Understanding Hospital Denial Management

Posted on November 15, 2010 by Dr. David Edward Marcinko MBA MEd CMP™

An Essay on Rejected Medical Claims and Invoices

By Ross Fidler

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

Struggling Payers

Payers have been struggling for decades with increased hospital costs; and the Affordable Care Act of 2010 [ACA] will only increase the stress. Hospitals now 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; even more by unaudited 2010. In contrast, providers typically lack the tools to aggressively manage current denied claims and prevent future ones.

Denial Tracking

Without denial tracking, an organization may not recognize the heavy financial impact of denied claims. One report www.HARA.com indicates that bad debt and gross days are declining. However, a majority of medical providers write off denials as contractual allowance, distorting the numbers but not the resulting lower margins and reduced cash. 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), thru 2009. Recouping lost revenue from denials and underpayments will, according to H*Works, increase an organization’s operating margin by 2.6% www.advisoryboardcompany.com

Industry Benchmarks

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

Assessment

With all this in mind, better management of rejections and denials, as well as the information necessary to resolve and prevent them, surfaces as probably the best strategy to improving hospital financials. By streamlining the revenue cycle, managing rejections and denials proves to be less expensive and to provide faster returns than initiating new services.

Conclusion

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3 Responses

  1. Dr. Williamsohn, on December 26, 2010 at 5:06 PM said:

    Aetna – I’m not Glad I met Ya

    Aetna (NYSE: AET) is dropping the Albany Medical Center from its network because the trauma hospital is asking for a 100 percent increase in physician care rates and more than double the rates of the average hospital care in the region.

    “It really comes down to cost of care and what we are trying to do for our customers and members in the Albany market (and that is) keeping healthcare affordable,” Aetna’s Network Vice President Dan DeLucia told the Albany Times Union. ”

    http://www.timesunion.com/default/article/Exclusive-Aetna-to-cut-Albany-Med-over-rates-902579.php

    Interesting use of the word “customer’; not patient or human being!

    Dr. Williamsohn

    Like

  2. Nancy, on June 2, 2012 at 5:02 PM said:

    More on medical claims denial management

    http://healthcareisbusiness.blogspot.com/search/label/reimbursement

    Nancy

    Like

  3. Ann Miller RN MHA, on July 6, 2012 at 5:54 PM said:

    Insurers Are Paying Claims Faster But Are Denying More

    Health insurers are paying claims more quickly and accurately than they did a year ago, according to the American Medical Association’s annual Health Insurer Report Card. But insurers also are increasingly requiring prior authorization and are denying more claims than they did a year ago, according to the report, which was released June 18.

    All eight of the large health plan operators profiled in the report improved their first electronic remittance advice (ERA) accuracy over the past year, according to the AMA. The change could be tied to the Jan. 1st, 2012 deadline to comply with updated HIPAA 5010 electronic transaction standards. Between 2011 and 2012, Anthem/WellPoint, Inc.’s accuracy percentage climbed from 61.05% to 88.59%.

    Source: Steve Davis, Health Plan Week [6/25/12]

    Like

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