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Hospital Claims Denial Management

By Karen White; PhD 

Typically, denied and rejected hospital and health systems claims quickly surface as a source of multi-millions in revenue leakage and unnecessary expense.

And, it is the same for medical practice accounting, regardless of size. 

Increasing Costs 

Payers have been struggling with increased costs for the past decade. They thoroughly inspect claims for errors and have become adept at using their rules to deny and delay claims.

For example, Zimmerman reported the denied percentage of gross charges climbed from 4% in 1990 to 11% in 2001, and even more by 2008. In contrast, some hospitals and many more medical providers still typically lack the tools to aggressively manage current denied claims and prevent future ones. 

Denial Tracking 

Without current denial tracking systems, a hospital or healthcare organization may not recognize the heavy financial impact of denied medical claims.  The HARA report indicates that bad debt and gross days are declining.

However, a majority of providers write off denials as contractual allowance, distorting the numbers but not the resulting lower margins and reduced cash flow. 

For example, H*Works reports that the typical 350-bed hospital loses between $4 million and $9 million each year in earned revenue from denials and underpayments (assume $103 million annual gross revenue and 40% contractual allowance).

And, the situation is similarly depressing for private practices. Recouping lost revenue from denials and underpayments will, according to H*Works, increase an organization’s operating margin by 2.6%.

Assessment 

Health industry estimates report that at least 50% of denials are recoverable and 90% are preventable with the appropriate workflow processes, management commitment, strong change leadership, and the correct health information technology.  

H*Works estimates that for a revenue capture of $3 million from denials and underpayments, the recovery infrastructure costs are only about 3%.

Conclusion 

With all this in mind, better management as well as the information necessary to resolve and prevent them, surfaces as probably the best strategy to the improved financial management of any healthcare organization.  

And, streamlining the revenue cycles and managing rejected claims and denials, proves to be less expensive and provides faster returns than initiating any new ancillary healthcare services. Your thoughts and comments are appreciated. 

More info: http://www.springerpub.com/prod.aspx?prod_id=23759 

Institutional: www.HealthcareFinancials.com 

Terms: www.HealthDictionarySeries.com 

Link: http://www.podiatrytoday.com/article/5916   

• Zimmerman & Associates, LLC. Best Practices of Denial Management. Presentation at HFMA Annual Networking Institute (ANI) conference (2004).
• Joann Petaschnick, Sr. Editor. HARA. Aspen Publishers. (Fourth Quarter 2001).
• For further information, see http://www.advisoryboardcompany.com.
• H*Works (The Advisory Board). Capturing Lost Revenues. Washington, D.C. 2001-05.

Filed under: Practice Management | Tagged: Accounting in Medicine |