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Of Healthcare Claims [What it is – How it works]

Dr. David Edward Marcinko MBA

[Editor-in-Chief]

Typically, denied and rejected healthcare claims quickly surface as a source of multi-millions in revenue leakage and unnecessary expense for doctors, clinics and hospitals, etc.

Why?

Payers have been struggling with increased costs.  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 2000 to 11% in 2011.  In contrast, providers typically lack the tools to aggressively manage current denied claims and prevent future ones.

Financial Recognition

Without denial tracking, an organization may not recognize the heavy financial impact of denied claims.

A HARA [Hospital Accounts Receivable Analysis] 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.

H*Works reported 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). Recouping lost revenue from denials and underpayments will, according to H*Works, increase an organization’s operating margin by 2.6%.

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 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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