stemming from contractual issues make up the third-largest category of denied charges. Contractual denials can involve a wide range of issues, but one of the most common entails payer underpayments for specific services like surgery, emergency department, laboratory, radiology, therapies and observation.
- Coding and Billing: Coding and billing issues result in about 15% of all denied charges among HFRI’s client base. A common problem involves Reason Code 97 rejections triggered by the failure of hospital coders to properly include National Correct Coding Initiative (NCCI) edits.
- Submission/Re-billing: Denials triggered by submission problems are responsible for about 15% of all denied charges. Failure to include the primary EOB, crossovers between supplemental and primary insurance and missing medical records are common rejection reasons.
- Cash Posting: This category of issues produces about 4% of denied charges and frequently involves determining the appropriate allocation of unapplied cash.
- Process Delays: Process issues account for 3% of denied charges and usually involve payers taking an excessive amount of time to process a claim for reasons unrelated to the claim itself.
In addition to automating root cause analysis, ParaRev uses IA – along with robotic process automation (RPA) and staff specialization — to streamline and accelerate the AR recovery and resolution process.
RPA software replicates manual human activity through easily programmed bots that can accomplish basic tasks across a range of areas. IA takes these capabilities a step further by incorporating decision-making logic into the process.
IA also categorizes denials by root cause into separate buckets or work queues and produces succinct summaries of all relevant information for each denied, delayed or underpaid claim.
Working from category-specific, prioritized work queues, ParaRev remediation specialists access the claim summaries, which include recommended actions for each denied or delayed claim. The detailed information provided by our IA process, combined with the specialist’s knowledge about how best to resolve a specific type of issue, allows the specialist to expedite rework and secure resolution for both low- and high-value claims much more quickly and accurately.
Automating root cause analysis and the accounts receivable recovery and resolution process through AI represents the cutting edge in denial prevention and management. Given the ongoing revenue loss and administrative expense associated with denials, deploying these tools through an experienced partner can produce a rapid return on investment. Contact HFRI today to learn more about how we can help you defeat denials.
- Philip Betbeze, “Claims Appeals Cost Hospitals Up to $8.6B Annually,” HealthLeaders, June 26, 2017
- Kelly Gooch, “4 ways hospitals can lower claim denial rates,” Becker’s Hospital CFO Report, Jan. 5, 2018
- Jacqueline LaPointe, “31% of Providers Still Use Manual Claims Denial Management,” RevCycle Intelligence, July 5, 2016
- Chris Wyatt, “Optimizing the Revenue Cycle Requires a Financially Integrated Network,” HFMA, July 7, 2015
- “An ounce of prevention pays off: 90% of denials are preventable,” Advisory Board Research, Dec.11, 2014
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