Enhance Net Revenue by Improving Your Denial Management Program

Payer denials represent one of many revenue cycle challenges where prevention really is the best cure. There is always a cost associated with a claim denial. Whether it is the cost of researching the claim, filing an appeal, coordinating the provider response, or writing-off the claim, the provider experiences an increase in operating expenses, or a reduction in net revenue, or both with each denied claim.  In the aggregate, these costs can be substantial.
HFMA and AAHAM have established a benchmark of d4.00% of gross revenue for denials. Our experience at IMA Consulting indicates that hospital write-offs due to denials usually range from 1.5% to 3.5% of net revenue. How much would that represent for your facility? Regardless of the benchmark used, it is clear that hospitals are losing a significant amount to denials. Assessment findings are conclusive; denial management is usually one of the top 10 opportunities for revenue cycle improvement.
In this edition of IMA Insights, we will outline some recommendations for achieving excellence in denial management processes that will help providers effectively record, report, prevent, and appeal denials to help improve their financial wellbeing.

Although denials from insurers have been affecting the collectability of claims and causing significant losses of revenue for many years, hospitals have not adopted a standardized approach to record, report, prevent, and appeal them. Perhaps this is because there is not a dominant industry leader in the denials software arena that could have helped establish a denials "best practice" methodology. Perhaps it is because until HIPAA, there were no standardized denial codes. This made it more difficult for providers to design a comprehensive denial management system without maintaining separate denial code translation tables for each payer. 

Many providers have taken a reactive approach to denials management, focusing more on the appeals process. Some have used their ingenuity to develop homegrown solutions that are more proactive in nature. Almost all have much to gain by improving their denial management process.

Hospitals have developed denial management processes that attempt to use the best of the tools available to them to address their needs. For most, this includes using data from the patient accounting system, EDI system, case management system, decision support system, and homegrown databases and spreadsheets. We see few clients that have purchased formal denial management systems, although there are such systems available. In addition, providers have many different organizational approaches to identifying, preventing, and appealing denials. As noted, there is no standard methodology or best practice commonly employed by the hospital industry to deal with denials, with the possible exception of the appeals requirements of common payers.
Payers have an obvious incentive to deny or delay payment, if they are able to do so while complying with any prompt payment statutes. The more claims that are denied, the more difficult it becomes for a facility to effectively manage its denials, and the more likely it is that a payer will pay less than might otherwise be the case.
The primary responsibility for denial management may be assigned to Patient Accounting, Patient Access, Case Management, Denial Management (if this department exists), Revenue Integrity (if this department exists), Health Information Management (HIM), or a vendor (if applicable). Staffing in these departments is often limited, making it more difficult to accomplish the tasks necessary to manage denials. Primary responsibility notwithstanding, a multidisciplinary approach is required for best results.

While there may be as many different iterations of denial management processes as there are hospitals, there are characteristics that we believe can improve the effectiveness of any denial management process. Few hospitals have all the characteristics recommended below, but striving to implement these ideas will serve to enhance the processes already in place.

Recording Denials

Reporting Denials

Preventing Denials

Appealing Denials

Implementing these recommendations will help to achieve the ultimate goal of minimizing denials and the associated write-offs. A gap analysis comparing current processes to those discussed above will provide some indication of the extent to which your denial management program can be improved. If you are now identifying and tracking preventable denials, you will already have some idea of the amount of net revenue that can be saved through process improvement efforts. At a time when self-pay obligations are rising and margins are shrinking, the hospital industry can hardly afford to overlook an obvious source of increased net revenue.
We are pleased to have the opportunity to present this information to you. If you have any questions or need assistance in improving your denial management program, please contact Kim Hollingsworth, Partner, Rick Power, Senior Consulting Manager, or John Thompson, Senior Consulting Manager, at (866) 840-0151.
Truly yours,

Chris Karman
IMA Consulting