Denials Management: Challenges and Strategies for Health Systems

What is Denials Management and How Serious is The Problem for Health Systems Billing?

You’ve heard of denials management, right? It’s all about checking out why insurance companies are saying “nope” to reimbursing clinical or administrative costs. Then, it’s about fixing any issues and resubmitting those claims to make sure healthcare providers get paid fairly for the work they’ve done.

Take a look at this: an industry survey on claim denials found out that only 14% of all insurance claims are truly unavoidable. That leaves a whopping 86% that could be avoided just by sorting out the billing and paperwork. So, imagine if hospitals could dodge just 10% of those avoidable claim denials each year. We’re talking about a cool $129 billion saved collectively. Yeah, billion with a “b”!

Let’s discuss the types of denials, main reasons and challenges behind them, and top proven strategies to deal with denials management.

Types of claim denials

Every type of denial results in health systems losing money, but depending on the nature of the denial, they can be categorized into two main groups and sub-groups:

  • Soft denials: Most of the denials by insurers fall under this category. These denials are a result of improper health system billing and documentation processes. Soft denials can be resubmitted with required details for reconsideration.
  • Administrative denials: These are soft denials arising out of reasons other than medical necessity. Administrative denials usually happen when the provider does not register the patient or obtain prior authorization before providing a service.
  • Hard denials: Hard denials are often irreversible in nature and can result in bad debts and lost revenue.
  • Clinical denials: Clinical denial are cases where the insurers deny claims based on factors like medical necessity, care level, and duration of stay. These denials start off as soft denials that can be reversed if sufficient supporting documents are provided.
  • Preventable denials: These are hard denials that usually happen because the provider has billed for medical services that could have been deferred or avoided. Almost 86% of all denials are preventable or avoidable denials arising out of inconsistencies in patient registration, use of incorrect codes, credentialing and insurance ineligibility.

Main reasons for claim denials at hospitals

An industry survey of claim denials by insurers has highlighted that the average denial rate varies from 5% to 10% for hospitals, with an astounding 65% of the avoidable denials never being submitted again for reconsideration.

Denial of claims by insurance companies happens because of a variety of reasons ranging from improper documentation and irregularities in registration to prior authorization.

Let’s look at the most common reasons for reimbursement denials of medical services by insurance companies:

  • Inconsistencies in documentation
  • Duplication or delayed submission
  • Incorrect ICD-10 or CPT codes
  • Prior authorization
  • Out-of-network services

Top denials management challenges faced by health systems

Multiple operational challenges result in inefficiencies that can add to the number of claim denials at the end of the month. Let’s look at the top challenges that increase claim denials:

  • Lack of experienced and certified billing and coding staff
  • Lack of automation tools to reduce manual errors
  • Lack of operational efficiency improving processes

Effective denials management strategies for health systems

Following are some denials management strategies for health systems that have been proven effective over the years:

  • Preemptive patient registration before appointments
  • Documentation audit to ensure accuracy of details
  • Rescheduling appointments if the patient requires referral or hasn’t shared required details
  • Get patients to sign an affidavit accepting financial obligation in case of insurance non-coverage
  • Outsource hospital or health systems’ denials management services

Denials management, if done properly, can help maximize revenues at health systems. If revenue can be optimized enough by managing or reducing denials, the pressure on health systems’ bottom line can be substantially reduced, resulting in a marked improvement in the efficiency of health systems billing.