Comprehensive Guide to Resolving Claims Denials in Healthcare


Healthcare organizations continue to face significant financial challenges due to wage inflation, rising costs, decreased patient volumes, and lingering uncertainties from the pandemic. A major contributor to these challenges is unresolved claims denials, which can represent an average annual loss of $5 million for hospitals, equating to up to 5 percent of net patient revenue.

In recent years, the denial rates for hospitals have surged by more than 20 percent, with the average claims denial rates reaching 10 percent or higher. On the practice side, a survey conducted by the Medical Group Management Association (MGMA) in 2021 reported an average increase in denials of 17 percent. Nearly 20 percent of all claims are denied, and up to 60 percent of these are never resubmitted, leading to substantial financial losses. Additionally, the cost to rework or appeal denials averages $25 per claim for practices and $181 per claim for hospitals.

However, the good news is that many denied claims can be recovered. Success in this area requires a strategic approach that ensures alignment with payer requirements.

Identifying the Problem

To mitigate the financial impact of denied claims, the best strategy is to prevent them from occurring. Understanding the common reasons for denials is crucial. According to the MGMA, the most common reasons include:

  1. Prior Authorization: Failure to obtain prior authorization before performing a service.
  2. Missing or Incorrect Information: Errors such as blank fields, incorrect plan codes, or missing modifiers.
  3. Medical Necessity Requirements: Services deemed medically unnecessary by the payer.
  4. Procedure Not Covered: Services not covered under the patient’s plan.
  5. Provider Out of Network: Services performed by an out-of-network provider.
  6. Duplicate Claims: Multiple claims for the same service on the same day.
  7. Coordination of Benefits: Issues with patients covered by multiple health plans.
  8. Bundling: Grouping services together and paying a single, smaller fee.
  9. Services Already Included: Payment adjustments for services already included in another service or procedure.
  10. Exceeded Timely Filing Limit: Claims filed outside the payer’s required timeframe.

Understanding denial codes can also help in resolving claims. Denial codes fall into four categories: contractual obligations (CO), other adjustments (OA), payer-initiated reductions (PI), and patient responsibility (PR). For example, CO-4 indicates a modifier issue, while PI-204 denotes a service not covered under the patient’s current benefit plan.

Denial Management and Prevention

The goal of any submitted claim is payment receipt. To achieve this, sending out clean claims the first time is essential. This requires meticulous attention to detail, well-trained staff, and robust operating procedures. Despite these measures, denials still occur, and the goal then becomes correcting errors, securing payment, and preventing future mistakes.

Denials should prompt corrective actions to reduce recurrence and improve detection of failure modes. This involves assigning responsibilities for corrective actions, reassessing severity and probability of occurrence, and evaluating the effectiveness of resolutions.

Adopting a zero-tolerance mindset for preventable denials, which are often within an organization’s control, is vital. Implementing an adequate audit system to verify claims before submission can avoid many common errors.

Effective Denials Management Practices

Knowledge is power in managing denials. Implementing best practices can help stay organized and informed on root causes and impacts:

  1. Know the Stats: Understanding initial denial rates and claims rates to identify improvement opportunities.
  2. Keep the Process Organized: Using HIPAA-accredited tools to track submitted claims and manage denials.
  3. Identify Trends: Using data analytics to track and address denial trends.
  4. Act Quickly: Correcting denials within a week through established workflows.
  5. Establish a Team: Leveraging expertise across departments to implement solutions and track developments.
  6. Collaborate with Payers: Working with payers to address denial issues efficiently.
  7. Quality Over Quantity: Focusing on resolving addressed claims to improve claim quality.
  8. Track Progress: Monitoring progress to identify areas for improvement.
  9. Conduct Performance Audits: Regular audits to ensure processes are effective.
  10. Verify Patient Information: Using patient portals to update and verify patient information.
  11. Learn from Rejections: Analyzing rejection trends to prevent future issues.
  12. Meet Deadlines: Adhering to insurance company deadlines for claim submissions.
  13. Know the Clearinghouse: Maintaining a solid relationship with the clearinghouse for process improvements.
  14. Understand Claim Formats: Using standardized formats like ANSI837 for efficiency.
  15. Conduct Regular Follow-ups: Tracking and resubmitting corrected claims on schedule.
  16. Follow a Decision Tree Approach: Using decision trees to train staff and address denials effectively.

Technology Solutions

Technology plays a crucial role in combating denials. Claim editor or “claim scrubber” software processes claims from the payer perspective, identifying issues such as medical necessity and coding errors. Medical claim scrubbers match ICD-10 diagnosis codes with appropriate CPT/HCPCS codes, ensuring compliance with coding guidelines.

Mitigating Losses

While eliminating denials entirely may be unrealistic, a strategic approach based on best practices and supported by technology can significantly reduce their financial impact. Continuous monitoring and improvement of the denial management process are essential to protect healthcare organizations’ revenues and stabilize their bottom lines.

Leveraging PracticePath Solutions

PracticePath offers a suite of solutions that can significantly enhance the management of claims denials through process automation, business intelligence, process intelligence, and actionable data analytics:

  1. Process Automation: Automating repetitive and manual tasks in the claims process ensures accuracy and efficiency. By utilizing robotic process automation (RPA), PracticePath helps streamline claims submissions, reduce human errors, and accelerate resolution times.
  2. Business Intelligence: PracticePath’s business intelligence tools provide comprehensive insights into the claims process. By leveraging real-time data, healthcare organizations can monitor key performance indicators (KPIs), identify trends, and make informed decisions to reduce denial rates.
  3. Process Intelligence: Through advanced process intelligence, PracticePath enables healthcare organizations to map out their entire claims process, pinpoint bottlenecks, and optimize workflows. This holistic view helps in understanding the root causes of denials and implementing targeted improvements.
  4. Actionable Data Analytics: PracticePath’s data analytics solutions transform raw data into actionable insights. By analyzing denial patterns and payer behaviors, organizations can develop strategies to prevent future denials, improve compliance, and enhance overall revenue cycle performance.

By implementing these strategies and leveraging PracticePath’s solutions, healthcare organizations can effectively manage claims denials, recover lost revenue, and improve overall financial health.