How to Prevent the Top Denials in Medical Billing

In this post I’m going to talk about the top denials in medical billing and answer the following questions:

• Why are claims denied?
• What is the cost of a denied claim?
• And what can be done to reduce your claim denial rate?

Keep reading to find out the answers to these questions and more.

What is a medical billing claim?

During the medical billing process, a claim is what the practice submits to CMS or other third-party payer in order to receive payment for their services.

Each claim includes patient data, procedure codes, and other information that the payer will review for purposes of paying a covered benefit. If everything is accurate, they reimburse the practice for the contracted amount.

But sometimes claims are denied.

Why are claims denied?

Medical billing claims can be denied for many different reasons.

Omitted data, duplicate information, ineligibility, insufficient documentation, and missed deadlines are just a few examples.

The root causes for any one of these denial reasons span across the entire revenue cycle. But the majority stem from mistakes made at front-end processes.

When a claim is denied, it becomes the responsibility of the practice’s billing department to rework the claim and file an appeal.

These appeals can be a significant revenue drain for the practice.

What is the cost of a denied claim?

Denied claims can be expensive to rework.

When Change Healthcare looked at hospital data in 2016, they reported that an estimated 9% of charges are initially denied. They found that 63% of denied claims were recoverable on average, but each appeal cost the hospital roughly $118 per claim. The total administrative expenses associated with reworking claims cost providers in this study $8.6 billion nationally.

While these big hospital numbers may not be a perfect comparison for the independent healthcare providers that I work with, the key takeaway is the same.

Denied claims erode provider’s bottom line.

Every additional hour spent following up with insurance companies on the phone, or digging through patient records to find missing information, is extra expense that chips away at your claim revenue.

So does this mean that you should ignore insurance claim denials?

Absolutely not!

Check out the denied claims calculator from the American Academy of Professional Coders. Their tool clearly demonstrates that it’s good business to focus on reworking denied claims.

Would you rather recoup your payment with some expense? Or receive no reimbursement at all?

Reworking denied claims is worth the time and effort.

Top denials in medical billing

Wouldn’t it be nice if we didn’t have denied claims to rework in the first place?

Well, consider this: Most denials are completely preventable. By some estimates as many as 90%.

Here are some of the top denials in medical billing:

Ineligibility

Roughly one in five claim denials are due to ineligibility. This often happens when a patient’s insurance coverage changes.

Missing information

Nearly 15% of denials are the result of missing or invalid claim data. Examples include things like missing birth date, social security number, or coding modifier if needed.

Service not covered

Approximately 10% of denials occur because the service was not covered by the patient’s insurance.

Duplicate claims

According to healthcare business consultant Reed Tinsley, “A duplicate denial indicates more than one claim was submitted for the same service, for the same patient, for the same date of service by the same provider. In most instances, the claim was already processed and paid or it is an exact duplicate of a previously submitted claim.”

Untimely filing

Every insurance contract has rules that govern how soon claims must be filed after the procedure is performed. They range from 90 days to one year in most cases. Claims are typically denied without the ability to appeal if you file after the deadline.

How to reduce your claim denial rate

Every time a claim is denied, the practice’s bottom line takes a hit.

The good news is that there are some practical steps your team can take to reduce their frequency.

Here are a few steps that you can take to reduce your denial rate and increase the cash flow into your practice.

Calculate your denial rate and set goals for your team

The denial rate is a key performance metric used in revenue cycle management.

It represents the percentage of claims denied by payers for a given period of time.

If you can’t get this data directly from the insurance companies or your practice management system, ask your billing team to document each claim and categorize the reasons for those that get denied.

To calculate your denial rate, total the dollar amount of claims denied by payers within a given time period and then divide by the total dollar amount of claims submitted within the same time period.

Here’s a sample calculation from the American Academy of Family Physicians:

• Time period = Last 3 months
• Total claims denied = $10,000
• Total claims submitted = $100,000
• Denial rate for the quarter = 10,000/100,000 = 10%

Most medical practices have a denial rate between 5-10%.

Once you start tracking your denial rate on a regular basis, you can start to set goals.

Set up a scoreboard to measure progress and set incremental milestones each month. Keep your team focused and motivated on achieving realistic targets. Then don’t forget to celebrate when you accomplish them.

Effective procedures for the front desk

Errors in front-end processes are responsible for nearly 50% of all denied claims. These mistakes happen most often during patient scheduling and registration.

To reiterate – these errors are 100% preventable. This is the low-hanging fruit that you should focus on addressing before anything else.

If a practice can clean up some of the mistakes that are made at the front desk, they can go a long way towards significantly reducing their costs fighting appeals for denied claims and increase their cash flow.

This is a list of tasks that your front desk team should do at every patient visit:

• Make a copy of the patient’s insurance card
• Examine a copy of the patient’s photo identification
• Review any account balance amounts to be collected
• Verify the patient’s contact information (address, cell phone, and email address)
• Present a Financial Policy to the patient
• Verify insurance eligibility
• Estimate the patient’s financial responsibilities and have an agreed-upon Financial Arrangement signed if necessary
• Collect all copays and coinsurance amounts
• Post all payments received  

If you audited your front desk today, would you be able to check off everything on that list?

Your patient’s demographic and insurance coverage can change at any time. Therefore, the front desk should not rely on accurate information from the last visit.

Verifying the patient’s contact information, determining insurance eligibility, and getting authorization for the procedure up front will help reduce claim denials tremendously.

But even if you train and educate your staff on what to do, you still can’t prevent honest mistakes. 

That’s where technology can help.

Leverage technology to automate processes

Every year, businesses are pressured to do more with less. Healthcare is no exception.

Successful private practices are open to investing in technology that helps them administer their practice more efficiently. For those who are serious about managing their cash flow, revenue cycle management (RCM) software can play a big role in improving the billing process by automating workflows and finding errors before claims get submitted.

Some RCM tools will integrate with your existing practice management software to help automate the patient registration process and reduce the probability of human error.

Automating rote tasks also helps your billing team be more proactive. Instead of researching changes to CPT codes or verifying patient information, automation frees them to focus more of their time and energy on making long-term quality improvements. 

Here’s a great case study from an Experian Health article:

“Boys Town National Research Hospital used new technology to improve communication between front and back office teams, automating up to 80% of the pre-registration workflow. More accounts could be cleared upfront, so staff could focus on claims that were more likely to cause issues. After just one year of using the automated software, all manual work was eliminated and eligibility denials dropped 20%.”

There’s a lot of due diligence required when investing in software solutions that affect the everyday operations of your practice. Especially one that affects your billing operations.

That said, I still believe that investing in the right practice management system, or additional RCM tool, is a key ingredient to a successful billing strategy.

Conclusion

Now I’d like to hear from you.

Do you know the insurance claim denial rate for your practice?

Is your medical billing team successfully reducing the frequency of your top denials?

Let me know how we can help in the comments below.