Part 1: Managing Denials Is Important to Good A/R Hygiene

Too many denied claims to manage? Practicing good revenue cycle management "hygiene" is important - but most don't know where to start.

This article provides a basic overview of the importance of improving your appeals process to get denials overturned as it relates to overall revenue cycle management. This information is not all-inclusive and is for educational purposes only. We recommend formal training in denials and appeals management and encourage medical billing companies and practice managers to gain better insight into accounts receivable (A/R) management through online training and certification.

Revenue cycle management includes tracking claims, making sure payment is received, and following up on denied claims to maximize revenue generation. Several metrics can help you determine whether your revenue management cycle processes are efficient and effective. The first metric is days in accounts receivable (A/R). Days in A/R refers to the average number of days it takes a practice to collect payments due. The lower the number, the faster the practice is obtaining payment, on average.

When a large number of denials are due to a single payer and in a short amount of time, conduct analysis of the situation quickly. Why? This could be an investigation initiated by the payer and may warrant additional assistance to evaluate. You need to know there is a problem and understand the underlying cause before you can resolve it.

According to the American Academy of Family Physicians (AAFP), a 5% to 10% denial rate is the industry average, but keeping the denial rate below 5% is more desirable. Automated processes can help ensure your practice has lower denial rates and healthy cash flow. For most practices, days in A/R should stay below 50 days at minimum; however, 30 to 40 days is preferable and achievable when your revenue cycle team works smart!

Know Your "Days in A/R"

When claims are filed but not paid, days in accounts receivable (A/R) will be higher than your internal historical benchmarks and likely higher than the industry standard for your type of specialty or practice. High days in A/R, or when receivables older than 120 days is greater than 12%, should trigger a signal that improvement is needed – fast! Most of the time improvement in the appeals process is required to avoid writing-off denied claims.

To get the most accurate picture of your practice's financial standing, base your calculations on the actual age of the claim, i.e., the date of service, not the date on which the claim was filed or when it changes hands from one financially responsible party to another (primary insurance to secondary insurance; insurance to patient). This may mean contacting your vendor to adjust settings in your practice management system to create more meaningful A/R management reports.

How often does your Revenue Cycle Manager (RCM) run a credit balance report? Reconciling accounts with credit balances is the first step toward achieving maximum A/R hygiene. Credit balances are often a neglected aspect of the revenue cycle that can have serious negative effects. Credit balances left unattended can very quickly accumulate to a volume that impacts your accounts receivable reporting and may put your facility at risk for violating federal regulations or your insurance contracts. If your accounts receivable (A/R) reports include credit balances, your A/R will appear better than it actually is as the credits will offset balances due.

Next, calculate the practice's average daily charges. Add all of the charges posted for a given period (e.g., 3 months, 6 months, 12 months). Then, subtract all credits received from the total number of charges. Next, divide the total charges, less credits received, by the total number of days in the selected period (e.g., 30 days, 90 days, 120 days, etc.). Next, calculate the days in A/R by dividing the total receivables by the average daily charges.

Review Aging Reports

Calculate A/R greater than 120 days using the oldest "buckets" in your aging report to determine how much and from what payers remains unpaid from the date of service to now. To calculate, divide the dollar amount of accounts receivable that is greater than 120 days by the dollar amount of total current accounts receivable, then multiply by 100.

Monitor Reports for Inappropriate Write-Offs

Are accounts reconciled and overpayments identified and handled properly? After careful review, are there adjustments made to accounts that have no paper trail or explanation posted on the account? Are there mistakes made with auto (or manual) posting of contractual adjustments? When your practice fails to distinguish between noncontractual adjustments and contractual adjustments, results may provide a misleading view of how well your practice collects the money it has earned. It can also be a sign of potential embezzlement. Categorizing noncontractual adjustments (e.g., "untimely claims filing" or "failure to obtain prior authorizations") will help reveal sources of errors and identify opportunities to improve revenue cycle performance.

Managing the issues listed above should come first. Then, move on to calculating and improving your denial rate.

Know Your Claims Denial Rate

The denial rate represents the percentage of claims denied by payers during a given period. This metric quantifies the effectiveness of your revenue cycle management processes. A low denial rate indicates cash flow is healthy and fewer staff members are needed to maintain that cash flow.

A 5% to 10% denial rate is the industry average; keeping the denial rate below 5% is more desirable. Automated processes can help ensure your practice has lower denial rates and healthy cash flow.

To calculate your practice's denial rate, add the total dollar amount of claims denied by payers within a given period and divide by the total dollar amount of claims submitted within the given period.

The lower the denial rate, the fewer revenue cycle workforce members are needed to manage receivables.

Analyze Denials Data

Root cause analysis or RCA may be helpful for your organization to avoid the "band aid" approach and resolve underlying contributing factors, such as inaccurate coding, documentation, and/or billing practices. Revenue Cycle Managers are encouraged to obtain some training in compliance auditing. A good program should include basics in RCA and statistical analysis.

Use the Pareto Principle – the "80/20 Rule" to get organized and maximize revenue!

The 80/20 Rule means that in anything, a few (20 percent) are vital and many (80 percent) are trivial. Project Managers know that 20 percent of the work (the first 10 percent and the last 10 percent) consume 80 percent of your time and resources. You can apply the 80/20 Rule to almost anything, from the science of management to the physical world. The value of the Pareto Principle for a manager is that it reminds you to focus on the 20 percent that matters.

According to the Pareto Principle, of the things achieved during your day, only 20 percent really matter. Those 20 percent produce 80 percent of your results. Identify and focus on those things.


Don't just "work smart," work smart on the right things. It applies to denials management as follows:

The insurance companies you bill most, the top 20 percent of your payers, are likely to contribute 80% of all insurance revenue. Focus on denials of those top 20 percent when starting your push-back appeals management program.


Be persistent, follow through, and don't back down when you know payment from insurance is warranted. Always keep track of problematic areas by payer. Create quarterly reports to analyze the number and type of denials per payer to check for "trends." Meet with your provider relations representative, when possible, to discuss problem areas. Do not be afraid to take the appeal to the highest level allowed. Make your point with the insurance company in a professional manner. Be persistent and never back down when you know you are right.  

Remember: An effective appeals management program, over time, will require fewer resources, because the insurance companies are denying fewer claims. 

Read Part 2 and 3 online here: https://aihc-assn.org/blog/

Learn more about clean claims, prompt pay laws, fighting denials based on medical necessity, appealing ERISA denials, the Medicare appeals process, and how to create an effective denials and appeals program – click here and become an Outpatient Clinical Appeals Specialist. Click Here to see if we have any upcoming classroom training camps!