With the impact arriving weeks or sometimes months later, many healthcare organizations view denials as a downstream billing problem. And with the additional work each denial requires — review, research, appeals, and follow-up — it’s understandable that they’re often left for later.
Yet, every denial delays reimbursement and, in some cases, results in lost revenue. Over time, those effects can directly influence financial performance and an organization’s ability to invest in patient care. Rather than relying on the back office to resolve denials after they occur, some of the greatest opportunities for improvement stem from a proactive approach. Understanding why denials occur, addressing root causes, and establishing processes to prevent recurrence can deliver meaningful operational and financial benefits.
A revenue cycle triple threat
Left unaddressed, denials can create challenges throughout the revenue cycle. They:
- Reduce revenue. On average, healthcare organizations lose between 1–5% of net patient revenue to denials. For a $500 million organization, improving the final denial write-off rate by just 0.5% would generate $2.5 million in new revenue capture per year.
- Delay cash collections. Initial denials have risen to an alarming 7–15% of claims, though denial rates vary widely by insurer and state.
- Increase billing effort. Your organization is likely paying at least $25–65 to resolve and rebill each denied claim. If payers are kicking back about one of every six claims, those costs can add up quickly. For example, an organization with 500,000 claims per year can reduce costs by $0.75 million by reducing its initial denial rate from 12% to 7%.
Plug revenue cycle leaks
An effective denials management strategy requires the right combination of people, processes, and technology. Organizations that approach denials through both prevention and resolution can improve reimbursement outcomes while gaining insights that help strengthen revenue cycle performance over time.
Prevention
An ounce of prevention is worth a pound of cure. Consider investing in process improvement to better understand the causes of denials rather than waiting to resolve them at the back end. Preventable errors commonly originate at the front end of the revenue cycle, including registration, authorization, medical necessity, eligibility, and benefits verification.
Authorization denials are among the most complex and time-consuming denials to resolve, making them a rich target for prevention efforts. The following are some practical tips for how to prevent authorization denials:
- Organize teams based on service type and payer. Since each payer has a different authorization requirement for each service type, create specialized “authorization units” to help front-end team members become more accustomed to payer-specific rules. Such collaboration will help increase accuracy and productivity, as well as strengthen relationships between departments and with the payers.
- Use data to actively monitor scheduled accounts. Rely on reports to identify accounts with missing authorizations. Additionally, create a clear communication policy with departments to get authorizations for add-on services.
- Optimize technology to reflect authorization status on patient accounts. Create stop-bill edits based on authorization status assigned to accounts to review information before sending a claim to the payer.
Timely filing denials can result in a significant revenue hit due to unclear processes for following up with payers after denials, leading to missed deadlines. A few suggestions for preventing timely filing denials include:
- Analyze discharged not final coded (DNFC) and discharged not final billed (DNFB) claims. Identify risk areas that may lead to missing appeals deadlines.
- Establish clear timelines. Set expectations for the number of days within which departments should provide the billing office with additional information requested by payers.
- Create feedback mechanisms. Enable billing staff to provide performance feedback to departments regarding information sharing and use technology to set follow-up reminders.
- Prioritize high-risk accounts. Optimize work queues and incorporate timely filing rules to allow staff and managers to review and prioritize accounts.
- Track filing deadlines. Provide documentation to the clinical denials appeals team to monitor timely filing limits.
Forming a denials management committee can be an effective way to prevent denials beyond individual process improvements. With a dedicated team in place to identify trends, monitor performance, and support ongoing prevention efforts, organizations can create effective feedback loops and drive accountability across the revenue cycle. It can also help organizations:
- Analyze denial trends. Review denials regularly to identify recurring issues and emerging areas of concern.
- Conduct root-cause analysis. Create root-cause worksheets for department leaders, such as patient access, coding, and patient financial services, to better understand the factors contributing to denials.
- Facilitate collaborative discussions. Bring together stakeholders to discuss denial trends, share findings, and identify prevention opportunities.
- Implement and monitor solutions. Assign ownership for corrective actions and track progress toward reducing recurring denials.
- Review findings regularly. Discuss trends, results, and prevention strategies on an ongoing basis to support continuous improvement.
Resolution
Persistent margin pressure makes the efficient identification and resolution of denials critical. As payer requirements continue to evolve, particularly around prior authorization, medical necessity, and coding specificity, zero-balance account reviews have become an essential control point to validate reimbursement accuracy and recover revenue for services rendered.
Additionally, many organizations struggle with inefficient processes that can have a substantial financial impact. Providing an analytics-enabled method of sorting work queues can help you focus resources on the highest-risk, highest-dollar accounts. Database and data visualization tools can organize denials by payer, rationale, account balance, and timely filing.
Armed with information about your organization’s denial trends, schedule regular meetings with payers to discuss recurring issues and opportunities for resolution. A few best practices include:
- Define objectives prior to the meeting. Provide the payer with a problem statement and agenda ahead of the meeting, and a summary table of denied dollars and account volume.
- Bring evidence. Come prepared to show examples, supporting documentation (including contract terms), and a listing of denied accounts.
- Establish a clear path to resolution. Set expectations with payer representatives regarding a resolution timeline.
- Maintain momentum between meetings. Before concluding each meeting, make sure any follow-up meetings are on the payer representative’s calendar. Begin each meeting by revisiting open items and sharing denial trends on previously discussed issues.
Using data analytics to dig down to root causes
Even the strongest denials management strategy depends on visibility into what’s working and what isn’t. After prevention and resolution efforts have been established, data analytics tools and skills remain essential for identifying trends, measuring performance, and uncovering the root causes behind denied claims. Measuring and tracking the leading indicators to the final denial write-off rate should include:
- Days in DNFC/DNFB status
- Initial denial rate
- 835 denial rate
While these metrics are important to monitor, they don’t always provide enough information to understand the reasons for denials. Consider redeploying revenue cycle staff to strategic projects to identify and address the issues that cause denied claims. Experienced employees with institutional knowledge and deep relationships are a powerful asset for uncovering the underlying causes of underperformance and denied claims.
Effective denials management is an ongoing effort
Preventing and resolving denials requires more than a one-time initiative. Organizations that invest in the people, processes, and oversight needed to identify recurring issues can reduce revenue leakage and strengthen revenue cycle performance over time. The organizations that see the greatest results are often those that treat denials not as isolated events, but as indicators of broader opportunities for improvement. When looking ahead, consider an advisor with the expertise to help you navigate the complexities of payer denials and develop a strategy focused on prevention, resolution, and automation.
